The
following glossary has been obtained through the US Department
of Housing and Urban Development. Please refer to www.hud.gov for additional information.
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.
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.
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 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 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.
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 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 its contents
with protection against claims of negligence are 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
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) rati: - 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.
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.
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.
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.
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.
