| 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.
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.
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 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.
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 Is contents with protection against claims of
negligence )r 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) 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.
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 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.
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.
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. |
