Term Glossary

Adjustable Rate Mortgage (ARM) – Loan on which the monthly payments will increase or decrease over time. An ARM’s interest rate may be tied to the 11th District Cost of Funds, one year T-note and six-month T-bill. ARM payments are typically adjusted every six months or once a year.

Amortization – The gradual repayment of a mortgage through monthly payments. In the early years of a mortgage, most of the monthly payment goes toward interest. Later in the mortgage, more of the payment goes toward reducing the loan’s principal balance.

Annual Percentage Rate (APR) –The annual cost of a mortgage, including interest, loan fees and other costs, stated as a percentage of the loan amount.

Appraisal/Appraised Value – An opinion of the market value of a home expressed by a professional real estate appraiser.

Caps – Provisions of an adjustable rate mortgage which limit how much the interest rate can change at each adjustment period (i.e. every six months or once a year) or over the life of the loan (rate cap). A payment cap limits how much the payment due on the loan can increase or decrease.

Chain of Title – Beginning with a conveyance out of an original source of title such as a government, each succeeding deed, will or other medium which conveys and transfers the title to the succeeding owners constitutes a link in the chain of title.  The chain of title is the composite of all such links

Closing Costs – Expenses in addition to the price of the home incurred by buyers and sellers when a home is sold. Common closing costs include escrow fees, title insurance fees, document recording fees and real estate commissions.

Closing Disclosure – The five page Closing Disclosure must be provided to the consumer three business days before they close on the loan.  The Closing Disclosure details all costs associated with their mortgage transaction.

Closing Statement (Settlement Statement) – A summation, in the form of a balance sheet, made at a closing, showing the amounts of debits and credits to which each party to a real estate transaction is entitled.

Commission – An amount paid to a Realtor® for his or her services, typically set at a percentage of the sales price.

Conventional Mortgage – A loan not guaranteed, insured or made by the federal or state government

Debt to Income Ratio –The ratio of monthly debt payments to monthly gross income. Lenders use a debt to income (or DTI) ratio to determine whether a borrower’s income qualifies him or her for a mortgage.

Deed – A legal document conveying ownership of property

Down Payment – The portion of the home’s purchase price the buyer pays in cash.

Earnest Money – The deposit given by a buyer to a seller to show that the buyer is serious about purchasing the home. Earnest money binds the contract. Earnest money usually is refundable to homebuyers in the event a contingency of the sale contract cannot be met.

Easement – a right held by a person to enjoy or make limited use of another’s real property

Egress – The right to a path or right-of-way over that a person may leave or go away from his own real estate

Encroachment – The extension of a structure from the real estate to which it belongs across a boundary line and onto adjoining property

Equity – The difference between a home’s value and the mortgage amount owed on the home.

Escrow – The holding of documents and money by a neutral third party until all parties perform.

Exceptions – Insurance policies include a list of items excluded from coverage.  Items excluded from coverage can be found in section two of Schedule B of the policy.

Fannie Mae and Freddie Mac – The Federal National Mortgage Association, and the Federal Home Loan Mortgage Corporation are government sponsored, privately owned entities which purchase mortgages from lenders and turn the mortgages into securities which are bought by investors. Fannie Mae and Freddie Mac are the key secondary mortgage market agencies.

Fee Simple – The highest degree of ownership that a person can have in real estate.  An interest in real estate that gives the owner unqualified ownership and full power of disposition.

Fixed-rate Mortgage (FRM) – A loan on which the interest rate and monthly payments do not change.

Hazard Insurance – A policy which protects against damage to a property caused by fire, wind or other hazards.

Homeowner’s Warranty – A policy that covers certain repairs (such as plumbing or heating) of a newly purchased home for a certain period of time.

Impound Account – An account established by a lender to collect a borrower’s property tax and insurance payments. Impound accounts are normally required on mortgages with down payments of 10 percent or less.

Ingress – The right or permission to enter; also the means or place of entry such as a right-of-way across adjoining land

Lien – The liability of real estate as security for payment of a debt.  Such liability may be created by contract, such as a mortgage, or by operation of law, such as a mechanics lien

Loan Estimate – A three page Loan Estimate must be provided to the consumers no later than three business days after they submit a loan application for most mortgages.  The Loan Estimate provides information about key features, costs and risks of the mortgage loan for which the consumer is applying.

Loan Policy – A policy of title insurance issued to the mortgage lender insuring against loss by defects in, liens against, or unmarketability of title

Loan to Value (LTV) Ratio – The ratio of the amount of money owned on a home to the home’s value. The LTV ratio for a $100,000 home financed with a $90,000 mortgage would be 90 percent.

Mortgage – A temporary conditional pledge of property to a creditor as security for the payment of a debt that may be cancelled by payment.

Mortgage Banker – A company which originates mortgages for sale into the secondary mortgage market (for example to Fannie Mae or Freddie Mac).

Mortgage Broker – A company that, for a fee, matches borrowers with lenders. Mortgage brokers do not originate loans.

Mortgage Interest Deduction – The ability of mortgage borrowers to deduct the interest paid on a home loan for purposes of federal and state income taxes.

Origination Fee – A fee charged by a lender for making a mortgage.

Owner’s Policy – This policy is purchased for a one-time fee and protects a homeowner’s investment in a property for as long as they or their heirs have an interest in the property.  Only an owner’s policy protects the buyer should a covered title problem arise with the title that was not found during the title search.  Possible hidden title problems can include errors or omissions in deeds, mistakes in examining records, forgery and undisclosed heirs.

PITI – Principal, interest, taxes and insurance, the primary component of a monthly mortgage payment.

Points – One point equals 1 percent of the mortgage amount. Points are charged by lender to increase the lender’s return on the mortgage. Typically, lenders may charge anywhere from zero to two points. Loan points are tax deductible.

Power of Attorney – A legal instrument authorizing one to act as another’s agent or attorney.

Principle – The loan amount borrowed or still owed.

Private Mortgage Insurance – Insurance issued by private insurers which protects lenders against a loss if a borrower defaults on a mortgage with a low down payment (less than 20 percent).

Realtor –A real estate broker or agent who is a member of the local Board of Realtors, a state Association of Realtors and the National Association of Realtors. Realtors adhere to a high standard of professionalism and strict code of ethics.

Seller Financing – A financing agreement in which a seller provides part (or all) of the financing needed by a buyer to purchase the seller’s home.

Title – Legal document establishing the right of ownership in the property.

Title Insurance – Insurance to protect the buyer and lender against losses arising from disputes over the ownership of property.

Underwriting – The process of evaluating a loan application to determine if it meets the lender’s standards.

Home Office:

205 N. Second St.
Edwardsville, IL 62025

Phone: 618-656-1275
Fax: 618-656-0719

Escrow Offices:

2 Sunset Hills Professional Ctr
Edwardsville, IL 62025

Phone: 618-659-0190
Fax: 618-659-0119

140 Regency Centre
Collinsville, IL 62234

Phone: 618-346-8009
Fax: 618-346-7537