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Home Buying Guide


									Home Buying Guide
          Your step-by-step home buying guide
              The loan process at Third Federal

              How much home can you afford?

                         Mortgage worksheets

          You re on your way to owning a home
            What to check when house hunting

                Your step-by-step
               home buying guide
Who is Third Federal?
Since 1938, Third Federal has helped people become homeowners. At Third Federal, we
believe that home buying is a solid investment in our communities. That is why we offer
highly competitive mortgage products at the best rates possible.

We specialize in mortgage lending. Our goal is to help people achieve the American Dream
of homeownership and financial stability. Third Federal can do more than other banks can,
especially if you’re buying your first home. In fact, for the last 16 years, we’ve earned the
highest rating from Bauer Financial, the nation’s bank rating authority. And now we’d like
to help you.

We hope you find this guide useful. If you have any questions, feel free to call us toll-free
at 1-800-THIRD-FED (800-844-7333). Bank Smart. Live Better.®

What’s important?
Third Federal can offer you a wide selection of mortgage loans, along with the expert advice
to help you decide which is best for you. A non-commissioned Loan Counselor will take you
through the entire mortgage process, keeping it simple and hassle-free. Here are some
important items to consider when shopping for your mortgage:

• Getting a low rate
• Closing costs
• Pre-approval
• Servicing of the loan
• Keeping the mortgage process simple
• No prepayment penalties
• Finding the right loan for you
• Experience/reputation of lender
• Rate locks

Helpful learning tools online
Third Federal’s website,, is available to you 24 hours a day, 7 days
a week. You can check mortgage rates, see how much house you can afford, get pre-approved
and even apply for your mortgage. Also, online calculators make it easy to figure monthly
payments, amortize loans and more. Simple graphics and big, bold headings make everything
easy to find.

The loan process at Third Federal

    Buying a new home can be exciting, but sometimes confusing and stressful as well.
    At Third Federal, we strive to be helpful, responsive and, above all, to KEEP IT SIMPLE.
    Your Loan Counselor will assist you through the entire process, answering all your
    questions and keeping you informed.

    We recommend that every buyer get pre-approved even before shopping for
    a home. A pre-approval gives you the peace of mind of knowing the mortgage amount
    you qualify for and can be a great negotiating tool when you find that perfect home.

    Loan application
    When you find a home, you and the seller will negotiate terms for the sale of the house.
    Items generally negotiated will be: purchase price, closing date and date of possession.
    These terms will be stated in a purchase agreement and signed by both parties. Once you
    have a signed purchase agreement, present it to your Loan Counselor. Your Counselor
    will help you select the mortgage that best meets your needs. You will then complete a
    loan application.

    An appraisal of the property will be ordered to determine the value of the property for
    the benefit of the lender. The appraiser will visit the house and consider sale prices of
    comparable houses in determining the value.

                   The loan process at Third Federal

Loan approval
Once the appraisal is received, the loan file is submitted to our loan committee. This
committee will review the file and make a determination on approval. Loan approval
is usually obtained within three weeks of application.

Escrow – title work and document preparation
Escrow is often one of those confusing terms for home buyers. Escrow is the holding of
funds and documents by a third party until all terms and conditions of a contract have
been met. In a real estate transaction, a title company will hold the funds and documents
until the terms of your purchase agreement have been met. An escrow account will be
established and title work will be ordered. This will include a title exam to ensure that
you are receiving clear title to the property. Loan documents such as the mortgage note
and deed will be prepared.

The documents will be sent to an outside title company acting as the escrow agent, for
both you and the seller(s) to sign. At this time, you will also bring any remaining funds that
are due, such as the down payment, closing costs and evidence of homeowner’s insurance.

Title transfer
Once all documents are signed and funds are collected, the escrow agent verifies that all
conditions of the contract have been met and the title is transferred. The loan generally
closes the day after the title transfers, and funds are then disbursed to the seller. The
entire process, from purchase application through closing, usually takes 30 days.

Welcome home!
Possession of the property is generally negotiated and stated in the purchase agreement,
and your real estate agent usually turns the keys over to you. Congratulations! You are
now a homeowner!

How much home can you afford?

