Glossary

Abstract Of Title - A summary of recorded transactions concerning a property. (An attorney or title insurance company examines an abstract of title for any title defects which must be cleared before a buyer can purchase clear, marketable, and insurable title.)

Accrued Interest - Interest which has been incurred but not paid.

Adjustable Rate Mortgage (ARM) - A mortgage in which the interest rate is adjusted periodically based on a pre-selected index. Subject to certain limitations, the rate and payments on an ARM loan rise and fall with the market.

Adjustment Interval or Adjustment Period - The length of time between rate adjustments on an Adjustable Rate Mort-gage (ARM).

Agreement Of Sale - Contract signed by buyer and seller stating the terms and conditions under which a property will be sold.

Alternative Documentation - A substitute method of providing the documentation necessary to approve a loan. For example, bank statements may be substituted if it is not possible to provide written verification of the bank balance di-rectly from the borrower’s bank.

Amortization - The process of paying off a mortgage in regular increments.

Amortization Schedule - A monthly repayment schedule outlining how a loan will be paid off in fixed payments combin-ing principal and interest.

Annual Percentage Rate (APR) - A calculation that expresses the total cost of a mortgage loan as a yearly rate (according to a federally mandated procedure). The APR calculation takes into account monthly interest payments, mort-gage insurance, points, and certain fees paid at origination. It generally results in a rate slightly higher than the stated interest rate on the loan.

Appraisal - A written estimate of a property's current market value, based on recent sales information for similar proper-ties, the condition of the property, and the neighborhood’s impact on future property value.

Appraisal Fee - A fee charged by a licensed, certified appraiser to provide an appraisal.

APR - See Annual Percentage Rate.

ARM - See Adjustable Rate Mortgage.

Assessment - A local tax levied against a property for a specific purpose, such as road or sidewalk construction or sewer or street light installation.

Asset Documentation - We will require recent verification of assets needed to close. This is required on all of our loan programs except our NoDoc program.

Assignment - The transfer of property rights by one person, the assignor, to another, the assignee.

Assumability - A loan feature that allows the loan to be transferred from the seller to the purchaser of a home with the same terms and conditions, subject to lender approval.

Balance Sheet - A document showing the financial situation--assets, liabilities, and net worth--of a company at a specific point in time.

Balloon Mortgage - A short-term, fixed-rate loan with low payments for a set number of years and a large balloon pay-ment of the remainder of the principal due at the end of the term.

Bankruptcy - Proclamation by a court of an individual’s (or organization’s) state of insolvency, or inability to pay debts. Petition may be brought by an individual or creditors, with a goal of orderly and equitable settlement of obligations.

Bearer - The legal owner of a piece of property.

Bequest - A gift of personal property by will.

Bill Of Sale - A document by which one transfers ownership of goods to another.C

Bond - A document representing a right to certain payments on underlying collateral.

Borrower (or Mortgagor) - An individual who applies for and receives a loan in the form of a mortgage with the intention
of repaying the loan in full.

Broker - An individual who assists in arranging funding or negotiating contracts for a client but does not loan money him-self.

Budget - The budget is comprised of the total costs involved in the construction of the home, the amount of costs that the borrower may have already paid, and the costs remaining to be paid to complete the home. This budget may also include a
contingency fund and interest reserve account.

Caps - Limits on changes in ARM interest rates or monthly payments, either in an adjustment period or over the life of the loan.

Caps (Interest) - Consumer safeguards which limit the amount the interest rate on an adjustable rate mortgage can change in an adjustment interval and/or over the life of the loan.

Caps (Payment) - Consumer safeguards which limit the amount monthly payments on an adjustable rate mortgage may change. Since they do not limit the amount of interest the lender is earning, payment caps may cause negative amortiza-tion.

Cash Out - A refinance for more than the balance of the current mortgage. The excess money taken out reduces the bor-rower’s equity.

