Caps – A set percentage amount by which an adjustable rate mortgage may adjust each adjustment period. For adjustable loans, caps are usually quoted as two numbers as in 2/6. The first number indicates how much a loan may adjust at each adjustment period while the second number indicates how much a loan may adjust over its lifetime. Loans like the 3/1 and 5/1 adjustable which have an initial fixed period are quoted with 3 numbers as in 3/2/6 which would mean that the first adjustment may be as much as 3%, subsequent adjustments are capped at 2% each, and the lifetime cap is 6%. Two-Step loans are quoted with a single cap, which is the amount by which the loan may adjust at its single adjustment date.
Closing Costs – Fees paid by the borrower when property is purchased or refinanced. These typically include a loan origination fee, discount points, appraisal fee, title search, title insurance, survey, taxes, deed recording fee, and credit report charges.
Commitment – A written letter of agreement detailing the terms and conditions by which the lender will lend and the borrower will borrow funds to finance a home.
Conforming Loan – A mortgage loan for up to $300,700 in the continental United States (Alaska and Hawaii limits are higher).
Construction Loan – A short term loan for funding the cost of construction. The lender advances funds to the builder as the work progresses.
Conventional Loan – A mortgage neither insured by the FHA nor guaranteed by the VA.
Conversion – The right of a borrower to convert an adjustable or balloon loan into a fixed loan.
Credit Rating – Borrowers are rated by lenders according to the borrower’s credit-worthiness or risk profile. Credit ratings are expressed as letter grades such as A-, B, or C+. These ratings are based on various factors such as a borrower’s payment history, foreclosures, bankruptcies and charge-offs. There is no exact science to rating a borrower’s credit, and different lenders may assign different grades to the same borrower.
Credit Report – A report to a prospective lender on the credit standing of a prospective borrower. Used to help determine creditworthiness. Information regarding late payments, defaults, or bankruptcies will appear here.