    Now that you have learned about the types of loans and how a loan is processed, it will be
    helpful to know how to get a loan. Your ability to obtain a loan will be determined to a large
    extent by your willingness to pay and your ability to pay.

    • Your willingness to pay is reflected in your credit history. We will review your credit
      report with you when you apply for a loan.
    • Your ability to pay will be reflected by the funds you have available to cover costs,
      including down payment, closing costs, points, prorated interest, title insurance and,
      if necessary, Private Mortgage Insurance (PMI). In addition, your source(s) of income,
      as well as any additional ongoing debts, will be analyzed in order to determine how
      much home you can afford.

    The mortgage worksheet (on the next page) will help you estimate how much you can afford
    to spend on a monthly house payment. Keep in mind that meeting debt/income ratios is not the
    only indication of whether a loan will be approved or declined. A review of the entire application
    including an appraisal of the property is necessary for an accurate evaluation.

    Mortgage worksheets
    Section 1 — your gross monthly income
    If you will be applying jointly, include income from all sources for all applicants. You need not
    include income from alimony, child support or separate maintenance if the applicant who
    receives this income does not wish to have it considered as a potential source of repayment.

    “Gross monthly pay” is your pay before any deductions, such as taxes, 401K contributions,
    insurance premiums or charitable contributions are withdrawn. At the time of application,
    you will need to provide us with your pay stub(s) for the most recent month and your W-2(s)
    or signed tax returns for the previous year.

    Assuming that your total annual household income is $42,000, you can use any of the
    following formulas to calculate your monthly employment income:

         Method of payment                 Method of calculation             Monthly income
        $	 42,000.00		annually             Divide by 12                          $	3,500.00

        $		   3,500.00		monthly            No calculation necessary              $	3,500.00

        $		   1,750.00		twice a month      Multiply by 2                         $	 3,500.00

        $		   1,615.38		every	2	weeks      Multiply by 26 & divide by 12         $	3,500.00

        $		    807.69		weekly              Multiply by 52 & divide by 12         $	 3,500.00

             Mortgage Worksheets

Section 1 — worksheet
List monthly income (before taxes) for yourself and your co-borrower(s).
Include all sources of income that are likely to continue for at least three years.

                                                                            Average monthly amount
Monthly pay                                                                 $ ______________
Overtime/commissions/bonuses/tips                                           $ ______________
Dividends/interest earnings                                                 $ ______________
Business or investment earnings                                             $ ______________
Pension/Social Security benefits                                            $ ______________
Veterans Administration benefits                                            $ ______________
Unemployment compensation                                                   $ ______________
Public Assistance                                                           $ ______________
Alimony, child support, separate maintenance*                               $ __________________
*Does not need to be included if applicant receiving income does not wish
 to have it considered as a potential source of repayment.

Other                                                                       $ ______________

Total monthly income                                                        $ ______________
                                                                                         x 12 =
Total yearly income                                                         $ ______________


                                Mortgage Worksheets

    Section 2 — your monthly debt payments
    Do not include your housing costs for your current residence.

    When calculating your “Installment Loan Payments,” do not include debts that will be
    paid in 10 months or less. (If you are not sure if the debt will be paid off in 10 months
    or less, multiply the “Minimum Monthly Payment” by 10. If the result is less than the
    outstanding balance, include the debt.) If you have a balance on a credit card, enter the
    “Minimum Monthly Credit Card Payment” for that card (if the balance will not be paid in
    10 months or less).

    Also, you must include the monthly payment for any loan for which you have co-signed
    since you are legally obligated to make this payment if the maker of the loan fails to do so.

    Section 2 — worksheet
    List the monthly debt payments of your household (other than your current housing costs)
    that you won’t be paying off in the next 10 months.

                                                                    Average monthly amount
    Installment loan payments (i.e., auto loan/lease)                $ ______________
    Minimum monthly credit card payment                              $ ______________
    Student loan payment                                             $ ______________
    Personal loan payment                                            $ ______________
    Alimony, child support payment                                   $ ______________
    Other                                                            $ ______________

    Total monthly debt payments                                      $ ______________


                         Mortgage Worksheets

Section 3 — your available cash and assets
While you may have “cash gifts,” Third Federal will require that you have at least
5% of the purchase price in your own funds.