CC&Rs - See Covenants, Conditions and Restrictions.

Ceiling - The maximum allowable interest rate of an adjustable rate mortgage.

Certificate Of Occupancy - Document issued by local government agency stating that a property meets the requirements of health and building codes.

Certificate Of Title - Written opinion of the status of title to a property, given by an attorney or title company. This certifi-cate does not offer the protection given by title insurance.

Chain of Title - The chronological order of conveyance of a property from the original owner to the present owner.

Clear Title - A marketable title, free of clouds and disputes.

Closing (or Settlement) - Meeting between the buyer, seller, and lender or their agents, at which property and funds le-gally change hands.

Closing Agent - Neutral third party appointed to act as a custodian for documents and funds during the transfer of property from seller to buyer. Depending on local law and custom, this could be an attorney, escrow agent, or title company.

Closing Costs - Costs associated with the closing of the loan (e.g. title costs, loan fees, discount fees, inspection fees, appraisals, etc.).

Closing/Settlement Statement - A form prepared by the closing agent that itemizes the closing costs associated with purchasing or refinancing a home. Also see HUD-1.

Cloud on Title - An outstanding claim or encumbrance that, if valid, would affect or impair the owner's title.

Combined Loan To Value (CLTV) - The percentage of the property value borrowed through a combination of more than one loan (for example, first mortgage and home equity line of credit). Mathematically, the combined loan and line of credit amounts divided by property value equals Combined Loan To Value Ratio.

Collateral - Assets that secure a loan. (In the case of a mortgage, real property serves as collateral.)

Condominium - A form of property ownership in which the homeowner holds title to an individual dwelling unit and an interest in common areas and facilities of a multi-unit project.

Conforming Loan - A mortgage loan eligible for purchase by the two federally sponsored housing agencies, Fannie Mae and Freddie Mac.

Construction Costs (Hard Costs)- These are the costs to complete the construction of a home.

Construction Loan - A short-term interim loan to fund the construction of buildings or homes, which usually advances the money in installments as work progresses.

Contract Of Sale - The agreement between the buyer and seller on the purchase price, terms, and conditions of a sale.

Contingency Fund - A budget line item set aside to pay for cost-overruns, change orders and may also be used for the set up of your escrow account at modicifcation.

Conventional Loan Loan - A mortgage not insured by the FHA or guaranteed by the VA.

Conveyance - The transfer of a deed, lease, or mortgage.

Course of Construction - This policy is in the form of an "all risk" policy with fire, extended coverage, builder's risk, re-placement cost, vandalism, and malicious mischief insurance coverage. The owner is named insured with insurable value equal to the replacement cost of the improvement or the loan amount, whichever is lower. Once the improvements are
completed and the permanent mortgage begins, the course of construction policy is usually converted to a standard "all risk" policy.

Covenants, Conditions, and Restrictions (CC&Rs) - A document that defines the use, requirements and restrictions of a condominium or Planned Unit Development (PUD).

Credit Report - A report detailing the credit history of a prospective borrower, used by lenders to help determine creditwor-thiness.

Debt-To-Income Ratio - A figure, expressed as a ratio, that compares the amount of recurring debt payments a borrower is obligated to make to the amount of their income.

Deed - Legal document by which title to a property is transferred from one owner to another. The deed contains a descrip-tion of the property and is signed, witnessed, and delivered to the buyer at closing.

Deed Of Trust - Document creating a lien on a property as security for the payment of a debt. In some states, a mortgage is used instead.

Deferred Interest - Amount added to the balance of a loan when monthly payments are insufficient to cover the interest incurred. This results in negative amortization.

Deposit Draws - We can make allow for draws on certain line items up to 50% of the cost prior to being completed.

Draws – Amounts advanced from the construction loan to pay for work completed.

Earnest Money - Deposit made by a buyer toward the down payment as evidence of good faith when the purchase agree-ment is signed.

Encumbrance - A legal right or interest in a property that affects title and may lessen the property value.

