Introduction

Buying a home can be a daunting process – especially if it’s your first time. But you can alleviate the stress by doing your homework. Knowing what you’re looking for in a home, what you can afford to pay and what all of the home buying jargon means can make the process infinitely smoother. That’s why Thompson Homes has put together this guide, which we call ‘Homebuying 101.’ We want to make the home buying process easier for you to navigate. We’ve been crafting beautiful homes for more than 60 years so we know a thing or two about making the experience easier for you and your family!”

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Before You Look

It’s important that you know what you want in a home and how much home you can afford before you start looking. After all, you can always find a home that you’ll love, the question is, can you afford it? Before you begin it’s always best to meet with a mortgage consultant to pre-qualify yourself for a home loan. Pre-qualifying does not mean you have a loan, rather it simply tells you what you should be able to afford. Knowing this will allow you to focus on your price range and save you time. Knowing where you want to live is also important. You don’t want a place that’s too far from shopping, good schools or employment opportunities. Taking the time to look outside the community can benefit you in the long run.”

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Amenities To Enjoy

There are many things to consider as you start looking for a home and those things go beyond the number of bedrooms and bathrooms a home might have.

For instance, school districts play a big role in where families typically buy, so even if you don’t have children or aren’t planning on having children in the near future, that doesn’t mean you shouldn’t consider the school district your home is in. After all, there will come a day when you’ll want to sell your home and when you do, you want to appeal to as many potential buyers as possible.

Another thing to consider is the neighborhood. Are there amenities to enjoy like walking trails, or proximity to parks. After all, you won’t be spending all of your time inside your house. Of course it’s also important to pay attention to the layout of the homes you’re touring. Make a note of the number of bedrooms, the size of the kitchen, whether the home offers an open floor plan for you and your family as well as a list of any other things you think will affect your decision.”

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Preparing To Buy

Informed homebuyers are strong home buyers! Make sure you understand all the options available for your home, how long it will take for your home to be built, and what your choices are for things like landscaping and design upgrades in your home.

After you decide on a new home, you may spend time picking out everything from flooring to kitchen cabinets, bathroom fixtures to door hardware, so ask questions and learn what options are available.

Being informed extends to your mortgage options as well. Whether you know what type of mortgage you want or not, take the time to jot down your questions about the different mortgages that might be available, what you have to do to qualify, and what the process will cost before meeting with your loan consultant. Be sure the lender spends enough time with you to answer all of your questions.

When applying for a loan, it’s always best to meet face-to-face with a loan consultant. Online loan applications can speed up the process but they should never replace an in-person meeting, where you’re able to make sure all of your questions and expectations are addressed.

Let Thompson Homes assist you in getting pre-qualified so you can have a better idea of how much you can afford. We will be happy to schedule a meeting for you with a reputable loan officer or bank of your choice. From time to time banks will share financing incentives with us, so we may share with you, our customers!

Understand your financing options and be prepared for the process. Successfully completing the process requires documentation of your income, assets and employment history. You’ll need bank statements, pay stubs, etc., so be prepared to provide them at your mortgage appointment.”

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Before You Close

Once you’ve determined the right house for you and your family and have qualified for your loan, the work doesn’t stop just yet.

As you wait for your home to be completed and delivered to you on your closing date, it’s important to prepare your family for the move. We want your homebuying experience to be an enjoyable and engaging one, so throughout construction we host several meetings to bring you in for your own inspection, and to show you some neat things we do to your home behind the walls that you may not know otherwise, that increase the homes efficiency, performance, and durability. There will be 3 of these orientation meetings that you will participate in as well as plenty of preparation for the move.

Make sure to plan ahead for moving vans, utility connections and your mail. All of these things can often get pushed to the back burner as you plan for your new home, but they’re equally important. Especially if you want your move to go smoothly!

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Resource Videos

Take a journey through some of our past customer’s homebuying experiences to learn about their building/buying process. From beginning your search to getting your keys, these helpful resource videos can serve as your personal guide and you may just discover some important and valuable questions to ask during your own new home search!

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Glossary: A

A Loan Or A Paper

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.

Abstract Of Title

documents recording the ownership of property throughout time.

Acceleration

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

Acceptance

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

Additional Principal Payment

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.

Adjustable-Rate Mortgage (ARM)

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).

Adjustment Date

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

Adjustment Index

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

Adjustment Interval

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.

Affidavit

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

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).

American Society Of Home Inspectors

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

Amortization

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.

Annual Mortgagor Statement

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

Annual Percentage Rate (APR)

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.

