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Welcome to our Escrow Glossary. Below you will find common escrow terms along with corresponding definitions. We hope that you find the information on this page to be informative. If you have any questions, please contact us at: (858) 815-5040.

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Adjustable Rate Mortgage (ARM)
A mortgage with an interest rate that changes over time in line with movements in relation to an index (often times the prime rate). ARMs are also referred to as AMLs (adjustable mortgage loans) or VRMs (variable rate mortgages).

Adjustable Period
The length of time between interest rate changes on an ARM. For example, a loan with adjustment period of one year is called a one year ARM, which means that the interest rate can change one a year.

Repayment of a loan in equal installments of principal and interest, rather than interest-only payments.

Annual Percentage Rate (APR)
The total finance charges (interest, loan fees, points) expressed as a percentage of the loan amount.

Assumption of a Mortgage
A buyer’s agreement to assume the liability under an existing note that is secured by a mortgage or deed of trust. The lender must approve the buyer in order to release the original borrower (usually the seller) from liability.

Balloon Payment
A lump sum principal payment due at the end of some mortgages or other long term loans.

Sometimes know as an offer to purchase or an earnest money request. A binder is the acknowledgment of a deposit along with a brief written agreement to enter into a contract for the sale of real estate.

The limit on how much interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage.

Covenants, Conditions and Restrictions. A document that controls the use, requirements and restrictions of a property.

Certificate of Reasonable Value (CRV)
A document that establishes the maximum vale and loan amount for a VA guaranteed mortgage.

Closing Statement
The financial disclosure statement that accounts for all of the funds received and accepted at the closing, including deposits for taxes, hazard insurance, and mortgage insurance.

A form of real estate ownership. The owner receives title to a particular unit and has a proportionate interest in certain common areas. The unit itself is generally a separately owned space whose interior surfaces (walls, floors, and ceilings) serve as its boundaries.

A condition that must be satisfied before a contract is binding. For instance, a sales agreement may be contingent upon the buyer obtaining financing.

Conversion Clause
A provision in some ARMs that enables you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate is generally set a the prevailing interest rate for fixed-rate mortgages. This conversion feature may cost extra.

A form of multiple ownership in which a corporation or business trust entity holds title to a property and grants occupancy rights to shareholders by means of proprietary leases or similar arrangements.

Due-On-Sale Clause
An acceleration clause that requires full payment of a mortgage or deed of trust when the secured property changes ownership.

Earnest Money
The portion of the down payment delivered to the seller or escrow agent by the purchaser with a written offer as evidence of good faith.

A procedure in which a neutral third party acts as a stakeholder for both the buyer and seller, carrying out both parties’ instructions and assuming responsibility for handling all of the paperwork and distribution of funds.

FHA Loan
A loan insured by the Insuring Office of the Department of Housing and Urban Development; the Federal Housing Administration.

Federal National Mortgage Association (FNMA)
Popularly known as Fannie Mae. A privately owned corporation created by congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by FHA or guaranteed by the VA as well as conventional home mortgages.

Fee Simple
An estate in which the owner has unrestricted power to dispose of the property as he wishes, including leaving by will or inheritance. It is the greatest interest a person can have in real estate.

Finance Charge
The total cost a borrower must pay, directly or indirectly, to obtain credit according to Regulation Z.

Graduated Payment Mortgage
A residential mortgage with monthly payments that start at a low level and increase at a predetermined rate.

Home Inspection Report
A qualified inspector’s report on a property’s overall condition. The report usually includes an evaluation of both the structure and mechanical systems.

Home Warranty Plan
Protection against failure of mechanical systems within the property. Usually includes plumbing, electrical, heating systems and installed appliances.

Joint Tenancy
An equal undivided ownership of property by two or more persons. Upon the death of any owner, the survivors take the decedent’s interest in the property.

A legal hold or claim on property as security for a debt or charge.

Loan Commitment
A written promise to make a loan for a specified amount on specified terms.

Loan-To-Value Ratio
The relationship between the amount of the mortgage and the appraised value of the property, expressed as a percentage of the appraised value.

The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Mortgage Life Insurance
A type of term life insurance often bought by mortgagors. The coverage decreases as the mortgage balance declines. If the borrower dies while the policy is in force, the debt is automatically covered by insurance proceeds.

Negative Amortization
Negative amortization occurs when monthly payments fail to cover the interest cost. The interest that isn’t covered is added to the unpaid balance, which means that even after several payments you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments that are not high enough to cover the interest.

Origination Fee
A fee or charge for work involved in evaluation, preparing and submitting a proposed mortgage loan. The fee is limited to one percent for FHA and VA loans.

Principal, interest, taxes and insurance.

Planned Unit Development (PUD)
A zoning designation for property developed at the same or slightly greater overall density than conventional development, sometimes with improvements clustered between open, common areas. Uses may be residential, commercial or industrial.

An amount equal to one percent of the principal amount of the investment or note. The lender assesses loan discount points at closing to increase the yield oh the mortgage to a position competitive with other types of investments.

Payment Penalty
A fee charged to a borrower who pays off a loan before it is due. Not allowed for FHA or VA loans.

Private Mortgage Insurance (PMI)
Insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage.

Purchase Agreement
A written document in which the purchaser agrees to by certain real estate and seller agrees to sell under stated terms and conditions. Also called a sales contract, earnest money contract or agreement for sale.

Regulation Z
The set of rules governing consumer lending issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection Act.

Tenancy in Common
A type of joint ownership of property by two or more persons with no right of survivorship.

Title Insurance Policy
A policy that protects the purchaser, mortgagee or other party against losses.

VA Loan
A loan that is partially guaranteed by the Veterans Administration and made by a private lender.

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