You may list your balances in IRA or Keogh accounts if you are prepared to use the
funds for your purchase, even though you will pay an IRS penalty for early withdrawal.
Contact your accountant to verify this information.

You may also be permitted to borrow funds from your 401K account, if you have one.
For information, contact your employer’s human resources department or benefits

Section 3 — worksheet
List here all the money you have available for the down payment and closing costs.

Checking account(s)                                             $ ______________
Savings account(s) or Certificate(s) of Deposit (CD)            $ ______________
Mutual funds, stocks and bonds                                  $ ______________
Other assets (cash on hand, IRA or 401k)                        $ ______________

Total cash and assets                                           $ ______________


                                     Mortgage Worksheets

    Section 4 — affordability analysis
    Meeting debt/income ratios is not the only indication that a loan will be approved or
    declined. A review of the entire application, including an appraisal of the property, is
    necessary for an accurate evaluation.

    Section 4 — worksheet
    Housing ratio
    Monthly Income (from Section 1)                                    $ _____________
    Multiply by 28%*                                              X	           .28
                                                                  =    $ _____________ (A)

    Debt ratio
    Monthly Income (from Section 1)                                    $ _____________
    Multiply by 36%*                                              X	           .36
                                                                  =    $ _____________ (B)
    Total of regular monthly debt payments
    (from Section 2)                                                   $ _____________ (C)
                                                          (B) – (C) = $ _____________ (D)

    Maximum monthly payment (the lesser of A or D)                     $ _____________

    Payment includes principal and interest, real estate taxes,
    PMI and condominium fee (if applicable).
    *Assumes a down payment of 5% – 29%.


                                      Mortgage Worksheets

Monthly mortgage payment calculator

Loan amount         6%	    6.5%	           7%	      7.5%	           8%	     8.5%	           9%	     9.5%	       10%
 $	   25,000   $	   150   $	   158	   $	    166	   $	   175	   $	   183	   $	   192	   $	   201	   $	   210	   $	   219
 $	   30,000   $	   180   $	   190	   $	    200	   $	   210	   $	   220	   $	   231	   $	   241	   $	   252	   $	   263
 $	   40,000   $	   240   $	   253	   $	    266	   $	   280	   $	   293	   $	   308	   $	   322	   $	   336	   $	   351
 $	   50,000   $	   300   $	   316	   $	    333	   $	   350	   $	   367	   $	   384	   $	   402	   $	   420	   $	   439
 $	   60,000   $	   360   $	   379	   $	    399	   $	   420	   $	   440	   $	   461	   $	   483	   $	   505	   $	   527
 $	   70,000   $	   420   $	   442	   $	    466	   $	   489	   $	   514	   $	   538	   $	   563	   $	   589	   $	   614
 $	   80,000   $	   480   $	   506	   $	    532	   $	   559	   $	   587	   $	   615	   $	   644	   $	   673	   $	   702
 $	   90,000   $	   540   $	   569	   $	    599	   $	   629	   $	   660	   $	   692	   $	   724	   $	   757	   $	   790
 $	100,000     $	   600   $	   632	   $	    665	   $	   699	   $	   734	   $	   769	   $	   805	   $	   841	   $	   878
 $	110,000     $	   660   $	   695	   $	    732	   $	   769	   $	   807	   $	   846	   $	   885	   $	   925	   $	   965
 $	120,000     $	   719   $	   758	   $		   798	   $	   839	   $	   880	   $	   923	   $	   966	   $	 ,009	
                                                                                                    1          $	 ,053
 $	130,000     $	   780   $	   822	   $		   865	   $	   909	   $	   954	   $	1,000	    $	1,046	     1
                                                                                                   $	 ,093	     1
                                                                                                               $	 ,141

 $	140,000     $	   839   $	   885	   $		   931	   $	   979	   $	 ,027	
                                                                1          $	1,076	    $	1,126	     1
                                                                                                   $	 ,177	     1
                                                                                                               $	 ,229

 $	150,000     $	   899   $	   948	   $	    998	    1
                                                   $	 ,049	     1
                                                               $	 ,101	    $	1,153	    $	1,207	    $	 ,261	
                                                                                                    1           1
                                                                                                               $	 ,316