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.

Glossary: B

B Loan Or B Paper

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.

Back End Ratio (Debt Ratio)

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.

Back To Back Escrow

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.

Balance Sheet

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

Balloon Loan Or 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

Balloon Payment

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

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.

Biweekly Payment Mortgage

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

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.

Bridge Loan

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

Budget

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

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.

Buy Down

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.

Glossary: C

C Loan Or C Paper

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.

Callable Debt

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.

Cap

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.

Capacity

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.

Capital Gain

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

Capacity

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

Capital Gain

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

Capital Improvements

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

Capital Or Cash Reserves

An individual's savings, investments, or assets.

Cash Reserves

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.

Cash-Out Refinance

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.

Casualty Protection

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

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.

Chapter 13 Bankruptcy

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.

Chapter 7 Bankruptcy

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

Charge-Off

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

Clear Title

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

Closing

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.

Closing Costs

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.

Cloud On The Title

Any condition which affects the clear title to real property.

Co-Borrower

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

Co-Signed Account

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

Co-Signer

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

Collateral

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.

Collection Account

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.

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. 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

Common Stock

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.

Comparative Market Analysis (COMPS)

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

Compensating Factors

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

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.

Conforming Loan

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.

Consideration

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

Construction Loan

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.

Conversion Clause

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.

Convertible ARM

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

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.

Cost Of Funds Index (COFI)

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

Counter Offer

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

Covenants

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.

Credit

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

Credit Bureau

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

Credit Counseling

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

Credit Enhancement

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

Credit Grantor

The lender that provides a loan or credit.

Credit History

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.

Credit Loss Ratio

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

Credit Related Expenses

Foreclosed property expenses plus the provision for losses.

Credit Related Losses

Foreclosed property expenses combined with charge-offs.

Credit Repair Companies

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

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.

Credit Risk

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

Credit Score

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.

Credit Union

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.

Creditor

The lending institution providing a loan or credit.

Creditworthiness

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

Glossary: D

Debt Security

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.

Debt-To-Income Ratio

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

Debtor

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

Deductible

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, out of a total damage claim of $1,000, the homeowner might pay a $250 deductible toward the loss, while the insurance company pays $750 toward the loss. Typically, the higher the deductible, the lower the cost of the policy.

Deed

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.

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 does not allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure.

Default

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

Delinquency

Failure of a borrower to make timely mortgage payments under a loan agreement. Generally after fifteen days a late fee may be assessed.

Deposit (Earnest Money)

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.

Depreciation

A decrease in the value or price of a property due to changes in market conditions, wear and tear on the property, or other factors.

Derivative

A contract between two or more parties where the security is dependent on the price of another investment.

Disclosures

The release of relevant information about a property that may influence the final sale, especially if it represents defects or problems. "Full disclosure" usually refers to the responsibility of the seller to voluntarily provide all known information about the property. Some disclosures may be required by law, such as the federal requirement to warn of potential lead-based paint hazards in pre-1978 housing. A seller found to have knowingly lied about a defect may face legal penalties.

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. In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to give you a lower rate and lower payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate will probably go up depending on the index rate.

Document Recording

After closing on a loan, certain documents are filed and made public record. Discharges for the prior mortgage holder are filed first. Then the deed is filed with the new owner's and mortgage company's names.

Down Payment

The portion of a home's purchase price that is paid in cash and is not part of the mortgage loan. This amount varies based on the loan type, but is determined by taking the difference of the sale price and the actual mortgage loan amount. Mortgage insurance is required when a down payment less than 20 percent is made.

Due On Sale Clause

A provision of a loan allowing the lender to demand full repayment of the loan if the property is sold.

Duration

The number of years it will take to receive the present value of all future payments on a security to include both principal and interest.

Glossary: E

Earnest Money (Deposit)

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.

Earnings Per Share (EPS)

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.

Easements

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.

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

Encroachments

A structure that extends over the legal property line on to another individual's property. The property surveyor will note any encroachment on the lot survey done before property transfer. The person who owns the structure will be asked to remove it to prevent future problems.

Equal Credit Opportunity Act (ECOA)

A federal law requiring lenders to make credit available equally without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

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.

Escape Clause

A provision in a purchase contract that allows either party to cancel part or the entire contract if the other does not respond to changes to the sale within a set period. The most common use of the escape clause is if the buyer makes the purchase offer contingent on the sale of another house.

Escrow

Funds held in an account to be used by the lender to pay for home insurance and property taxes. The funds may also be held by a third party until contractual conditions are met and then paid out.

