adjustable-rate mortgage (ARM)
A mortgage with an interest rate that changes periodically based on the changes in a specified index. Common indices include:

• Treasury Index - Adjustments are based on the average interest rate that the government pays on its debt.
• CD Index (certificate of deposit) - Adjusts to certificate of deposit index.
• LIBOR (London interbank offer rate) - The rate on the dollar-denominated deposits, also known as Eurodollars, traded between banks in London.
• COSI (cost of savings index) - The cost of savings is indexed to the average interest rate that banks in particular states pay their customers. One of the most common indexes is the 11th district cost of savings index, which covers banks in California, Nevada, and Arizona.
• TCM - This index is the average of the twelve most recently published monthly yields on United States Treasury securities, adjusted to a constant maturity of one-year ("Index" or "Average One-Year Treasury Constant Maturity").

assumption clause
A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.

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Balloon Mortgage
A short-term mortgage loan of equal monthly payments in which a large final payment (balloon) is due on a specified date. The final payment is equal to the remaining balance of the loan plus any accrued interest.

bridge loan
A form of second trust which is collateralized by the borrower's present home in a manner that allows the proceeds to be used for closing on a new house before the present home is sold.

buydown mortgage
A temporary buydown is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower's monthly payments during the first few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage.

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capital improvement
Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

cash-out refinance
A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refinance transaction in which the borrower receives additional cash which may be used for any purpose.

Certificate of Eligibility
A document issued by the federal government certifying a veteran's eligibility for a Department of Veterans Affairs (VA) mortgage.

Certificate of Reasonable Value (CRV)
A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

closing
The closing is a meeting between the homebuyer and the seller in which mortgage documents are signed and title to the property passes from the seller to the buyer. At the same time, the homebuyer receives the funds from the lender which are needed to purchase the property and pledges the property as security for the repayment of the debt.

closing cost item
A fee or amount that a home buyer must pay at closing for a single service, tax, or product. All closing cost items are included as numbered items on the HUD-1 statement. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow, and charges for obtaining title insurance and a survey. Closing costs may vary according from one jurisdiction to another.

collateral
An asset (such as a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

combined loan-to-value (CLTV)
The relationship between the unpaid principal balances of all the mortgages on a property (first and second usually) and the lower of the property's appraised value or sales price.

co-borrower
A person who signs a promissory note along with the borrower. Co-borrowers and borrowers are equally responsible for the repayment of the loan.

commitment letter
The formal statement by Signature Mortgage stating the terms under which we agree to lend money to a borrower. Also known as a "loan approval."

common areas
Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project's homeowners association (or a cooperative project's cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

Community Home Buyer's Program
An income-based community lending model under which Fannie Mae and Freddie Mac offer flexible underwriting guidelines to increase a low- or moderate-income family's buying power, and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase homebuyer education sessions.

comps or comparables
An abbreviation for "comparable properties"; used for comparative purposes in the appraisal process. Comps are properties similar to the property under consideration and recently sold; they have reasonably the same size, location, and amenities. Comps help the appraiser determine the approximate fair market value of the subject property.

condominium
A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.

condominium conversion
Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

conforming loan
A loan which conforms to Fannie Mae or Freddie Mac standards. The maximum conforming loan amount for the Washington metro area is $417,000.

construction loan
A short-term loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

conventional mortgage
A mortgage which is not insured or guaranteed by the federal government.

convertibility clause
A provision in some adjustable-rate mortgages (ARMS) that allows the borrower to change the ARM to a fixed-rate mortgage at specified timeframes during the life of the loan.

convertible ARM
An adjustable-rate mortgage (ARM) that can be converted to a fixed-rate mortgage under specified conditions.

cooperative (co-op)
A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

cost of savings index (COSI)
An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.

credit report
A report of an individual's credit history prepared by a credit bureau or credit reporting agency and used by a lender in determining a loan applicant's creditworthiness.

credit score
A credit score is a numerical analysis of a borrowers ability to manage their credit accounts. Higher credit scores reduce the statistical risk of default by a potential borrower.

