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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. Under the Truth in Lending Law, lenders
are required to provide you with a loan's "true"
cost on an annual basis. The APR must be
advertised in all advertising when any other
rate is advertised. The APR may be used by
a consumer to compare the rates, including
various costs, of two or more loans. The
loan with the lower APR will cost the least in
financing charges over the life of the loan.
If you do not plan on keeping your loan for the
entire length, the APR will have much less
meaning for you. The APR may also become
meaningless when comparing a fixed rate loan
versus an adjustable rate loan (ARM)
Furthermore, some loans are based upon a 360 day
year while others may be based upon a 360 day
year. A comparison of these
different loans will skew the comparison.
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 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 home buying.
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.
K
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.
N
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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