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.

Estate

The ownership interest of a person in real property. The sum total of all property, real and personal, owned by a person.

Exclusive Listing

A written contract giving a real estate agent the exclusive right to sell a property for a specific timeframe.

Glossary: F

Fair Credit Reporting Act

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.

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.

Familial Status

HUD uses this term to describe a single person, a pregnant woman or a household with children under 18 living with parents or legal custodians who might experience housing discrimination.

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. Also known as a Government Sponsored Enterprise (GSE).

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.

FICO Score

FICO is an abbreviation for Fair Isaac Corporation and refers to a person's credit score based on credit history. Lenders and credit card companies use the number to decide if the person is likely to pay his or her bills. A credit score is evaluated using information from the three major credit bureaus and is usually between 300 and 850.

First Mortgage

The mortgage with first priority if the loan is not paid.

Fixed Expenses

Payments that do not vary from month to month.

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.

Fixture

Personal property permanently attached to real estate or real property that becomes a part of the real estate.

Float

The act of allowing an interest rate and discount points to fluctuate with changes in the market.

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.

Forbearance

A lender may decide not to take legal action when a borrower is late in making a payment. Usually this occurs when a borrower sets up a plan that both sides agree will bring overdue mortgage payments up to date.

Foreclosure

A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower. Foreclosure laws are based on the statutes of each state.

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. Also known as a Government Sponsored Enterprise (GSE).

Front End Ratio

A percentage comparing a borrower's total monthly cost to buy a house (mortgage principal and interest, insurance, and real estate taxes) to monthly income before deductions.

FSBO (For Sale By Owner)

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

Glossary: 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.

Global Debt Facility

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.

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.

Government Sponsored Enterprises (GSE)

A collection of financial services corporations formed by the United States Congress to reduce interest rates for farmers and homeowners. Examples include Fannie Mae and Freddie Mac.

Graduated Payment Mortgages

Mortgages that begin with lower monthly payments that get slowly larger over a period of years, eventually reaching a fixed level and remaining there for the life of the loan. Graduated payment loans may be good if you expect your annual income to increase.

Grantee

An individual to whom an interest in real property is conveyed.

Grantor

An individual conveying an interest in real property.

Gross Income

Money earned before taxes and other deductions. Sometimes it may include income from self-employment, rental property, alimony, child support, public assistance payments, and retirement benefits.

Guaranty Fee

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

Glossary: H

HECM (Reverse Mortgage)

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.

HELP

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.

Home Equity Line Of Credit

a mortgage loan, usually in second mortgage, allowing a borrower to obtain cash against the equity of a home, up to a predetermined amount.

Home Equity Loan

a loan backed by the value of a home (real estate). If the borrower defaults or does not pay the loan, the lender has some rights to the property. The borrower can usually claim a home equity loan as a tax deduction.

Home Inspection

an examination of the structure and mechanical systems to determine a home's quality, soundness and safety; makes the potential homebuyer aware of any repairs that may be needed. The homebuyer generally pays inspection fees.

Home Warranty

offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; coverage extends over a specific time period and does not cover the home's structure.

Homeowner'S Insurance

an insurance policy, also called hazard insurance, that combines protection against damage to a dwelling and its contents including fire, storms or other damages with protection against claims of negligence or inappropriate action that result in someone's injury or property damage. Most lenders require homeowners insurance and may escrow the cost. Flood insurance is generally not included in standard policies and must be purchased separately.

Homeownership Education Classes

classes that stress the need to develop a strong credit history and offer information about how to get a mortgage approved, qualify for a loan, choose an affordable home, go through financing and closing processes, and avoid mortgage problems that cause people to lose their homes.

Homestead Credit

property tax credit program, offered by some state governments, that provides reductions in property taxes to eligible households

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," or "closing statement" it itemizes all closing costs; must be given to the borrower at or before closing. Items that appear on the statement include real estate commissions, loan fees, points, and escrow amounts.

HVAC

Heating, Ventilation and Air Conditioning; a home's heating and cooling system.

Glossary: I

Indemnification

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.

Index

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.

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.

Inflation Coverage

Endorsement to a homeowner's policy that automatically adjusts the amount of insurance to compensate for inflationary rises in the home's value. This type of coverage does not adjust for increases in the home's value due to improvements.

Inquiry

A credit report request. Each time a credit application is completed or more credit is requested counts as an inquiry. A large number of inquiries on a credit report can sometimes make a credit score lower.

Insurance

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.

Interest

A fee charged for the use of borrowing money.

