Glossary

FHA’s single family program which provides mortgage insurance to lenders to protect against the borrower defaulting; 203(b) is used to finance the purchase of new or existing one to four family housing; 203(b) insured loans are known for requiring a low down payment, flexible qualifying guidelines, limited fees, and a limit on maximum loan amount.

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 credit rating where the FICO score is 660 or above. There have been no late mortgage payments within a 12-month period. This is the best credit rating to have when entering into a new loan.

documents recording the ownership of property throughout time.

the right of the lender to demand payment on the outstanding balance of a loan.

the written approval of the buyer’s offer by the seller.

money paid to the lender in addition to the established payment amount used directly against the loan principal to shorten the length of the loan.

a mortgage loan that does not have a fixed interest rate. During the life of the loan the interest rate will change based on the index rate. Also referred to as adjustable mortgage loans (AMLs) or variable-rate mortgages (VRMs).

the actual date that the interest rate is changed for an ARM.

the published market index used to calculate the interest rate of an ARM at the time of origination or adjustment.

the time between the interest rate change and the monthly payment for an ARM. The interval is usually every one, three or five years depending on the index.

 
 

a signed, sworn statement made by the buyer or seller regarding the truth of information provided.

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).

the American Society of Home Inspectors is a professional association of independent home inspectors. Phone: (800) 743-2744

a payment plan that enables you to reduce your debt gradually through monthly payments. The payments may be principal and interest, or interest-only. The monthly amount is based on the schedule for the entire term or length of the loan.

yearly statement to borrowers detailing the remaining principal and amounts paid for taxes and interest.

a measure of the cost of credit, expressed as a yearly rate. It includes interest as well as other charges. Because all lenders, by federal law, follow the same rules to ensure the accuracy of the annual percentage rate, it provides consumers with a good basis for comparing the cost of loans, including mortgage plans. APR is a higher rate than the simple interest of the mortgage.

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.

a fee charged by lenders to process a loan application.

a document from a professional that gives an estimate of a property’s fair market value based on the sales of comparable homes in the area and the features of a property; 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.

fee charged by an appraiser to estimate the market value of a property.

an estimation of the current market value of a property.

a qualified individual who uses his or her experience and knowledge to prepare the appraisal estimate.

an increase in property value.

a legal method of resolving a dispute without going to court.

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.

the purchase or sale of a property in its existing condition without repairs.

 
 

a seller’s stated price for a property.

 
 

the value that a public official has placed on any asset (used to determine taxes).

 
 

the method of placing value on an asset for taxation purposes.

 
 

a government official who is responsible for determining the value of a property for the purpose of taxation.

 
 

any item with measurable value.

 
 

when a home is sold, the seller may be able to transfer the mortgage to the new buyer. This means the mortgage is assumable. Lenders generally require a credit review of the new borrower and may charge a fee for the assumption. Some mortgages contain a due-on-sale clause, which means that the mortgage may not be transferable to a new buyer. Instead, the lender may make you pay the entire balance that is due when you sell the home. An assumable mortgage can help you attract buyers if you sell your home.

 
 

a provision in the terms of a loan that allows the buyer to take legal responsibility for the mortgage from the seller.

 
 

loan processing completed through a computer-based system that evaluates past credit history to determine if a loan should be approved. This system removes the possibility of personal bias against the buyer.

 
 

determining the cost of a home by totaling the cost of all houses sold in one area and dividing by the number of homes sold.

 
 

FICO scores from 620 – 659. Factors include two 30 day late mortgage payments and two to three 30 day late installment loan payments in the last 12 months. No delinquencies over 60 days are allowed. Should be two to four years since a bankruptcy. Also referred to as Sub-Prime.

 
 

a ratio that compares the total of all monthly debt payments (mortgage, real estate taxes and insurance, car loans, and other consumer loans) to gross monthly income.

 
 

arrangements that an owner makes to oversee the sale of one property and the purchase of another at the same time.

 
 

a financial statement that shows the assets, liabilities and net worth of an individual or company.

 
 

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.

 
 

the final lump sum payment due at the end of a balloon mortgage.

 
 

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.

 
 

a mortgage paid twice a month instead of once a month, reducing the amount of interest to be paid on the loan.

 
 

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.

 
 

a short-term loan paid back relatively fast. Normally used until a long-term loan can be processed.