Equity - The difference between the current market value of a property and the outstanding mortgage balance.

Escrow - 1. Neutral third party appointed to act as a custodian for documents and funds during the transfer of property from seller to buyer or in the course of refinancing property. 2. Account held by lender containing funds collected in con-junction with monthly mortgage payments. The funds in the escrow account are used by the lender to pay annual ex-penses such as taxes and insurance on behalf of the borrower.

Escrow Account - Account held by lender containing funds collected in conjunction with monthly mortgage payments. Also known as impounds, the funds in this account are held in trust by the lender on behalf of the borrower, and are used to pay expenses such as property taxes and homeowner’s insurance.

Estimated Settlement (or Closing) Statement - A document provided by the closing agent a few days before closing, detailing all costs and indicating the final sum the buyer will be required to bring to the closing.

Fannie Mae (FNMA) - Corporation created by Congress that buys and sells residential mortgages. Fannie Mae provides funds for one in seven mortgages.

Federal Reserve - Central bank of the United States and major regulatory agency for many commercial banks.

Fee Simple - Absolute ownership of real property.

First Mortgage - The primary lien against a property.

Fixed Rate - An interest rate that is fixed for the term of the loan.

Fixed-Rate Mortgage - A mortgage whose interest rate does not change for the life of the loan. Payments are also fixed.

Flexible Documentation - Our One Time Close Construction Loan offers our borrowers flexible and sensible documentation options:

Full Doc - Income documentation is required, such as pay stubs, W2s and 1040s
Stated Income: Income stated but not verified

Float Down – The process by which 60 days prior to modification your able to take advantage of any reduction in interest rate during the course of construction and reduce your permanent rate.

Flood Insurance - A form of hazard insurance required by the federal government to cover property damage or loss in flood zones.

Fixed Price Contract - A construction contract between the borrower and contractor defining the cost of building and im-proving a residence. The contract should have a start date and a finish date.

Foreclosure (or Repossession) - Legal process by which the lender forces the sale of a property when the borrower has not met the mortgage terms.

Freddie Mac (FHLMC) - Quasi-governmental agency that purchases conventional mortgages from insured depository institutions and HUD-approved mortgage bankers.

General Liability - Insurance in the form of a comprehensive general policy or included as a broad form liability endorse-ment. This can be provided by the borrower or the general contractor. If the insurance is provided by the borrower, a mini-mum amount of $300,000 for each occurrence is required, extended to both property and personal injury. If the contractor is providing the insurance, a comprehensive general policy of at least $1,000,000 or a policy including broad form liability endorsement is required.

Good Faith Estimate - Written estimate of costs the borrower will pay at closing, provided by a lender within three days of loan application.

Grace Period - Period of time during which a loan payment may be made after its due date without incurring a late pen-alty.

Guarantee or Guaranty - A promise by one party to pay a debt or perform an obligation contracted by another in the event of that person's default.

Gross Monthly Income - Total monthly income before taxes or expenses are deducted. Used in the loan origination proc-ess to calculate borrower’s ability to make payments on a loan.

Hazard Insurance - A policy that protects the insured against loss due to fire or certain natural disasters in exchange for a premium paid to the insurer. Also known as Home Owner’s Insurance or fire insurance.

Home Equity Loan - An additional mortgage secured by the equity in the home. All funds for this loan are disbursed at closing. (In contrast, see Home Equity Line Of Credit).

Home Equity Line Of Credit - A revolving line of credit secured by the equity in the home. Unlike a Home Equity Loan, these funds may be drawn and repaid like a credit card.

Housing and Urban Development (HUD) - A U.S. government agency established to implement federal housing and community development programs; oversees the Federal Housing Administration.

Housing Code - Local government ordinance that sets minimum standards of safety and sanitation for existing residential buildings.

HUD - See Housing and Urban Development.

