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Navy Federal Credit Union

Home Buying Glossary

Click on the first letter of a term to view its definition. Terms are listed in alphabetical order.

A | B | C | D | E | F | G | H | I | J | K | L | M | N
O | P | Q | R | S | T | U | V | W | X | Y | Z


Acceleration clause. A provision in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed.

Amortization. The gradual repayment of a mortgage by installments.

Amortization schedule. A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the remaining balance.

Annual percentage rate (APR). The total yearly cost of a mortgage stated as a percentage of the loan amount; includes the base interest rate, primary mortgage insurance and loan origination fee (points).

Appraisal. A professional opinion of the market value of a property.

Appreciation. An increase in the value of a house due to changes in market conditions or other causes.

Assessed value. The value placed upon property by a public tax assessor for purposes of taxation.

Assumable mortgage. A mortgage that can be taken over (“assumed”) by the buyer when a home is sold.

Assumption. The transfer of the seller's existing mortgage to the buyer.

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Buyer broker. An individual employed on a fee or commission basis as agent to bring buyers and sellers together and assist in negotiating contracts between them.

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Cap. A provision of an adjustable rate mortgage (ARM) limiting how much the interest rate or mortgage payments may increase.

Cash reserve. A requirement of some lenders that buyers have sufficient cash remaining after closing to make the first two mortgage payments.

Clear title. A title that is free of liens and legal questions as to ownership of the property.

Closing. The transaction where a sale is finalized; the buyer signs the mortgage, and closing costs are paid. Also called “settlement.”

Closing costs. Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called “settlement costs.”

Commitment letter. A formal offer by a lender stating the terms under which it agrees to loan money to a homebuyer.

Conforming mortgage. Loan amounts up to $417,000. Exceptions in Alaska and Hawaii, where the conforming loan limit is up to $625,500

Contingency. A condition that must be met before a contract is legally binding.

Conventional mortgage. Any mortgage that meets Fannie Mae and/or Freddie Mac guidelines and is not insured or guaranteed by the federal government.

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

Cooperative. A form of common property ownership in which the residents of an apartment building do not own their own units, but rather own shares in the corporation that owns the property. Navy Federal does not offer mortgages for these properties.

Covenant. A clause in a mortgage that obligates or restricts the borrower and which, if violated, can result in foreclosure.

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Deed. The legal document conveying title to a property.

Deed of trust. The document used in some states instead of a mortgage; title is conveyed to a trustee rather than to the borrower.

Default. Failure to make mortgage payments in a timely manner or to comply with other conditions of a mortgage.

Depreciation. A decline in the value of property; the opposite of “appreciation.”

Discount points. A one-time charge by the lender to increase the yield of the loan; a point is 1 percent of the loan amount.

Due-on-sale clause. A provision in a mortgage allowing the lender to demand repayment in full if the borrower sells the property securing the mortgage.

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Earnest money. A deposit given to the seller to show that a prospective buyer is serious about buying the house.

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

Equal Credit Opportunity Act (ECOA). A federal law that prohibits lenders from denying mortgages on the basis of the borrower's race, color, religion, national origin, age, sex, marital status, receipt of income from public assistance programs, or that the consumer in good faith has exercised any right under the Consumer Credit Protection Act.

Equity. The difference between the market value of a property and the homeowner's outstanding mortgage balance.

Equity loan. A loan based on the borrower's equity in his or her home.

Escalation Clause. An agreement in the sales contract whereby the buyer agrees to increase his offer on a property by agreed-upon increments if there are other offers from other interested buyers.

Escrow. The holding of documents and money by a neutral third party prior to closing; also, an account held by the lender into which a homeowner pays money for taxes and insurance.

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Fair Credit Reporting Act. A consumer protection law that sets up a procedure for correcting mistakes on one's credit record.

First mortgage. The mortgage that has first claim in the event of default.

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

Float to Lock. You may lock in your interest rate and/or discount points up to the date that your loan documents are sent to your settlement agent. By selecting this option, Navy Federal does not guarantee a specific interest rate and/or discount points. Select this option if you do not have a signed sales contract.

Flood insurance. Insurance required for properties in federally designated flood areas.

Forbearance. The lender's postponement of foreclosure to give the borrower time to catch up on overdue payments.

Foreclosure. The process by which a mortgaged property may be sold by the lender when a mortgage is in default.

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Hazard insurance. Insurance to protect the homeowner and the lender against physical damage to a property from fire, wind, vandalism or other hazards.

Home inspection. An examination of the structure and mechanical systems to determine a home's safety; makes the potential homebuyer aware of any repairs that may be needed.

Homeowners insurance. An insurance policy that combines liability coverage and hazard insurance.

Homeowners warranty. A type of insurance that covers repairs to specified parts of a house for a specific period of time.

HUD-1 Settlement Statement. See Settlement Sheet.

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Interest-rate cap. A provision of an ARM limiting how much interest rates may increase per adjustment period. See also Lifetime cap.

