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A
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203(b):
FHA program which provides mortgage insurance to protect
lenders from default; used to finance the purchase of
a 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
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 a 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
credit package involved in the transfer of an assumable
mortgage
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Balloon
Mortgage: a mortgage that typically offers low
rates for an initial period of time (usually 5, 7, or
10 years); after that time 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
determined the design, construction, and materials used
in the building
Budget:
a detailed record of all income earned and spent during
a specific period of time
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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
or 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
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 mulit-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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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 that 29% of monthly
gross income (before taxes) and the mortgage payment
combined with non-housing debts should not exceed 41%
of the 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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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, homeowner's insurance, mortgage insurance,
etc.
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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 the are acting
freely, carefully, and with complete knowledge or 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 potential 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 homeowners
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Ginnie
Mae: Government National Mortgage Association
(GNMA); government-owned corporation overseen by the
US 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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HELP:
Homebuyer Education Learning Program; an education program
from the FHA that councils people about the homebuying
process; HELP covers topics like budgeting, finding
a home, getting a loan, and home maintenance; in most
cases, competition 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; coverage 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 its contents
with protection against claims of negligence or 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 US 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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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 the 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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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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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 a 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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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
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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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Partial
Claim: a loss mitigation option offered by the
FHA that allows a borrower, with the 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
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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 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
lower interest rate)
Rehabilitation
mortgage: a mortgage that covers the costs of
rehabilitating (repairing or improving) a property;
some rehabilitating 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, relationships
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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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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 law obligating a lender to give full written
disclosure of all fees, terms, and conditions associated
with the loan
Two-step
mortgage: a type or 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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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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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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