A
Amenity
A feature of the home or property that serves as a benefit to the buyer
but that is not necessary to its use; may be natural (such as location,
woods, water) or man-made (such as a swimming pool or garden).
Amortization
repayment of a mortgage loan through monthly installments of principal
and interest; the monthly payment amount is based on a schedule that
will allow you to own your home at the end of a specific time period
(for example, 15 or 30 years)
Annual Percentage Rate (APR)
calculated by using a standard formula, the APR shows the cost of a
loan; expressed as a yearly interest rate, it includes the interest,
points, mortgage insurance, and other fees associated with the loan.
Application
the first step in the official loan approval process; this form is used
to record important information about the potential borrower necessary
to the underwriting process.
Appraisal
a document that gives an estimate of a property's fair market value;
an appraisal is generally required by a lender before loan approval
to ensure that the mortgage loan amount is not more than the value of
the property.
Appraiser
A qualified individual who uses his or her experience and knowledge
to prepare the appraisal estimate.
ARM
Adjustable Rate Mortgage; a mortgage loan subject to changes in interest
rates; when rates change, ARM monthly payments increase or decrease
at intervals determined by the lender; the change in monthly payment
amount, however, is usually subject to a Cap.
Assessor
a government official who is responsible for determining the value of
a property for the purpose of taxation.
Assumable
mortgage
a mortgage that can be transferred from a seller to a buyer; once the
loan is assumed by the buyer the seller is no longer responsible for
repaying it; there may be a fee and/or a credit package involved in
the transfer of an assumable mortgage.
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B
Balloon Mortgage
A mortgage that typically offers low rates for an initial period of
time (usually 5, 7, or 10) years; after that time period elapses, the
balance is due or is refinanced by the borrower.
Bankruptcy
a federal law whereby a person's assets are turned over to a trustee
and used to pay off outstanding debts; this usually occurs when someone
owes more than they have the ability to repay.
Borrower
a person who has been approved to receive a loan and is then obligated
to repay it and any additional fees according to the loan terms.
Building
code
Based on agreed upon safety standards within a specific area, a building
code is a regulation that determines the design, construction, and materials
used in building.
Budget
A detailed record of all income earned and spent during a specific period
of time.
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C
Cap
A limit, such as that placed on an adjustable rate mortgage, on how
much a monthly payment or interest rate can increase or decrease.
Cash reserves
A cash amount sometimes required to be held in reserve in addition to
the down payment and closing costs; the amount is determined by the
lender.
Certificate
of title
A document provided by a qualified source (such as a title company)
that shows the property legally belongs to the current owner; before
the title is transferred at closing, it should be clear and free of
all liens or other claims.
Closing
Also known as settlement, this is the time at which the property is
formally sold and transferred from the seller to the buyer; it is at
this time that the borrower takes on the loan obligation, pays all closing
costs, and receives title from the seller.
Closing
Costs
Customary costs above and beyond the sale price of the property that
must be paid to cover the transfer of ownership at closing; these costs
generally vary by geographic location and are typically detailed to
the borrower after submission of a loan application.
Commission
An amount, usually a percentage of the property sales price, that is
collected by a real estate professional as a fee for negotiating the
transaction.
Condominium
A form of ownership in which individuals purchase and own a unit of
housing in a multi-unit complex; the owner also shares financial responsibility
for common areas.
Conventional
loan
A private sector loan, one that is not guaranteed or insured by the
U.S. government.
Cooperative
(Co-op)
residents purchase stock in a cooperative corporation that owns a structure;
each stockholder is then entitled to live in a specific unit of the
structure and is responsible for paying a portion of the loan.
Credit History
History of an individual's debt payment; lenders use this information
to gauge a potential borrower's ability to repay a loan.
Credit Report
A record that lists all past and present debts and the timeliness of
their repayment; it documents an individual's credit history.
Credit bureau
score
a number representing the possibility a borrower may default; it is
based upon credit history and is used to determine ability to qualify
for a mortgage loan.
