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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
(like location, Woods, water) or man-made (like 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.
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.
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
gouge 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.
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.
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 or loans from the fair market value
of the property.
Escrow account:
a separate account
into which the lender puts a portion of each monthly mortgage payment; an
escrow account provides the funds needed for such expenses as property
taxes, homeowners insurance, mortgage insurance, etc.
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.
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.
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.
H
HELP:
Homebuyer Education Learning Program; an educational program from the FHA
that counsels people about the home buying process; HELP covers topics like
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 Is
contents with protection against claims of negligence )r inappropriate
action that result 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 homebuying.
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.
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.
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.
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
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 like
: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.
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.
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.
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 (like a lower interest rate).
Rehabilitation
mortgage: a
mortgage that covers the costs of rehabilitating (repairing or Improving)
a property; some rehabilitation mortgages - like 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
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
T
Title 1:
an FHA-insured loan that allows a borrower to make non-luxury improvements
(like 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.
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.
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. |
