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.
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.
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.
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.
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 loon(s) 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.
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.
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.
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) 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
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.
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.
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.
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.
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.
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.
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.
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
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
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.
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.
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.