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D
Debt-to-Income
ratio
A comparison of gross income to housing and non-housing expenses. With
the FHA, the-monthly mortgage payment should be no more than 29% of
monthly gross income (before taxes) and the mortgage payment combined
with non-housing debts should not exceed 41% of income.
Deed
The document that transfers ownership of a property.
Deed-in-lieu
to avoid foreclosure ("in lieu" of foreclosure), a deed is
given to the lender to fulfill the obligation to repay the debt; this
process doesn't allow the borrower to remain in the house but helps
avoid the costs, time, and effort associated with foreclosure.
Default
The inability to pay monthly mortgage payments in a timely manner or
to otherwise meet the mortgage terms.
Delinquency
Failure of a borrower to make timely mortgage payments under a loan
agreement.
Discount point
normally paid at closing and generally calculated to be equivalent to
1% of the total loan amount, discount points are paid to reduce the
interest rate on a loan.
Down payment
The portion of a home's purchase price that is paid in cash and is not
part of the mortgage loan.
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E
Earnest
money
Money put down by a potential buyer to show that he or she is serious
about purchasing the home; it becomes part of the down payment if the
offer is accepted, is returned if the offer is rejected, or is forfeited
if the buyer pulls out of the deal.
EEM
Energy Efficient Mortgage; an FHA program that helps homebuyers save
money on utility bills by enabling them to finance the cost of adding
energy efficiency features to a new or existing home as part of the
home purchase.
Equity
An owner's financial interest in a property; calculated by subtracting
the amount still owed on the mortgage loan(s)from the fair market value
of the property.
Escrow account
A trust account created by a third party to hold money. A mortgage escrow
account is an account set-up to pay taxes and insurance. Monthly mortgage
payments may include 1/12 of annual property taxes and insurance. When
the bills comes due, lenders use the money in the escrow account to
pay them.
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F
Fair Housing
Act
A law that prohibits discrimination in all facets of the home buying
process on the basis of race, color, national origin, religion, sex,
familial status, or disability.
Fair market value
The hypothetical price that a willing buyer and seller will agree upon
when they are acting freely, carefully, and with complete knowledge
of the situation.
Fannie Mae
Federal National Mortgage Association (FNMA); a federally-chartered
enterprise owned by private stockholders that purchases residential
mortgages and converts them into securities for sale to investors; by
purchasing mortgages, Fannie Mae supplies funds that lenders may loan
to potential homebuyers.
Federal Housing Administration (FHA)
Federal Housing Administration; established in 1934 to advance homeownership
opportunities for all Americans; assists homebuyers by providing mortgage
insurance to lenders to cover most losses that may occur when a borrower
defaults; this encourages lenders to make loans to borrowers who might
not qualify for conventional mortgages.
Fixed-rate mortgage
A mortgage with payments that remain the same throughout the life of
the loan because the interest rate and other terms are fixed and do
not change.
Flood insurance
Insurance that protects homeowners against losses from a flood; if a
home is located in a flood plain, the lender will require flood insurance
before approving a loan.
Foreclosure
A legal process in which mortgaged property is sold to pay the loan
of the defaulting borrower.
Freddie Mac
Federal Home Loan Mortgage Corporation (FHLM); a federally-chartered
corporation that purchases residential mortgages, securitizes them,
and sells them to investors; this provides lenders with funds for new
homebuyers.
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G
Ginnie Mae
Government National Mortgage Association (GNMA); a government-owned
corporation overseen by the U.S. Department of Housing and Urban Development,
Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities
for private investment; as With Fannie Mae and Freddie Mac, the investment
income provides funding that may then be lent to eligible borrowers
by lenders.
Good Faith Estimate
an estimate of all closing fees including pre-paid and escrow items
as well as lender charges; must be given to the borrower within three
days after submission of a loan application.
