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: a
building code is a regulation that determines the design, construction,
and materials used in building based on agreed upon safety standards
within a specific area.
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.
D
Debt-to-income ratio:
a comparison of gross income to housing and non-housing expenses.
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 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. Homeowner's insurance:an
insurance policy that combines protection against damage to a dwelling
and its contents with protection against claims of negligence or inappropriate
action that result in 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.
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.
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. 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 and therefore value
T
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.
