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.
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.
Bridal
Registry: a program supported by the FHA that allows couples to open
('register" for) a bridal registry account into which family and friends
can deposit gifts of cash; the funds in this account may then be used for a down
payment on a house
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 an-d 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 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.
F
Fair
Housing Act: a law that prohibits discrimination in all facets of the
homebuying 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 homebuying 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.
Re