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H
HELP
Homebuyer Education Learning Program; an educational program from the
FHA that counsels people about the homebuying process; HELP covers topics
such as budgeting, finding a home, getting a loan, and home maintenance;
in most cases, completion of the program may entitle the homebuyer to
a reduced initial FHA mortgage insurance premium-from 2.25% to 1.75%
of the home purchase price.
Home inspection
An examination of the structure and mechanical systems to determine
a home's safety; makes the potential homebuyer aware of any repairs
that may be needed.
Home warranty
Offers protection for mechanical systems and attached appliances against
unexpected repairs not covered by homeowner's insurance; overage extends
over a specific time period and does not cover the home's structure.
Homeowner's insurance
an insurance policy that combines protection against damage to a dwelling
and it's contents with protection against claims of negligence or inappropriate
action that results in someone's injury or property damage.
Housing counseling agency
provides counseling and assistance to individuals on a variety of issues,
including loan default, fair housing, and home buying.
HUD
The U.S. Department of Housing and Urban Development; established in
1965, HUD works to create a decent home and suitable living environment
for all Americans; it does this by addressing housing needs, improving
and developing American communities, and enforcing fair housing laws.
HUD1 Statement
also known as the "settlement sheet," it itemizes all closing
costs; must be given to the borrower at or before closing.
HVAC
Heating, Ventilation and Air Conditioning; a home's heating and cooling
system.
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I
Index
A measurement used by lenders to determine changes to the interest rate
charged on an adjustable rate mortgage.
Inflation
The number of dollars in circulation exceeds the amount of goods and
services available for purchase; inflation results in a decrease in
the dollar's value.
Interest
A fee charged for the use of money.
Interest rate
The amount of interest charged on a monthly loan payment; usually expressed
as a percentage.
Insurance
Protection against a specific loss over a period of time that is secured
by the payment of a regularly scheduled premium.
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J
Judgment
A legal decision; when requiring debt repayment, a judgment may include
a property lien that secures the creditor's claim by providing a collateral
source.
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K
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L
Lease purchase
Assists low to moderate income homebuyers in purchasing a home by allowing
them to lease a home with an option to buy; the rent payment is made
up of the monthly rental payment plus an additional amount that is credited
to an account for use as a down payment.
Lien
A legal claim against property that must be satisfied when the property
is sold.
Loan
Money borrowed that is usually repaid with interest.
Loan fraud
purposely giving incorrect information on a loan application in order
to better qualify for a loan; may result in civil liability or criminal
penalties.
Loan-to-value (LTV) ratio
A percentage calculated by dividing the amount borrowed by the price
or appraised value of the home to be purchased; the higher the LTV,
the less cash a borrower is required to pay as down payment.
Lock-in
since interest rates can change frequently, many lenders offer an interest
rate lock-in that guarantees a specific interest rate if the loan is
closed within a specific time.
Loss mitigation
a process to avoid foreclosure; the lender tries to help a borrower
who has been unable to make loan payments and is in danger of defaulting
on his or her loan
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M
Margin
An amount the lender adds to an index to determine the interest rate
on an adjustable rate mortgage.
Mortgage
A lien on the property that secures the promise to repay a loan.
Mortgage banker
A company that originates loans and resells them to secondary mortgage
lenders such as Fannie Mae or Freddie Mac
Mortgage broker
A firm that originates and processes loans for a number of lenders.
Mortgage insurance
A policy that protects lenders against some or most of the losses that
can occur when a borrower defaults on a mortgage loan; mortgage insurance
is required primarily for borrowers with a down payment of less than
20% of the home's purchase price.
Mortgage insurance premium (MIP)
A monthly payment usually part of the mortgage payment paid by a borrower
for mortgage insurance.
Mortgage Modification
a loss mitigation option that allows a borrower to refinance and/or
extend the term of the mortgage loan and thus reduce the monthly payments.
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N
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O
Offer
indication by a potential buyer of a willingness to purchase a home
at a specific price; generally put forth in writing.
Origination
the process of preparing, submitting, and evaluating a loan application;
generally includes a credit check, verification of employment, and a
property appraisal.