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Joint tenancy. A form of co-ownership giving each tenant equal interest and equal rights in the property, including the right of survivorship.

Jumbo mortgage. Loan amounts greater than $417,000 and higher than the maximum county loan limit, up to $2,000,000.

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Lease-purchase mortgage loan. An alternative financing option that allows homebuyers to lease a home with an option to buy, and with each month's rent payments consisting of PITI payments on the first mortgage, plus an extra amount that is earmarked for a savings account in which money for a down payment accumulates.

Lien. A legal claim against a property that must be paid when the property is sold.

Lifetime cap. A provision of an ARM that limits the total increase in interest rates over the life of the loan.

Loan commitment. See Commitment letter.

Loan servicing. The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

Loan-to-value ratio (LTV). The relationship between the amount of a mortgage and the total value of the property.

Lock. A rate lock guarantees a specific interest rate and/or discount points, certain standard settlement fees for a definite time period prior to closing, and the terms of your loan as stated in your application. By locking into that specific interest rate and/or discount points, you and the lender acknowledge that your loan will close at the agreed upon pricing and terms even if market interest rates decline.

Lock-in. A written agreement guaranteeing the homebuyer a specified interest rate provided the loan is closed within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.

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Margin. The set percentage the lender adds to the index rate to determine the interest rate of an ARM.

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

Mortgage broker. A company that for a fee matches borrowers with lenders.

Mortgagee. The lender in a mortgage agreement.

Mortgage insurance. See Private mortgage insurance.

Mortgage insurance premium (MIP). The fee paid by a borrower to FHA or a private insurer for mortgage insurance.

Mortgage note. A legal document obligating a borrower to repay a loan at a stated interest rate during a specified period of time; the agreement is secured by a mortgage.

Mortgagor. The borrower in a mortgage agreement.

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Negative amortization. Payment terms under which the borrower's monthly payments do not cover the interest due, as a result, the loan balance increases.

Notice of default. A formal written notice to a borrower that default has occurred and that legal action may be taken.

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Origination fee. A fee paid to a lender for processing a loan application; it is stated as a percentage of the mortgage amount, or points.

Owner financing. A purchase in which the seller provides all or part of the financing.

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Payment cap. A provision of some ARMs limiting how much a borrower's payments may increase regardless of how much the interest rate increases; may result in negative amortization.

PITI. Stands for principal, interest, taxes and insurance—the components of a monthly mortgage payment.

Points. A one-time charge by the lender to increase the yield of the loan; a point is 1 percent of the loan amount.

Preapproved loans (PALs). This program is available for purchases only, it allows members to submit an application and obtain a credit decision without a ratified contract. Having a preapproved loan can help to empower the borrower when negotiating a sales contract.

Prepayment penalty. A fee charged to a borrower who pays off a loan before it is due.

Prequalification. The process of determining how much money a prospective homebuyer will be eligible to borrow before a loan is applied for.

Principal. The amount borrowed or loan amount remaining; also, that part of the monthly payment that reduces the outstanding balance of a mortgage.

Private mortgage insurance (PMI). Insurance provided by nongovernmental insurers that protects lenders against loss if a borrower defaults.

Purchase and sale agreement. A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

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Ratios (Debt-to-Income). Two ratios reflect the relationship between the member’s debt and income. The first ratio compares the housing expense to income; the second compares total obligations, including the housing expense and other debt, to income. These guideline ratios are referred to as “top and bottom ratios,” “front and back ratios” or “front end and back end ratios”.

Real Estate Settlement Procedures Act. A consumer protection law that requires lenders to give borrowers advance notice of closing costs.

Refinancing. The process of paying off one loan with the proceeds from a new loan secured by the same property.

Rent with option to buy. See Lease-purchase mortgage loan.

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Sales contract. See Purchase and sales agreement.

Second mortgage. A mortgage that has rights that are subordinate to the rights of the first mortgage holder.

Secondary financing. A loan secured by a mortgage or trust deed, which lien is junior (secondary) to another mortgage or trust deed.

Settlement. See Closing.

Settlement sheet. The computation of costs payable at closing that determines the seller's net proceeds and the buyer's net payment.

Super Conforming mortgage. Loan amounts greater than $417,000 and up to the maximum county loan limit (varies by county) available in high cost areas. Exception in Hawaii, where the maximum loan limit is between $625,500 to $721,050.

Survey. A drawing showing the legal boundaries of a property.

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Tenancy by entirety. A type of joint ownership in a property available only to a husband and wife.

Tenancy in common. A type of joint ownership in a property without right of survivorship.

Title. A legal document establishing the right of ownership.

Title company. A company that specializes in insuring title to property.

Title insurance. Insurance to protect the lender (lender's policy) or the buyer (buyer's policy) against loss arising from disputes over ownership of a property.

Title search. A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding.

Transfer tax. State or local tax payable when title passes from one owner to another.

Truth-in-Lending. A federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the APR and other charges.

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Underwriting. The process of evaluating a loan application to determine the risk involved for the lender.

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