 $	160,000     $	   959    1
                          $	 ,011	     1
                                      $	 ,064	      1
                                                   $	 ,119	     1
                                                               $	 ,174	    $	1,230	    $	1,287	     1
                                                                                                   $	 ,345	     1
                                                                                                               $	 ,404

 $	170,000      1
               $	 ,019     1
                          $	 ,075	     1
                                      $	 ,131	     $	 ,189	
                                                    1           1
                                                               $	 ,247	    $	1,307	    $	1,368	     1
                                                                                                   $	 ,429	     1
                                                                                                               $	 ,492

Note: Based on a 30-year, fixed rate mortgage. Monthly payment includes principal and
interest only. Property taxes, homeowner’s insurance and other fees are not included. When
using this chart, remember that you may need to add PMI, condo fees, etc. to the total.

                 You re on your way to
                    owning a home
     As you can see, there are a number of things you need to consider whether you’re buying
     your first home or your next home such as affordability, mortgage options and costs. It may
     seem very complex. But Third Federal’s experienced Loan Counselors are available to help
     you analyze your individual financial situation and to guide you through the loan process
     and into your home.

     A pre-approval is available to you at no cost and may help you speed up the home-buying
     process. Just call one of our convenient branch offices to schedule an appointment or to apply
     by phone. You can also apply online at For more information or to apply,
     call Third Federal’s Customer Service Center toll-free at 1-800-THIRD-FED (800-844-7333).

     What to bring for a pre-approval:
     • One month’s pay stubs
     • Last year’s W-2

     In addition, you should have a knowledge of your assets and debts. If self-employed, you
     will also need the previous two years’ tax returns (signed) and all schedules.

     What to bring at loan application:
     Provided you have completed a pre-approval application, once you have found your home,
     all you need to do is bring in your purchase agreement with all disclosures/addenda and
     your application fee (not required for a no-cost loan).

     What to ask:
     • How much will I need for a down payment?
     • What loan amount will I qualify for?
     • What is the current interest rate and annual percentage rate (APR)?
     • Can I lock in an interest rate?
     • Would a fixed or an adjustable rate be better for me?
     • What options do I have for the term of the loan?
     • What are your fees?
     • What will my monthly payment be?
     • Will you include homeowner’s insurance in my monthly payment?
     • Will you include real estate taxes in my monthly payment?
     • How long will it take to process and approve the loan?
     • Do you need any additional information?

What to check when house hunting

  Here are some helpful tips on what to look for in a house that you
  may be considering.

  • How old is the roof – is it the original or a replacement?
  • Are any roof tiles (slate or asphalt) missing? What is the overall condition?
  • If asphalt, how many layers of tiles are on the roof? (Two is the maximum before you need
    to take off and totally replace.)
  • If slate, have any tiles been replaced?
  • Look for signs of leakage in roofing or flashing.

  • Check flashing for cracks or wear.
  • Are any bricks missing?
  • Is the mortar in good condition?
  • Is there a screen on top of the chimney?

  • Check roof from inside for leaks; look for water or smoke marks on the chimney to
    determine if there are leaks.
  • Is the attic properly ventilated? (Vents under gables should not be closed.)
  • Check depth of insulation.
  • If attic is unfinished, check the wiring, as it will indicate the general condition and
    age of the wiring in the house.
  • Look for frayed or old wiring, deterioration in the casing or slack in the lines.

  • Count number of outlets per wall, per room (should have at least one outlet per wall).
    This is very important in the kitchen!
  • Are the outlets grounded (3-way) plugs? This can be tested with a simple device available
    at hardware stores. Once again, check for grounded plugs in the kitchen – very important!
  • Get the room dimensions from the real estate sheet – it will be handy to have later.
  • Any cracks or chips on the walls? Corner cracks can indicate settling of the house.
  • What is the condition of the wallpaper or paint?
  • Are walls plaster or drywall?

  Major appliances
  • How old are the appliances?
  • Are they included in the purchase price of the house?

                         What to check when house hunting

     • How old is it?
     • Any worn spots or stains?
     • Any extra pieces left from installation for replacement pieces?

