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Cap: The maximum amount an interest rate can increase or decrease in a designated period of time (interest rate cap) or over the life of the loan (lifetime cap) on an adjustable-rate loan.

Cash-Out Refinance: When an owner refinances a loan and takes some equity out as cash.

Cash Reserves: A requirement of some lenders that buyers have sufficient cash remaining after closing.

Closing: The final step in the transfer of property ownership. Usually occurs at a formal meeting between the buyer, seller, settlement agent and possibly real estate agents, where the buyer signs the mortgage and mortgage note, the seller receives payment for the property, the buyer or seller or both pay closing costs and the title is transferred from the seller to the buyer. Also called “settlement.”

Closing Costs: Expenses incurred over and above the purchase price of the property by buyers and sellers in transferring ownership of a property. Also called “settlement costs.”

Closing Disclosure: Replaces the HUD 1 Settlement Statement and the final Truth-in-Lending disclosure. Designed to provide disclosures that will be helpful for the consumer in understanding all of the costs of the transaction. Provided to the consumer 3 business days before they close the mortgage loan.

Commission: The fee a real estate agent is paid for helping sell a house; it is usually a percentage of the purchase price.

Condominium: A home that is attached to other homes and shares common areas that everyone in the building or development owns together and maintains through a homeowners association fee.

Contingency: A condition put in an offer to buy a home.

Conventional Mortgage: A loan made by for-profit lenders and not insured by the federal government.

Credit Report: A record of how a consumer has repaid credit in the past. Is used as a guide to determine a potential homebuyer’s creditworthiness.

Credit Reporting Agency: A company that gathers, files and sells information to creditors and others with a legitimate business purpose. Also called “credit bureau.” Equifax, Transunion and Experian are the largest three credit reporting agencies.

Credit Score: A numerical measure of creditworthiness.

Credit Union: A financial institution that is a cooperative and offers savings and checking accounts and other financial services for its members.

Debt-to-Income Ratio: The maximum percentage of a borrower’s gross monthly income that can be spent on the house payment and all other debts. Also called “back-end ratio.”

Deed: A legal document conveying title to a property. Also called “grant deed” or “warranty deed.”

Deed-In-Lieu: An agreement where a delinquent borrower gives the lender the deed and the keys and moves out of the property in exchange for forgiveness of the loan. Also called deed-in-lieu of foreclosure.

Deed of Trust: An alternative to a mortgage in some states, whereby a third party holds the deed of the property as security until the buyer repays the loan. Also called “trust deed.”

Default: Failure to meet financial obligations, which may result in the lender foreclosing on the loan.

Depreciation: A decrease in the value of property due to changes in market conditions, wear and tear on the property, or other factors.

Discretionary Income: The amount of money left over in a month after regular expenses are subtracted from the take-home pay.

Down Payment: The amount of cash a borrower pays towards purchasing a home.

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