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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 of taxation
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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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 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 credit package involved
in the transfer of an assumable mortgage.
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B
Balloon Mortgage: a mortgage
that typically offers low rates for an initial period of time (usually
5, 7, or lO) 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
Bridal Registry: a program
supported by the FHA that allows couples to open ("register"
for) a bridal registry account into which family and friends can
deposit gifts of cash; the funds in this account may then be used
for a down payment on a house
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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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 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 post and present debts and the timeliness of their repayment;
it documents an individual's credit history
Credit bureau score: number
representing the of possibility a borrower may default; it is based
upon credit history and is used to determine ability to qualify
for a mortgage loan transfer of ownership at closing; these costs
generally
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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
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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 the home purchase
Equity: an owner's financial
interest in a property; calculated by subtracting the amount still
owed on the mortgage loan(s) from the fair market value of the property
Escrow account: a with 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, homeowner's insurance, mortgage insurance, etc.
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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 an to investors; by purchasing
mortgages, Fannie Mae supplies funds that lenders may loan to potentiaI
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 or home equity loan with insurance
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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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 of
the situation days after submission of a loan application
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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 home owners insurance; coverage extends over
a specific time period and does not cover 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 or inappropriate
action that results 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
HUD-1 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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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
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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
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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
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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
likeFannie 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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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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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
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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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 REALTORSand
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) costs of rehabilitation
and home purchase into one
Rehabilitation mortgage: a
mortgage that covers the costs of rehabilitating (repairing or improving)
a property; some rehabilitation mortgages- like FHA's 203(k) - allow
a borrower to roll the 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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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
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T
Title I: 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
low obligating a lender to give full written disclosure of all fees,
terms, and conditions associated with the loan
Two-step mortgage: a type of
adjustable rate mortgage that has one interest rate for a predetermined
initial period and then adjusts to another rate that lasts for the
term of the loan
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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
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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
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