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Debt-to-income ratios
Probably should be termed expense-to-income ratios. Two ratios used by lenders to help determine a borrower's ability to make proposed mortgage payments. The "front" ratio or housing ratio is the total monthly housing expense divided by the gross monthly income. The "back" ratio or total debt ratio is the housing expense plus all other existing monthly debt obligations divided by the gross monthly income.

deed
The legal document conveying title to a property.

deed-in-lieu
A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure.

deed of trust
The document used in some states instead of a mortgage; title is conveyed to a trustee.

default
Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

delinquency
Failure to make mortgage payments when mortgage payments are due.

depreciation
A decline in the value of property; the opposite of appreciation.

discount points
Each point represents 1% of the buyer's loan amount. Discount points are a form of pre-paid interest and are in many cases tax deductible. The more a buyer prepays in discount points, the lower the interest rate will be.

down payment
The difference between the purchase price of a property and the total amount financed.

due-on-sale provision
A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.

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earnest money deposit (EMD)
A deposit made by the potential home buyer to show that he or she is serious about buying the house.

easement
A right of way giving persons other than the owner access to or over a property.

effective age
An appraiser's estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

encumbrance
Anything that affects or limits the fee simple title to a property, such as mortgages, leases, easements, or restrictions.

Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

equity
A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage or mortgages.

escrow
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

escrow account
The account in which a mortgage servicer holds the borrower's escrow payments prior to paying property taxes and insurance.

escrow analysis
The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.

escrow collections
Funds collected by the servicer and set aside in an escrow account to pay the borrower's property taxes, mortgage insurance, and hazard insurance.

escrow disbursements
The use of escrow funds to pay real estate taxes, hazard insurance, mortgage, insurance, and other property expenses as they become due.

escrow payment
The portion of a mortgagor's monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Known as "impounds" or "reserves" in some states.

eviction
The lawful expulsion of an occupant from real property.

examination of title
The report on the title of a property from the public records or an abstract of the title.

extended lock
An extended lock allows a borrower to lock their interest in rate for a period longer than the standard 60 days. This service is usually available for an additional cost. Consult your Signature Mortgage loan officer for details.

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Fair Credit Reporting Act
A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.

fair market value
The highest price that a buyer, willing but not compelled to buy, would pay, and the lowest a seller, willing but not compelled to sell, would accept.

Fannie Mae (FNMA)
A congressionally chartered, publicly traded company that provides homeownership opportunities through loan programs established for low-, moderate-, and middle income Americans.

Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

FHA mortgage
A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage. FHA loan limits vary by geographic area.

first adjustment
When you can expect the first rate adjustment in your ARM loan.

first mortgage
A mortgage placed in the first lien position against a property.

fixed-rate mortgage
A mortgage in which the interest rate does not change during the entire term of the loan.

flood insurance
Flood insurance that compensates for physical property damage resulting from flooding. Properties located in federally designated flood areas require flood insurance.

foreclosure
The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

Freddie Mae (FHLMC)
A congressionally chartered, publicly traded company that provides homeownership opportunities through loan programs established for low-, moderate-, and middle income Americans.

fully amortized ARM
An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

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gross monthly income
Sum of all monthly income from all sources prior to taxes and other deductions.

good faith estimate
An estimate of charges which a borrower is likely to incur in connection with a real estate or mortgage transaction.

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hazard insurance
Also known as homeowners insurance, protects against loss to real estate caused by fire, certain natural causes, vandalism, etc.

home equity line of credit
a credit line that is secured by a deed of trust on a home. Equity lines of credit are revolving accounts which work like a credit card, and which can be paid down or drawn against for the term of the loan. The minimum payment due each month is the interest which has accrued on the outstanding balance for that monthly period.

housing ratio
The ratio of the monthly housing payment in total (PITI - Principal, Interest, Taxes, and Insurance) divided by the gross monthly income. This ratio is sometimes referred to as the "front ratio".

HUD
The U.S. Department of Housing and Urban Development.

