Glossary or Definitions
A
B C D E
F G H I
J K L M N O
P Q R S T
U V W X Y Z
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. Top
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. Top
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 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. Top
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. Top
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. Top
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. Top
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. Top
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.
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. Top
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.
Top
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. Top
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.
Top
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. Top
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. Top
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. Top
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.
Top
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.
Top
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 fuII written
disclosure of aII fees, terms, and conditions
associated with the loan initial period and
then adjusts to another rate that lasts for
the term of the loan. Top
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.
Top
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Elizabeth Stevenson