Interest Rate

The amount of interest charged on a monthly loan payment, expressed as a percentage.

Interest Rate Swap

A transaction between two parties where each agrees to exchange payments tied to different interest rates for a specified period of time, generally based on a notional principal amount.

Intermediate Term Mortgage

A mortgage loan with a contractual maturity from the time of purchase equal to or less than 20 years.

Joint Tenancy (With Rights Of Survivorship)

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.

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.

Jumbo Loan

or non-conforming loan, is a loan that exceeds Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

Glossary: L

Late Payment Charges

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

Lease

A written agreement between a property owner and a tenant (resident) that stipulates the payment and conditions under which the tenant may occupy a home or apartment and states a specified period of time.

Lease Purchase (Lease Option)

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.

Lender

A term referring to an person or company that makes loans for real estate purchases. Sometimes referred to as a loan officer or lender.

Lender Option Commitments

An agreement giving a lender the option to deliver loans or securities by a certain date at agreed upon terms.

Liabilities

A person's financial obligations such as long-term / short-term debt, and other financial obligations to be paid.

Liability Insurance

Insurance coverage that protects against claims alleging a property owner's negligence or action resulted in bodily injury or damage to another person. It is normally included in homeowner's insurance policies.

Lien

A legal claim against property that must be satisfied when the property is sold. A claim of money against a property, wherein the value of the property is used as security in repayment of a debt. Examples include a mechanic's lien, which might be for the unpaid cost of building supplies, or a tax lien for unpaid property taxes. A lien is a defect on the title and needs to be settled before transfer of ownership. A lien release is a written report of the settlement of a lien and is recorded in the public record as evidence of payment.

Lien Waiver

A document that releases a consumer (homeowner) from any further obligation for payment of a debt once it has been paid in full. Lien waivers typically are used by homeowners who hire a contractor to provide work and materials to prevent any subcontractors or suppliers of materials from filing a lien against the homeowner for nonpayment.

Life Cap

A limit on the range interest rates can increase or decrease over the life of an adjustable-rate mortgage (ARM).

Line Of Credit

An agreement by a financial institution such as a bank to extend credit up to a certain amount for a certain time to a specified borrower.

Liquid Asset

A cash asset or an asset that is easily converted into cash.

Listing Agreement

A contract between a seller and a real estate professional to market and sell a home. A listing agreement obligates the real estate professional (or his or her agent) to seek qualified buyers, report all purchase offers and help negotiate the highest possible price and most favorable terms for the property seller.

Loan

Money borrowed that is usually repaid with interest.

Loan Acceleration

An acceleration clause in a loan document is a statement in a mortgage that gives the lender the right to demand payment of the entire outstanding balance if a monthly payment is missed.

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 Officer

A representative of a lending or mortgage company who is responsible for soliciting homebuyers, qualifying and processing of loans. They may also be called lender, loan representative, account executive or loan rep.

Loan Origination Fee

A charge by the lender to cover the administrative costs of making the mortgage. This charge is paid at the closing and varies with the lender and type of loan. A loan origination fee of 1 to 2 percent of the mortgage amount is common.

Loan Servicer

The company that collects monthly mortgage payments and disperses property taxes and insurance payments. Loan servicers also monitor nonperforming loans, contact delinquent borrowers, and notify insurers and investors of potential problems. Loan servicers may be the lender or a specialized company that just handles loan servicing under contract with the lender or the investor who owns the 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 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.

Lock-In Period

The length of time that the lender has guaranteed a specific interest rate to a borrower.

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.

Glossary: M

Mandatory Delivery Commitment

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

Margin

the number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Market Value

the amount a willing buyer would pay a willing seller for a home. An appraised value is an estimate of the current fair market value.

Maturity

the date when the principal balance of a loan becomes due and payable.

Median Price

the price of the house that falls in the middle of the total number of homes for sale in that area.

Medium Term Notes

unsecured general obligations of Fannie Mae with maturities of one day or more and with principal and interest payable in U.S. dollars

Merged Credit Report

raw data pulled from two or more of the major credit-reporting firms.

Mitigation

term usually used to refer to various changes or improvements made in a home; for instance, to reduce the average level of radon.

Modification

when a lender agrees to modify the terms of a mortgage without refinancing the loan.

Mortgage

a lien on the property that secures the Promise to repay a loan. A security agreement between the lender and the buyer in which the property is collateral for the loan. The mortgage gives the lender the right to collect payment on the loan and to foreclose if the loan obligations are not met.

