203(b): FHA program which
provides mortgage insurance to
protect lenders from default;
used to finance the purchase of
new or existing one- to four
family housing; characterized by
low down payment, flexible
qualifying guidelines, limited
fees, and a limit on maximum
loan amount.
203(k): this FHA mortgage
insurance program enables
homebuyers to finance both the
purchase of a house and the cost
of its rehabilitation through a
single mortgage loan.
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.
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.
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.
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.
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.
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.
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.
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
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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