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 (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.
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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 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.
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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.
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 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 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.
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
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.
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N
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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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
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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 (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.
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