Origination fee
The charge for originating a loan; is usually calculated in the form
of points and paid at closing.
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P
Partial
Claim
a loss mitigation option offered by the FHA that allows a borrower,
with help from a lender, to get an interest-free loan from HUD to bring
their mortgage payments up to date.
PITI
Principal, Interest, Taxes, and Insurance - the four elements of a monthly
mortgage payment; payments of principal and interest go directly towards
repaying the loan while the portion that covers taxes and insurance
(homeowner's and mortgage, if applicable) goes into an escrow account
to cover the fees when they are due.
PMI
Private Mortgage Insurance; privately-owned companies that offer standard
and special affordable mortgage insurance programs for qualified borrowers
with down payments of less than 20% of a purchase price.
Pre-approve
lender commits to lend to a potential borrower; commitment remains as
long as the borrower still meets the qualification requirements at the
time of purchase.
Pre-foreclosure sale
Allows a defaulting borrower to sell the mortgaged property to satisfy
the loan and avoid foreclosure.
Pre-qualify
A lender informally determines the maximum amount an individual is eligible
to borrow.
Premium
An amount paid on a regular schedule by a policyholder that maintains
insurance coverage.
Prepayment
Payment of the mortgage loan before the scheduled due date; may be subject
to a prepayment penalty.
Principal
The amount borrowed from a lender; doesn't include interest or additional
fees.
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Q
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R
Radon
A radioactive gas found in some homes that, if occurring in strong enough
concentrations, can cause health problems.
Real estate agent
An individual who is licensed to negotiate and arrange real estate sales;
works for a real estate broker.
Realtor
A real estate agent or broker who is a member of the NATIONAL ASSOCIATION
OF REALTORS®, and its local and state associations.
Refinancing
Paying off one loan by obtaining another; refinancing is generally done
to secure better loan terms (such as a lower interest rate).
Rehabilitation mortgage
a mortgage that covers the costs of rehabilitating (repairing or improving)
a property; some rehabilitation mortgages such as the FHA's 203(k) allow
a borrower to roll the costs of rehabilitation and home purchase into
one mortgage loan.
RESPA
Real Estate Settlement Procedures Act; a law protecting consumers from
abuses during the residential real estate purchase and loan process
by requiring lenders to disclose all settlement costs, practices, and
relationships
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S
Settlement
Another name for closing
Special Forbearance
A loss mitigation option where the lender arranges a revised repayment
plan for the borrower that may include a temporary reduction or suspension
of monthly loan payments.
Subordinate
To place in a rank of lesser importance or to make one claim secondary
to another.
Survey
A property diagram that indicates legal boundaries, easements, encroachments,
rights of way, improvement locations, etc.
Sweat equity
Using labor to build or improve a property as part of the down payment.
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T
Title 1
an FHA-insured loan that allows a borrower to make non-luxury improvements
(such as renovations or repairs) to their home; Title I loans less than
$7,500 don't require a property lien.
Title insurance
Insurance that protects the lender against any claims that arise from
arguments about ownership of the property; also available for homebuyers.
Title search
A check of public records to be sure that the seller is the recognized
owner of the real estate and that there are no unsettled liens or other
claims against the property.
Truth-in-Lending
A federal law obligating a lender to give full written disclosure of
all fees, terms, and conditions associated with the loan initial period
and then adjusts to another rate that lasts for the term of the loan.
Truth-in-Lending
A federal law obligating a lender to give fuII written disclosure of
aII fees, terms, and conditions associated with the loan initial period
and then adjusts to another rate that lasts for the term of the loan.
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U
Underwriting
The process of analyzing a loan application to determine the amount
of risk involved in making the loan; it includes a review of the potential
borrower's credit history and a judgment of the property value.
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V
VA
Department of Veterans Affairs: a federal agency which guarantees loans
made to veterans; similar to mortgage insurance, a loan guarantee protects
lenders against loss that may result from a borrower default.
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W
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X
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Y
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Z
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