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
(such as location, woods, water) or man-made (such as 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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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.
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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 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.
Contingent
A property that is under contract but is subject to an additional contingency (i.e. Financing or cost of repairs).
This status allows a property to continue to be available for showings and take additional offers.
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.
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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 of 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 trust account created by a third party to hold money. A mortgage escrow account is an account set-up to pay taxes and insurance.
Monthly mortgage payments may include 1/12 of annual property taxes and insurance. When the bills come due, lenders use the money in
the escrow account to pay them.
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F
Fair Housing Act
A law that prohibits discrimination in all facets of the home buying 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.
Federal Housing Administration (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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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.
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H
HELP
Homebuyer Education Learning Program; an educational program from the FHA that counsels people about the
home buying process; HELP covers topics such as 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 it's 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 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.
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