     • Any cracked or broken panes? Specify replacement before you take possession of
       the house.
     • Check for insulated glass (energy-saving).
     • Will all windows open, or are any painted shut?
     • Are screens and storms (if applicable) for all windows included? Try to get the most
       maintenance-free type possible.

     • Look for leaky faucets, water spots under the sink or toilet, any stained tile.
     • Flush ALL toilets.
     • Check tile and grouting in shower/tub area – cracks may indicate leaking to the ceiling
       of the room below.
     • Look for an exhaust fan in the shower/tub area (older homes usually have a window instead).

     • Has it been used recently? Has it been cleaned and/or inspected recently?
     • Does the flue work?
     • Is it equipped for a gas jet? Has it been properly capped off if not in use?
       (The gas company will check this.)

     • Look carefully for water problems. If the basement smells musty, it most likely has a
       water problem. If the basement looks too clean and freshly painted, the owner could be
       trying to hide a problem.
     • Look for major cracks around the foundation and in the corners which would indicate that
        the house has settled.
     • Ask about water problems – the owner must disclose this information. The best waterproofing
       is done from the outside of the house – interior waterproofing is generally not satisfactory.
     • How old is the furnace? When was it last serviced?
     • How old is the water heater? (Usual life is 8–10 years.)
     • Is the wiring sufficient for the washer and dryer?
     • Are there any broken windowpanes? Do all the windows lock? If glass block,
       are the windows ventilated?

                 What to check when house hunting

• Look over general appearance from across the street.
• Are gutters in good shape and properly pitched?
• Wall surface – if brick, look for cracks and missing mortar. If wood or siding,
  look for maintenance problems (repairs, major painting required, etc.).
• Doors – any gaps, warpage, or broken glass panes?
• Are screen doors included?
• Do all the locks work? Are there deadbolt locks?

• It is best to check the yard after a rain to see if there are drainage problems.
• Look for any low spots near the house which could cause leakage into the basement.
• Check grass for any burned-out spots.

• Look for cracks in driveway or garage pad.
• Driveway or garage pad should have drain (older driveways or garage pads may not).
• Do garage door(s) open easily?
• Is there a light in the garage?
• Is there an electrical outlet in the garage?
• Are curbs, sidewalks and tree lawn in good condition?

Other suggestions
• Ask for the average monthly utility costs (many people will show you their bill stubs).
• How long have the current owners been in the house? How many previous owners
  were there?
• What are the neighbors like? Any problems?
• What is the school system like? How close are schools?
• How accessible is public transportation?
• Have the real estate agent pull the “comps” for the street for the past year – it will
  help you to determine the offering price.
• Also check the rise in property values for the neighborhood for the past five years.


     A   ADDITIONAL SECURITY: Security offered to a lender that would be different from the primary security
         property. This might include an additional piece of real property or a savings account, in addition to the
         down payment, in order to convince a lender to grant a mortgage loan.

         ADJUSTABLE RATE MORTGAGE (ARM): A mortgage loan in which the interest rate periodically changes
         according to terms and conditions specified in a mortgage note. The changing interest rate is based upon
         the upward and downward movement of an index, such as the current U.S. Treasury Securities, and a fixed
         margin above that index. An adjustable rate mortgage is also called an adjustable mortgage loan (AML).

         A.L.T.A. POLICY: An acronym for American Land Title Association. It is a title insurance policy insuring the
         lender against losses sustained due to lien priority. This policy protects the lender from claims which might
         have been recorded but may not have been identified by title search and examination. It also protects the
         lender from defects which might not have been recorded at the time the search was completed. The borrower
         may pay all, a part, or none of this cost, depending on the terms of the sales contract or local custom.

         AMORTIZATION: The reduction of a mortgage debt, according to a set schedule spelled out in the mortgage
         note, to a zero balance over a certain number of years.

         APPLICATION FEE: A fee charged by a lender for initiating a loan application.

         APPRAISAL: The valuation of real property, based upon current market conditions, by a certified, independent
         appraiser to determine if the value of the property is sufficient to secure the loan. The appraiser inspects
         the house and the neighborhood, and considers the selling prices of comparable houses and other factors
         in determining the value. The appraisal will provide the factual data upon which the appraiser bases the
         appraised value.

