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.
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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.
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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 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.
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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
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.
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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 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.
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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 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.
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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 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.
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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.
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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.
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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 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.
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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 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 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 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
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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 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.
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