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.
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. |
Questions?
LendFast.com - HELOC - Mortgage Glossary