Mortgage Acceleration Clause

a clause allowing a lender, under certain circumstances, demand the entire balance of a loan is repaid in a lump sum. The acceleration clause is usually triggered if the home is sold, title to the property is changed, the loan is refinanced or the borrower defaults on a scheduled payment.

Mortgage Banker

a company that originates loans and resells them to secondary mortgage lenders like Fannie Mae or Freddie Mac

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. Insurance purchased by the buyer to protect the lender in the event of default. Typically purchased for loans with less than 20 percent down payment. The cost of mortgage insurance is usually added to the monthly payment. Mortgage insurance is maintained on conventional loans until the outstanding amount of the loan is less than 80 percent of the value of the house or for a set period of time (7 years is common). Mortgage insurance also is available through a government agency, such as the Federal Housing Administration (FHA) or through companies (Private Mortgage Insurance or PMI).

Mortgage Insurance Premium (MIP)

a monthly payment -usually part of the mortgage payment - paid by a borrower for mortgage insurance.

Mortgage Interest Deduction

the interest cost of a mortgage, which is a tax - deductible expense. The interest reduces the taxable income of taxpayers.

Mortgage Life And Disability Insurance

term life insurance bought by borrowers to pay off a mortgage in the event of death or make monthly payments in the case of disability. The amount of coverage decreases as the principal balance declines. There are many different terms of coverage determining amounts of payments and when payments begin and end.

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.

Mortgage Note

a legal document obligating a borrower to repay a loan at a stated interest rate during a specified period; the agreement is secured by a mortgage that is recorded in the public records along with the deed.

Mortgage Qualifying Ratio

Used to calculate the maximum amount of funds that an individual traditionally may be able to afford. A typical mortgage qualifying ratio is 28:36.

Mortgage Score

a score based on a combination of information about the borrower that is obtained from the loan application, the credit report, and property value information. The score is a comprehensive analysis of the borrower's ability to repay a mortgage loan and manage credit.

Mortgage-Backed Security (MBS)

a Fannie Mae security that represents an undivided interest in a group of mortgages. Principal and interest payments from the individual mortgage loans are grouped and paid out to the MBS holders.

Mortgagee

the lender in a mortgage agreement. Mortgagor - The borrower in a mortgage agreement.

Mortgagor

the borrower in a mortgage agreement

Multifamily Housing

a building with more than four residential rental units.

Multiple Listing Service (MLS)

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.

Glossary: N

National Credit Repositories

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

Negative Amortization

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.

Net Income

Your take-home pay, the amount of money that you receive in your paycheck after taxes and deductions

No Cash Out Refinance

A refinance of an existing loan only for the amount remaining on the mortgage. The borrower does not get any cash against the equity of the home. Also called a "rate and term refinance.

No Cost Loan

There are many variations of a no cost loan. Generally, it is a loan that does not charge for items such as title insurance, escrow fees, settlement fees, appraisal, recording fees or notary fees. It may also offer no points. This lessens the need for upfront cash during the buying process however no cost loans have a higher interest rate.

Non-Conforming Loan

Is a loan that exceeds Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

Nonperforming Asset

An asset such as a mortgage that is not currently accruing interest or which interest is not being paid.

Notary Public

A person who serves as a public official and certifies the authenticity of required signatures on a document by signing and stamping the document.

Note

A legal document obligating a borrower to repay a mortgage loan at a stated interest rate over a specified period of time.

Note Rate

The interest rate stated on a mortgage note.

Notice Of Default

A formal written notice to a borrower that there is a default on a loan and that legal action is possible.

Notional Principal Amount

The proposed amount which interest rate swap payments are based but generally not paid or received.

Glossary: O

Offer

Indication by a potential buyer of a willingness to purchase a home at a specific price; generally put forth in writing.

Original Principal Balance

The total principal owed on a mortgage prior to any payments being made.

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. 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.

Owner Financing

A home purchase where the seller provides all or part of the financing, acting as a lender.

Owner'S Policy

The insurance policy that protects the buyer from title defects.

Ownership

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.

Glossary: 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.

Partial Payment

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.

Payment Cap

A limit on how much an ARM's payment may increase, regardless of how much the interest rate increases.

Payment Change Date

The date when a new monthly payment amount takes effect on an adjustable-rate mortgage (ARM) or a graduated-payment mortgage (GPM). Generally, the payment change date occurs in the month immediately after the interest rate adjustment date.

Payment Due Date

Contract language specifying when payments are due on money borrowed. The due date is always indicated and means that the payment must be received on or before the specified date. Grace periods prior to assessing a late fee or additional interest do not eliminate the responsibility of making payments on time.