         APPRECIATION: An increase in property value beyond the original purchase price.

         ASSESSED VALUATION: The dollar value assigned to real property by a local government for the purpose
         of assessing taxes.

     B   BORROWER: A person who obtains a loan in order to take ownership of real property. The borrower is
         responsible for the repayment of that loan according to the terms and conditions of the mortgage note.

         BUY DOWN: A provision granted by a lender that allows the borrower to pay additional points to lower
         a given interest rate.

         BUY UP: A provision granted by a lender that allows the borrower to pay fewer points, which results in
         a higher interest rate.

         Note: This glossary is provided specifically to assist the home buyer in understanding mortgage loan terms as used in this guide.
         These terms may vary in definition from one financial institution to another.


C   CAPS: Limits, set by the lender, on the upward (ceiling) or downward (floor) rate changes permitted on an
    adjustable rate mortgage at each adjustment period.

    CITY INSPECTION: An inspection of the property required by some cities. The seller is required to meet
    specific property standards established by the city. Properties that meet these standards may be issued a
    certificate of occupancy.

    CLOSING COSTS: Costs paid by a buyer, or seller, or both in order to purchase, sell or transfer real property.

    COLLATERAL: Real property and/or other security pledged to a lender as an inducement for granting a loan.
    If the borrower defaults, the lender has the legal right to seize and sell the collateral in order to collect
    repayment of the debt.

    COMMITMENT FEE: A fee charged by a lender for extending the period of time to which the lender will commit
    to approval of a specific interest rate and/or loan amount.

    CONVENTIONAL MORTGAGE: A residential mortgage loan that is not insured or guaranteed by an agency of
    the government, payable in monthly installments over a specified period of time.

    CONVERSION CLAUSE: An arrangement within an adjustable rate mortgage note that permits the borrower to
    change an adjustable rate loan to a fixed rate loan within a certain period of time and under certain specified

    CONVEYANCE: A transfer of ownership in real property from one party to another party.

    CONVEYANCE FEE: This is the fee paid to a county recorder to log the transfer of title from the seller to the
    buyer. This fee is set by the local government and is based on the selling price of the property.

    CO-SIGNER: One who signs for another, thereby accepting full responsibility for repayment of a debt in the
    event of default.

    CREDIT REPORT: A detailed summary of an individual’s credit history prepared by a credit-reporting agency.


     D DEBT-TO-INCOME RATIO: A way of evaluating a borrower’s ability to repay a loan based upon current debt
         and income levels.

         DEED: An instrument used to transfer ownership of real property. There are three types of deeds:

         A general warranty deed is a guarantee from the seller that good title is being conveyed.
         A joint tenancy or joint survivorship deed allows two or more persons to hold real estate jointly for life, with
         the survivor(s) taking the interest of the one who dies.
         A tenancy in common deed allows ownership of real property to be granted to two or more persons, each
         holding separate title in the same estate. There is no right of survivorship with tenancy in common, so if one
         tenant dies, his or her undivided interest in the estate passes to his or her heirs rather than the remaining
         tenants in common.

         DOWER: The interest in the real property of a homeowner allowed to the non-title holding spouse.

         DOWN PAYMENT: The cash that a buyer pays toward the purchase of a house. The down payment/equity
         represents the difference between the mortgage amount and the purchase price, and includes the earnest
         money (escrow deposit) and secondary financing.

     E   EARNEST MONEY (ESCROW DEPOSIT): Money given by a buyer, to a seller or a seller’s agent, in order to
         secure the purchase of real property and to show that the buyer’s offer is being made in good faith.

         EQUITY: The difference between the current value of the real property and the outstanding balances on any
         mortgages attached to the property.

         ESCROW: The holding of funds and documents of buyers and sellers by a disinterested third party until
         contractual conditions, specified by a purchase agreement, are satisfied.

         ESCROW ACCOUNT: Funds included in the monthly real estate loan payment to accumulate the amounts
         necessary for the future payment of county taxes and any of the following, when applicable: Private Mortgage
         Insurance (PMI), homeowner’s insurance, flood insurance, mortgage life insurance and disability insurance.
         Using the funds in the escrow account, the lender makes these payments as they become due.