 
 

a licensed individual or firm that charges a fee to serve as the mediator between the buyer and seller. Mortgage brokers are individuals in the business of arranging funding or negotiating contracts for a client, but who does not loan the money. A real estate broker is someone who helps find a house.

 
 

a detailed record of all income earned and spent during a specific period of time.

 
 

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.

 
 

the seller pays an amount to the lender so the lender provides a lower rate and lower payments many times for an ARM. The seller may increase the sales price to cover the cost of the buy down.

 
 

FICO scores typically from 580 to 619. Factors include three to four 30 day late mortgage payments and four to six 30 day late installment loan payments or two to four 60 day late payments. Should be one to two years since bankruptcy. Also referred to as Sub – Prime.

 
 

a debt security whose issuer has the right to redeem the security at a specified price on or after a specified date, but prior to its stated final maturity.

 
 

a limit, such as one placed on an adjustable rate mortgage, on how much a monthly payment or interest rate can increase or decrease, either at each adjustment period or during the life of the mortgage. Payment caps do not limit the amount of interest the lender is earning, so they may cause negative amortization.

 
 

The ability to make mortgage payments on time, dependant on assets and the amount of income each month after paying housing costs, debts and other obligations.

 
 

the profit received based on the difference of the original purchase price and the total sale price.

 
 

property improvements that either will enhance the property value or will increase the useful life of the property.

 
 

an individual’s savings, investments, or assets.

 
 

a cash amount sometimes required of the buyer to be held in reserve in addition to the down payment and closing costs; the amount is determined by the lender.

 
 

when a borrower refinances a mortgage at a higher principal amount to get additional money. Usually this occurs when the property has appreciated in value. For example, if a home has a current value of $100,000 and an outstanding mortgage of $60,000, the owner could refinance $80,000 and have additional $20,000 in cash.

 
 

property insurance that covers any damage to the home and personal property either inside or outside the home.

 
 

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.

 
 

this type of bankruptcy sets a payment plan between the borrower and the creditor monitored by the court. The homeowner can keep the property, but must make payments according to the court’s terms within a 3 to 5 year period.

 
 

a bankruptcy that requires assets be liquidated in exchange for the cancellation of debt.

 
 

the portion of principal and interest due on a loan that is written off when deemed to be uncollectible.

 
 

a property title that has no defects. Properties with clear titles are marketable for sale.

 
 

the final step in property purchase where the title is transferred from the seller to the buyer. Closing occurs at a meeting between the buyer, seller, settlement agent, and other agents. At the closing the seller receives payment for the property. Also known as settlement.

 
 

fees for final property transfer not included in the price of the property. Typical closing costs include charges for the mortgage loan such as origination fees, discount points, appraisal fee, survey, title insurance, legal fees, real estate professional fees, prepayment of taxes and insurance, and real estate transfer taxes. A common estimate of a Buyer’s closing costs is 2 to 4 percent of the purchase price of the home. A common estimate for Seller’s closing costs is 3 to 9 percent.

 
 

any condition which affects the clear title to real property.

 
 

an additional person that is responsible for loan repayment and is listed on the title.

 
 

an account signed by someone in addition to the primary borrower, making both people responsible for the amount borrowed.

 
 

a person that signs a credit application with another person, agreeing to be equally responsible for the repayment of the loan.

 
 

security in the form of money or property pledged for the payment of a loan. For example, on a home loan, the home is the collateral and can be taken away from the borrower if mortgage payments are not made.

 
 

an unpaid debt referred to a collection agency to collect on the bad debt. This type of account is reported to the credit bureau and will show on the borrower’s credit report.

 
 

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. Traditionally the home seller pays the commission. The amount of commission is determined by the real estate professional and the seller and can be as much as 6% of the sales price.

 
 

a security that provides voting rights in a corporation and pays a dividend after preferred stock holders have been paid. This is the most common stock held within a company.

 
 

a property evaluation that determines property value by comparing similar properties sold within the last year.

 
 

factors that show the ability to repay a loan based on less traditional criteria, such as employment, rent, and utility payment history.

 
 

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.

 
 

is a loan that does not exceed Fannie Mae’s and Freddie Mac’s loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

 
 

an item of value given in exchange for a promise or act.

 
 

a short-term, to finance the cost of building a new home. The lender pays the builder based on milestones accomplished during the building process. For example, once a sub-contractor pours the foundation and it is approved by inspectors the lender will pay for their service.

