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 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 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 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.
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. |