HUD-1 Settlement Statement - A form mandated by the federal government that itemizes the closing costs associated with purchasing a home. Also see Estimated Settlement Statement.

Impound (or Reserves) - Portion of a borrower's monthly payments held by the lender to pay for taxes, insurance, and other items as they become due.

Impound Account - See Escrow Account.

Index - A published rate used by lenders to calculate interest adjustments on adjustable rate mortgages (Index + Margin = Interest Rate). Common indexes include the Prime Rate

Interest - Charge paid for borrowing money.

Interest Rate - The rate, expressed as a percentage, of the outstanding balance used to calculate interest charges.

Interest Rate Cap - A safeguard built into ARMs to prevent drastic changes in interest rates.

Interest Reserve Account - During the construction period, an account may be established to pay the interest costs dur-ing the construction of the home.

Jumbo Loan - A mortgage with a principal balance that exceeds the amount eligible for purchase by Fannie Mae and Freddie Mac. Jumbo loans generally carry a higher interest rate.

Late Charge - Penalty paid by a borrower when a payment is made after the due date.

Lender - The bank, mortgage company, or mortgage broker offering the loan.

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

Loan Administration (or Loan Servicing) - The collection of mortgage payments from borrowers and related responsibili-ties. For greater flexibility First Horizon will handle this for you locally.

Loan Application - An initial statement of personal and financial information required to approve a loan provided by the borrower and necessary to initiate the approval process for a loan.

Line Item Cost Breakdown - This is the form that a contractor furnishes to a consumer detailing the costs of building the home. This form serves as the basis of a percentage of completion disbursement schedule. Most contractors will have budget forms that they are already using but we are happy to provide one if needed.

Loan Origination Fee - Fee charged by a lender that compensates for the work in evaluating and processing the loan.

Lock (or Lock In) - A lender's guarantee of an interest rate and related points for a set period of time, usually between loan application and loan closing. Protects borrower against rate increases during that time.

Loan To Value (LTV) Ratio - The percentage of the property value borrowed (loan amount/property value = loan to value ratio).

Margin - The percentage amount added to an index to calculate the interest rate of an adjustable rate mortgage at each adjustment.

Marketable Title - A title that is free and clear of liens, clouds, or other defects which would prevent the sale of the prop-erty.

Market Value - The value that a willing seller would accept and a willing buyer would offer given a reasonable time for the seller to market a property.

Mortgage - Document creating a lien on a property as security for the payment of a debt. In some states, a Deed of Trust is used instead.

Mortgage Banker - A lender that originates and funds, then services the mortgage loan.

Mortgage Broker - A person or entity that charges a fee for arranging financing for borrowers, but places loans with lend-ers rather than funding them with the broker’s own money.

Mortgage Note - 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 loan transaction.

Negative Amortization - Increase in principal balance that occurs when monthly payments are not large enough to pay all interest incurred on a loan, usually caused when payment caps prevent sufficient payment increases. Deferred interest is added to the loan balance, resulting in the borrower owing more than the original amount of the loan.

Net - After taxes.

Notice Of Default - Written notice to a borrower that a default has occurred and that legal action may be taken.

One Time Close - Often, getting approved for a construction loan can be tricky. In many cases, three loans are required: one for the lot one for construction and one for permanent financing. Usually you will have to pay closing costs on each loan, not to mention the extra paperwork, time, and hassle involved. At First Horizon Home Loans we offer our One Time Close Construction Loan that combines both construction and permanent financing into one loan.

Per Diem Interest - Interest calculated per day. Depending on the day of the month on which closing takes place, bor-rower pays interest from the date of closing to the end of the month. The first mortgage payment of a loan is generally due on the first of the following month.

Periodic Interest Rate Cap - A limit on the amount that interest rates can change at each adjustment period.