 
 

a clause in a purchase contract outlining conditions that must be fulfilled before the contract is executed. Both, buyer or seller may include contingencies in a contract, but both parties must accept the contingency.

 
 

a private sector loan, one that is not guaranteed or insured by the U.S. government.

 
 

a provision in some ARMs allowing it to change to a fixed-rate loan at some point during the term. Usually conversions are allowed at the end of the first adjustment period. At the time of the conversion, the new fixed rate is generally set at one of the rates then prevailing for fixed rate mortgages. There may be additional cost for this clause.

 
 

an adjustable-rate mortgage that provides the borrower the ability to convert to a fixed-rate within a specified time.

 
 

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.

 
 

an index used to determine interest rate changes for some adjustable-rate mortgages.

 
 

a rejection to all or part of a purchase offer that negotiates different terms to reach an acceptable sales contract.

 
 

legally enforceable terms that govern the use of property. These terms are transferred with the property deed. Discriminatory covenants are illegal and unenforceable. Also known as a condition, restriction, deed restriction or restrictive covenant.

 
 

an agreement that a person will borrow money and repay it to the lender over time.

 
 

an agency that provides financial information and payment history to lenders about potential borrowers. Also known as a National Credit Repository.

 
 

education on how to improve bad credit and how to avoid having more debt than can be repaid.

 
 

a method used by a lender to reduce default of a loan by requiring collateral, mortgage insurance, or other agreements.

 
 

the lender that provides a loan or credit.

 
 

a record of an individual that lists all debts and the payment history for each. The report that is generated from the history is called a credit report. Lenders use this information to gauge a potential borrower’s ability to repay a loan.

 
 

the ratio of credit-related losses to the dollar amount of MBS outstanding and total mortgages owned by the corporation.

 
 

foreclosed property expenses plus the provision for losses.

 
 

foreclosed property expenses combined with charge-offs.

 
 

Private, for-profit businesses that claim to offer consumers credit and debt repayment difficulties assistance with their credit problems and a bad credit report.

 
 

a report generated by the credit bureau that contains the borrower’s credit history for the past seven years. Lenders use this information to determine if a loan will be granted.

 
 

a term used to describe the possibility of default on a loan by a borrower.

 
 

a score calculated by using a person’s credit report to determine the likelihood of a loan being repaid on time. Scores range from about 360 – 840 a lower score meaning a person is a higher risk, while a higher score means that there is less risk.

 
 

a non-profit financial institution federally regulated and owned by the members or people who use their services. Credit unions serve groups that hold a common interest and you have to become a member to use the available services.

 
 

the lending institution providing a loan or credit.

 
 

the way a lender measures the ability of a person to qualify and repay a loan.

 
 

a security that represents a loan from an investor to an issuer. The issuer in turn agrees to pay interest in addition to the principal amount borrowed.

 
 

a comparison or ratio 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.

 
 

The person or entity that borrows money. The term debtor may be used interchangeably with the term borrower.

 
 

the amount of cash payment that is made by the insured (the homeowner) to cover a portion of a damage or loss. Sometimes also called out-of-pocket expenses.” For example

 
 

a document that legally transfers ownership of property from one person to another. The deed is recorded on public record with the property description and the owner’s signature. Also known as the title.

 
 

to avoid foreclosure (in lieu” of foreclosure)

 
 

the inability to make timely monthly mortgage payments or otherwise comply with mortgage terms. A loan is considered in default when payment has not been paid after 60 to 90 days. Once in default the lender can exercise legal rights defined in the contract to begin foreclosure proceedings

 
 

money put down by a potential buyer to show that they are 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. During the contingency period the money may be returned to the buyer if the contingencies are not met to the buyer’s satisfaction.

 
 

a corporation’s profit that is divided among each share of common stock. It is determined by taking the net earnings divided by the number of outstanding common stocks held. This is a way that a company reports profitability.

 
 

the legal rights that give someone other than the owner access to use property for a specific purpose. Easements may affect property values and are sometimes a part of the deed.

 
 

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

 
 

when a government takes private property for public use. The owner receives payment for its fair market value. The property can then proceed to condemnation proceedings.

 
 

federal act to ensure that credit bureaus are fair and accurate protecting the individual’s privacy rights enacted in 1971 and revised in October 1997.

 
 

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.

 
 

a home that is offered for sale by the owner without the benefit of a real estate professional.

 
 

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.

 
 

designed to allow investors all over the world to purchase debt (loans) of U.S. dollar and foreign currency through a variety of clearing systems.

