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GLOSSARYAmenity:
Feature of a home or property that serves as a benefit to the buyer but is not necessary for its use; may be natural like location, woods, water or man-made.
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.
Appraisal:
A report that gives an estimate of a property's fair market value.
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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.
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Cap:
A limit on how much a monthly payment or interest rate can increase or decrease.
Cash Reserves:
Money in a borrower's personal account to show the lender they have the funds to make future payments.
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:
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.
Credit History:
A record of an individual's past borrowing and repaying, including information about possible late payments and bankruptcies.
Credit Bureau Score:
A number representing the possibility that a borrower may default on a loan; it is based upon credit history and is used to determine a borrowers 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.
Default:
The inability to pay monthly mortgage payments in a timely manner or failure to meet the mortgage terms.
Delinquency:
Failure of a borrower to make timely mortgage payments under a loan agreement.
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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.
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 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 home-buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.
Fair Market Value:
The potential price that a willing buyer could reasonably expect to pay and seller could sensibly be expected to accept.
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; assists homebuyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults.
Fixed-Rate Mortgage:
A mortgage with payments that remain the same throughout the life of the loan because the interest rates and other terms do not change.
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); provides lenders with funds for new home-buyers.
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Good Faith Estimate:
An estimate of all closing fees including pre-paid and escrow items as well as lender charges.
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Homeowner's Insurance:
An insurance policy that combines protection against damage to a dwelling and contents with protection against claims of negligence or inappropriate action that result in someone's injury or property damage.
HUD1 Statement:
Also known as the "settlement sheet," it itemizes all closing costs; must be given to the borrower at or before closing.
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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, including a property lien.
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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 the property that must be satisfied when the property is sold.
Loan Fraud:
Purposely giving incorrect information on a loan application in order to better qualify for a loan.
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 a down payment.
Lock-In:
Guarantees a specific interest rate if the loan is closed within a specific amount of time.
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Margin:
An amount the lender adds to an index to determine the interest rate on an adjustable rate mortgage.
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 less than 20% of the home's purchase price.
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 payment.
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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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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 affordable mortgage insurance programs for qualified borrowers with down payments of less than 20% of a purchase price.
Pre-Approve:
A process whereby a 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-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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Refinancing:
Paying off one loan by obtaining another; refinancing is done to secure better loan terms (like a lower interest rate).
Rehabilitation Mortgage:
A mortgage that covers the costs of rehabilitating a property
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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.
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 to their home; Title 1 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.
Truth-In-Lending:
A federal law obligating a lender to give full written disclosure of all fees, terms, and conditions associated with a loan initial period and after.
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 judgment of the property value.
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