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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.
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 comes due, lenders use the money in
the escrow account to pay them.
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.
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.
HELP
Homebuyer Education Learning
Program; an educational program from the FHA that
counsels people about
the homebuying 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.
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.
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.
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 such as 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. |
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