         ESCROW AGENT: An impartial third party responsible for overseeing the transfer of real property according to
         conditions set forth in the purchase agreement and any attached addenda.

         ESCROW DELETION LETTER: A letter, signed by both buyer and seller, which deletes the escrow agent listed
         in the purchase agreement and names a new escrow agent.

         ESCROW FEE: A fee paid to the escrow agent for overseeing the transfer of real property.


F   FINANCE CHARGE: The cost of interest and other charges involved in borrowing money to build
    or purchase real estate.

    FLOOD INSURANCE: A federal insurance plan required for any property purchased in a certain flood
    hazard area identified by FEMA (Federal Emergency Management Agency). If your property is within such
    an area, you may be required by federal law to carry flood insurance on your home. Such insurance may
    be purchased in participating communities under the National Flood Insurance Act.

G   GOOD-FAITH ESTIMATE: A calculation offered by a lender, usually at the time of application, that provides
    a breakdown of estimated closing costs.

    GROSS INCOME: Total income from all sources for all borrowers on a loan. This is the income before
    any deductions, including taxes, 401k contributions, insurance premiums or charitable deductions.

H   HOMEOWNER’S (HAZARD) INSURANCE: Insurance protecting a house against certain hazards including
    loss from fire, certain natural causes and vandalism, and guaranteeing payment to the insured in cases
    of such loss.

I   INDEX: A base indicator for the interest rate of an adjustable rate mortgage. A typical index is the 1-year
    Treasury Bill averaged to a constant maturity, plus the margin. Another typical index would be the Prime
    Interest Rate.

    INTEREST: The cost of borrowing money from a lender.

    INTEREST RATE: The rate used to perform interest calculations and establish the monthly mortgage payment.

J   JUDGMENT: The decree of a court which produces a lien against the real property of a debtor as a result
    of the court’s award of money to a creditor.

L   LIEN: A security claim on property until a debt is satisfied. A mortgage lien is evidenced by an executed mortgage
    which the lender files with the county recorder. A tax lien is a lien filed by a tax agency for non-payment of
    taxes. A mechanic’s lien is a lien filed by a contractor, laborer or material supplier for non-payment for work
    that has been performed or for materials supplied.

    LOAN COMMITMENT: A guarantee by a lending institution to a borrower to lock in an interest rate for
    a certain number of days.

    LOAN-TO-VALUE (LTV): A percentage representing the mortgage amount divided by the appraised property
    value or selling price of the property (whichever is less). For example, if the market value of a house is
    $100,000, and the amount of the loan is $80,000, the LTV is 80%.

    LONG-TERM COMMITMENT: A rate and/or loan amount guarantee by a lending institution which
    is longer than its basic commitment period.


     M MARGIN: The percentage that a lender adds to a base index to create adjustments on adjustable rate products.
         MARKET VALUE: The most likely price at which a property will sell in a competitive and open market.

         MORTGAGE: A debt instrument by which a borrower (mortgagor) gives a lender (mortgagee) security interest
         in real property in return for a loan. When the debt is paid in full, the mortgage is cancelled and the lien on
         the secured property is released.

         MORTGAGE DISABILITY INSURANCE: Optional insurance which, under circumstances spelled out in the
         insurance policy, makes payments on a mortgage loan when the borrower is injured, ill or disabled.

         MORTGAGE LIFE INSURANCE: Optional insurance which pays off a mortgage loan or a significant part
         of a mortgage loan in the event of the death of the insured. The coverage decreases as the mortgage
         balance declines.

         MORTGAGEE: A lender that accepts a debt instrument as a security interest in real property in return
         for granting a loan.

         MORTGAGOR: The person (borrower) providing a debt instrument to the lender.

     N   NET WORTH: The value of all assets minus the amount of all liabilities. It is often used as a measure
         of financial strength.

     O   ORIGINATION FEE: A fee charged by a lender or loan originator to offset the costs involved in processing
         a loan request.

