Glossary
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 of taxation
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
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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 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 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 lO) 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
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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 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 post and present debts and the
timeliness of their repayment; it documents an
individual's credit history
Credit bureau score:
number representing the of possibility a borrower may
default; it is based upon credit history and is used to
determine ability to qualify for a mortgage loan
transfer of ownership at closing; these costs generally
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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 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
with 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, homeowner's insurance, mortgage
insurance, etc.
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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 an to investors;
by purchasing mortgages, Fannie Mae supplies funds that
lenders may loan to potentiaI 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 of the situation 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 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
home owners insurance; coverage extends over a specific
time period and does not cover home’s structure
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 results 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
HUD-1 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
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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
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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 likeFannie 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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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
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 REALTORSand 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) costs of rehabilitation and home purchase
into one
Rehabilitation mortgage:
a mortgage that covers the costs of rehabilitating
(repairing or improving) a property; some rehabilitation
mortgages- like FHA's 203(k) - allow a borrower to roll
the 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 I: 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 low obligating a lender to give full written
disclosure of all fees, terms, and conditions associated
with the loan
Two-step mortgage:
a type of adjustable rate mortgage that has one interest
rate for a predetermined initial period and then adjusts
to another rate that lasts for the term of the loan
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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
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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
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