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jumbo mortgage
Loans above $417,000 are considered non-conforming or jumbo mortgages. Jumbo loans are not eligible for sale and delivery to either Fannie Mae (FNMA) or Freddie Mac (FHLMC). Jumbo loans usually carry an interest rate higher than the conforming loans.

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lien
An encumbrance against property for money due, either voluntary or involuntary.

lender
The bank, mortgage company, or mortgage broker offering the loan.

lifetime cap
A provision of an ARM that limits the highest rate that can occur over the life of the loan.

loan to value (LTV)
The relationship between the loan balance and the value of the property expressed as a percentage.

lock-in
A written or verbal agreement guaranteeing the home buyer a specified interest rate for a specific property within the lock period. The lock-in or lock also specifies the number of points to be paid at closing.

lock period
The specific number of days that a lender will guarantee an interest rate to a consumer for a loan yet to be closed.

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margin
The number of percentage points a lender adds to the index value to calculate the ARM interest rate at each adjustment period. A typical margin would be 2.250%.

mortgage
A legal document that pledges a property to the lender as security for payment of a debt.

mortgagee
The person or company who receives the mortgage as a pledge for repayment of the loan. The mortgage lender.

mortgagor
The mortgage borrower who gives the mortgage as a pledge to repay.

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no income verification
Please see "stated income".

non-conforming loan
Loans which do not conform to the Fannie Mae or Freddie Mac underwriting standards. Sometimes referred to as Jumbo loans.

note
The document outlining the interest rate and repayment terms of the lenders loan and the promise of the borrower(s) to repay the loan.

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origination fee
A fee which maybe charged for services provided in association with the origination of a mortgage loan. The fee is usually stated as a percentage and is typically no more than 1% of the loan amount.

owner financing
A property purchase transaction in which the property seller provides all or part of the financing.

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periodic cap
The maximum rate increase for a specific period for a specific loan (ARM) only.

PITI
Principal, interest, taxes, and insurance--the components of a monthly mortgage payment.

Planned Unit Developments (PUD)
A subdivision of five or more individually owned lots with one or more other parcels owned in common or with reciprocal rights in one or more other parcels.

points
Charges levied by the mortgage lender and usually payable at closing. One point represents 1% of the face value of the mortgage loan. Points are considered tax deductible pre-paid interest by the IRS. See origination fee and discount points.

prepayment penalty
A charge imposed by a mortgage lender on a borrower who wants to pay off part or all of a mortgage loan in advance of schedule. Most loans do not have a prepayment penalty but it is always advisable to ask in advance.

principal
Amount of debt, not including interest. The face value of a note or mortgage.

private mortgage insurance (PMI)
Insurance provided by non-government insurers which protects lenders against loss in the event of default. Industry standards generally require private mortgage insurance for loans with a loan-to-value (LTV) in excess of 80%.

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rate
The annual rate of interest on a loan.

rate cap
A limit on how much the interest rate can change; either at each adjustment period or over the life of the loan.

refinancing
The process of paying off one loan with the proceeds from a new loan using the same property as security.

residential mortgage credit report (RMCR)
A report requested by your lender that utilizes information from at least two of the three national credit bureaus, as well as information provided on your loan application.

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settlement statement
Also referred to as the HUD-1, the final financial accounting a real estate purchase transaction or a refinance transaction.

stated income loan
A type of loan which is underwritten without the benefit of income documentation such as a tax return or pay stub.

survey
A plat map defining the property boundaries, improvements, easements and potential encroachments.

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tenants-in-common
An undivided interest in property taken by two or more persons. The interest need not be equal. Upon death of one or more persons, there is no right of survivorship.

title
The right to possession or ownership of property

title insurance
Insurance against loss resulting from defects of title for a specific property.

title search
An investigation into the history of ownership of a property used to identify liens, unpaid claims, restrictions, or problems which may inhibit the transfer of free and clear title.

Truth-in-Lending Act
The federal law requiring a disclosure of credit terms using a standard format. It is intended to facilitate comparisons between the lending terms of different financial institutions.