 
 

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.

 
 

payment to FannieMae from a lender for the assurance of timely principal and interest payments to MBS (Mortgage Backed Security) security holders.

 
 

protection against a specific loss, such as fire, wind etc., over a period of time that is secured by the payment of a regularly scheduled premium.

 
 

the reverse mortgage is used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union or savings and loan association funds the FHA insured loan, commonly known as HECM.

 
 

Homebuyer Education Learning Program; an educational program from the FHA that counsels people about the home buying 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.

 
 

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.

 
 

to secure against any loss or damage, compensate or give security for reimbursement for loss or damage incurred. A homeowner should negotiate for inclusion of an indemnification provision in a contract with a general contractor or for a separate indemnity agreement protecting the homeowner from harm, loss or damage caused by actions or omissions of the general (and all sub) contractor.

 
 

the measure of interest rate changes that the lender uses to decide how much the interest rate of an ARM will change over time. No one can be sure when an index rate will go up or down. If a lender bases interest rate adjustments on the average value of an index over time, your interest rate would not be as volatile. You should ask your lender how the index for any ARM you are considering has changed in recent years, and where it is reported.

 
 

two or more owners share equal ownership and rights to the property. If a joint owner dies, his or her share of the property passes to the other owners, without probate. In joint tenancy, ownership of the property cannot be willed to someone who is not a joint owner.

 
 

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.

 
 

the penalty the homeowner must pay when a mortgage payment is made after the due date grace period.

 
 

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.

 
 

an agreement that a lender will deliver loans or securities by a certain date at agreed-upon terms.

 
 

within the Metro Columbus area, Realtors submit listings and agree to attempt to sell all properties in the MLS. The MLS is a service of the local Columbus Board of Realtors?. The local MLS has a protocol for updating listings and sharing commissions. The MLS offers the advantage of more timely information, availability, and access to houses and other types of property on the market.

 
 

currently, there are three companies that maintain national credit – reporting databases. These are Equifax, Experian, and Trans Union, referred to as Credit Bureaus.

 
 

amortization means that monthly payments are large enough to pay the interest and reduce the principal on your mortgage. Negative amortization occurs when the monthly payments do not cover all of the interest cost. The interest cost that isn’t covered is added to the unpaid principal balance. This means that even after making many payments, you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments not high enough to cover the interest due.

 
 

ownership is documented by the deed to a property. The type or form of ownership is important if there is a change in the status of the owners or if the property changes ownership.

 
 

the charge for originating a loan; is usually calculated in the form of points and paid at closing. One point equals one percent of the loan amount. On a conventional loan, the loan origination fee is the number of points a borrower pays.

 
 

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.

 
 

a payment that is less than the total amount owed on a monthly mortgage payment. Normally, lenders do not accept partial payments. The lender may make exceptions during times of difficulty. Contact your lender prior to the due date if a partial payment is needed.

 
 

guidelines utilized by lenders to determine how much money a homebuyer is qualified to borrow. Lending guidelines typically include a maximum housing expense to income ratio and a maximum monthly expense to income ratio.

 
 

a deed transferring ownership of a property but does not make any guarantee of clear title.

 
 

a radioactive gas found in some homes that, if occurring in strong enough concentrations, can cause health problems.

 
 

when a seller deeds property to a buyer for a payment, and the buyer simultaneously leases the property back to the seller.

 
 

a process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund, or package the mortgages it plans to deliver to the secondary mortgage market.

 
 

an adjustable-rate mortgage (ARM) that has one interest rate for the first five to seven years of its term and a different interest rate for the remainder of the term.

 
 

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.

 
 

the fees charged to homeowners by the lender at the time of closing a mortgage loan. This includes points, broker’s fees, insurance, and other charges.

 
 

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.

 
 

a mortgage guaranteed by the Department of Veterans Affairs (VA).

 
 

the final inspection of a property being sold by the buyer to confirm that any contingencies specified in the purchase agreement such as repairs have been completed, fixture and non-fixture property is in place and confirm the electrical, mechanical, and plumbing systems are in working order.

 
 

a legal document that includes the guarantee the seller is the true owner of the property, has the right to sell the property and there are no claims against the property.

 
 

local laws established to control the uses of land within a particular area. Zoning laws are used to separate residential land from areas of non-residential use, such as industry or businesses. Zoning ordinances include many provisions governing such things as type of structure, setbacks, lot size, and uses of a building.