         OWNER’S FEE POLICY: A title insurance policy guaranteeing that the buyer of a property enjoys free and
         clear title at the time the deed is filed for record. This policy goes beyond the title guarantee by protecting
         the buyer against defects which might not have been of record at the time the title search was performed.
         In some areas, it is customary for the seller to provide the buyer with an owner’s policy and for the seller to
         pay for this policy. In other areas, if the buyer desires an owner’s policy, he or she must pay for it. It shows
         the location of the land, its dimensions and any improvements on the land. It also checks for easements
         of record, encroachments and building line violations.

     P   PITI: An acronym for the components of a monthly mortgage payment. It stands for Principal, Interest,
         Taxes and Insurance.

         POINT FORM: A form signed by whoever is paying the purchaser’s points and/or costs.


P   POINTS: A one-time charge used to “buy down” the interest rate on a loan. Each point is equal to
    1% of the mortgage amount. For example, if a lender charges one point on an $80,000 loan, this
    amounts to a charge of $800.

    PRE-APPROVAL: An approval for a certain loan amount granted to an applicant who has not signed
    a purchase agreement at time of application.

    PREPAID INTEREST: Interest due on the full amount of the principal for the period from the date
    of settlement to the beginning of the period covered by the first monthly payment.

    PREPAYMENT: The payment of a mortgage loan before it is due.

    PREPAYMENT PENALTY: A penalty charged by a lender to a borrower for paying off a mortgage loan
    before maturity.

    PRIME RATE: The interest rate charged by commercial banks to their best, most secure corporate customers.
    It is regarded as a yardstick for general trends in interest rates.

    PRINCIPAL: The amount of money borrowed from the lender.

    PRINCIPAL PAYMENT: The portion of a loan payment which goes to reduce the outstanding
    balance of the loan.

    PRIVATE MORTGAGE INSURANCE (PMI): A generic name for mortgage insurance granted to a lender.
    The insurance is written by a private company, and it protects the lender against loss if the borrower
    defaults on the mortgage.

    PURCHASE AGREEMENT (CONTRACT): A written document in which the purchaser agrees to
    buy certain real estate and the seller agrees to sell under stated terms and conditions.

R   REAL ESTATE SETTLEMENT PROCEDURES ACT (RESPA): A federal law requiring lenders to send
    an estimate of settlement costs to the borrower within three business days after accepting a
    completed loan application. This act also places limits on the amount lenders may hold in an
    escrow account and further requires a disclosure of settlement costs to buyers and sellers within
    a reasonable period of time after settlement.

    RECORDING FEES: The charges for recording documents with public agencies.


     S   SECONDARY FINANCING: Financing provided by a second lender that will accept a second lien position.
         This includes seller financing or financing provided by communities or organizations to further community
         housing goals.

         SETTLEMENT: The final closing in which real property is transferred and proceeds are disbursed.

         SETTLEMENT STATEMENT: The financial disclosure, often called the HUD-1 Settlement Statement,
         which includes an itemized list of the services provided to you and the fees charged to you. This form
         (developed by the U.S. Department of Housing and Urban Development) is filled out by the settlement
         agent who will conduct the settlement. In parts of the country where the settlement agent does not
         require a meeting, the statement will be mailed or delivered as soon as practical after settlement.
         No advance inspection is required.

         SURVEY (LOCATION SERVICE): A lot drawing performed by a surveyor which locates the house and
         other buildings on the lot described in the legal description of the property. It shows the location of
         the land, its dimensions and any improvements on the land. It also checks for easements of record,
         encroachments and building line violations.

     T   TAX PRORATION: The distribution of seller’s proceeds to the buyer to cover county taxes which are
         owed but not payable at the time of the title transfer.

         TAX RESERVES: Funds, collected as part of the monthly mortgage payment, which are held by the
         lender on behalf of the borrower. These funds are used by the lender to pay the borrower’s semi-annual
         real estate taxes.

         TERM: The amount of time between the start date and the termination date of a note,
         mortgage or other legal document.

         TITLE: The right of ownership, control and possession of property.

         TITLE GUARANTEE: The guarantee to a purchaser by an independent title company performing a title
         search that there are no liens of record which would cloud the title to a newly acquired real property.

         TITLE INSURANCE: A policy that protects the purchaser, mortgagee or other party against losses
         due to defects in title.

         TITLE SEARCH: A search by an independent title company for liens or encumbrances which could affect
         passing clear title from the seller to the buyer.


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