Permanent Loan – The final mortgage loan to be converted to once construction in complete. This loan is already ap-proved and in place with First Horizon’s One-Time-Close loan

Permits - A governmental municipal authorization to perform a building process as in:
· Zoning\Use permit - Authorization to use a property for a specific use e.g. a garage, a single family residence etc.
· Demolition permit - Authorization to tear down and remove an existing structure.
· Grading permit - Authorization to change the contour of the land.
· Septic permit - A health department authorization to build or modify a septic system.
· Building permit - Authorization to build or modify a structure.
· Electrical permit - A separate permit required for most electrical work.
· Plumbing permit - A separate permit required for new plumbing and larger modifications of existing plumbing systems.

PITI - Abbreviation for Principal, Interest, Taxes, and Insurance, the components of a monthly mortgage payment; also called Monthly Housing Expenses.

Plans/Specifications - These documents consist of a legible set of architectural drawings (building plans) usually pre-pared by an architect or designer. They typically include a floor plan showing all dimensions, a foundation plan showing all dimensions, outside elevations of the building. Also a general materials list describing the building materials being used in
the project.

Power Of Attorney - Legal document authorizing one person to act on behalf of another.

Prepaid Interest - Interest charged to a borrower at closing to cover interest on the loan between closing and the end of the month in which the loan closes.

Prepayment Penalty - Fee that may be charged by a lender for early payment of debt.

Prime Rate - Lowest commercial interest rate charged by a bank on short-term loans to its most credit-worthy customers. Often used as an index for home equity lines of credit and construction loans

Principal - The amount of debt, not counting interest, left on a loan.

Property Tax - A government tax based on the market value of a property.

PUD (Planned Unit Development) - A project or subdivision that includes common property that is owned and maintained by a homeowners’ association for the benefit and use of the individual PUD unit owner.

Purchase Agreement - Contract signed by buyer and seller stating the terms and conditions under which a property will be purchased.

Realtor - Real estate professional who is a member of the National Association of Realtors.

Re-Amortize - The function to provide a new graduated payment amount as it relates to a new loan amount or a new inter-est rate.

Reconveyance - The transfer of property back to the owner when a mortgage is fully repaid.

Second Mortgage - A subordinate mortgage made in addition to a first mortgage.

Settlement Costs - See Closing Costs

Simple Interest - Interest computed only on the principal balance.

Soft Costs - These are indirect site costs. Permit fees, engineering fees, architectural fees, and other costs associated with building the home but not directly a part of the actual construction costs. These costs can be included in your con-struction loan.

Survey - A measurement of land, prepared by a licensed surveyor, showing a property’s boundaries, elevations, improve-ments, and relationship to surrounding tracts.

Tax Impound - See Escrow Account.

Tax Lien - Claim against a property for unpaid taxes.

Tax Sale - Public sale of property by a government authority as a result of non-payment of taxes.

Term - The number of years it will take to pay off a loan.

Title - Document which gives evidence of ownership of a property and the rights of ownership and possession of that prop-erty.

Title Company - A company that insures title to property.

Title Insurance - Insurance which protects the lender (lender’s policy) or the buyer (owner’s policy) against loss due to disputes over ownership of a property.

Title Search - Examination of municipal records to ensure that the seller is the legal owner of a property and that no liens or other claims exist against the property.

Trust Account - Account maintained by a broker or escrow company to handle all money collected for clients.

Trustee - Someone given legal responsibility to hold property in the best interest of another.

Underwriting - The process of verifying data and evaluating a loan for approval.

Variable Rate Mortgage- See Adjustable Rate Mortgage.

Variable Rate- Interest rate that changes periodically in relation to an index.

Verification Of Deposit (VOD) - Document signed by the borrower's bank or other financial institution verifying the bor-rower's account balance and history.

Verification Of Employment (VOE) - Document signed by the borrower's employer verifying the borrower's position and salary.

Zoning Ordinances (or Zoning Regulations) - Local law establishing building codes and usage regulations for properties in a specified area.

For more information, email Mitch Roberts of Andy Thiel!