Perils

For homeowner's insurance, an event that can damage the property. Homeowner's insurance may cover the property for a wide variety of perils caused by accidents, nature, or people.

Personal Property

Any property that is not real property or attached to real property. For example furniture is not attached however a new light fixture would be considered attached and part of the real property.

PITI Reserves

A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. The principal, interest, taxes, and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefined number of months.

Planned Unit Development (PUD)

A development that is planned, and constructed as one entity. Generally, there are common features in the homes or lots governed by covenants attached to the deed. Most planned developments have common land and facilities owned and managed by the owner's or neighborhood association. Homeowners usually are required to participate in the association via a payment of annual dues.

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.

Points

A point is equal to one percent of the principal amount of your mortgage. For example, if you get a mortgage for $95,000, one point means you pay $950 to the lender. Lenders frequently charge points in both fixed-rate and adjustable-rate mortgages in order to increase the yield on the mortgage and to cover loan closing costs. These points usually are collected at closing and may be paid by the borrower or the home seller, or may be split between them.

Power Of Attorney

A legal document that authorizes another person to act on your behalf. A power of attorney can grant complete authority or can be limited to certain acts or certain periods of time or both.

Pre-Approval

A lender commits to lend to a potential borrower a fixed loan amount based on a completed loan application, credit reports, debt, savings and has been reviewed by an underwriter. The commitment remains as long as the borrower still meets the qualification requirements at the time of purchase. This does not guaranty a loan until the property has passed inspections underwriting guidelines.

Pre-Qualify

A lender informally determines the maximum amount an individual is eligible to borrow. This is not a guaranty of a loan.

Predatory Lending

Abusive lending practices that include a mortgage loan to someone who does not have the ability to repay. It also pertains to repeated refinancing of a loan charging high interest and fees each time.

Predictive Variables

The variables that are part of the formula comprising elements of a credit-scoring model. These variables are used to predict a borrower's future credit performance.

Preferred Stock

Stock that takes priority over common stock with regard to dividends and liquidation rights. Preferred stockholders typically have no voting rights.

Premium

An amount paid on a regular schedule by a policyholder that maintains insurance coverage.

Prepayment

Any amount paid to reduce the principal balance of a loan before the due date or payment in full of a mortgage. This can occur with the sale of the property, the pay off the loan in full, or a foreclosure. In each case, full payment occurs before the loan has been fully amortized

Prepayment

Payment of the mortgage loan before the scheduled due date; may be Subject to a prepayment penalty.

Prepayment Penalty

A fee charged to a homeowner who pays one or more monthly payments before the due date. It can also apply to principal reduction payments.

Prepayment Penalty Mortgage (PPM)

A type of mortgage that requires the borrower to pay a penalty for prepayment, partial payment of principal or for repaying the entire loan within a certain time period. A partial payment is generally defined as an amount exceeding 20% of the original principal balance.

Price Range

The high and low amount a buyer is willing to pay for a home.

Prime Rate

The interest rate that banks charge to preferred customers. Changes in the prime rate are publicized in the business media. Prime rate can be used as the basis for adjustable rate mortgages (ARMs) or home equity lines of credit. The prime rate also affects the current interest rates being offered at a particular point in time on fixed mortgages. Changes in the prime rate do not affect the interest on a fixed mortgage.

Principal

The amount of money borrowed to buy a house or the amount of the loan that has not been paid back to the lender. This does not include the interest paid to borrow that money. The principal balance is the amount owed on a loan at any given time. It is the original loan amount minus the total repayments of principal made.

Principal, Interest, Taxes, And Insurance (PITI)

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.

Private Mortgage Insurance (PMI)

Insurance purchased by a buyer to protect the lender in the event of default. The cost of mortgage insurance is usually added to the monthly payment. Mortgage insurance is generally maintained until over 20 Percent of the outstanding amount of the loan is paid or for a set period of time, seven years is normal. Mortgage insurance may be available through a government agency, such as the Federal Housing Administration (FHA) or the Veterans Administration (VA), or through private mortgage insurance companies (PMI).

Promissory Note

A written promise to repay a specified amount over a specified period of time.

Property (Fixture And Non-Fixture)

In a real estate contract, the property is the land within the legally described boundaries and all permanent structures and fixtures. Ownership of the property confers the legal right to use the property as allowed within the law and within the restrictions of zoning or easements. Fixture property refers to those items permanently attached to the structure, such as carpeting or a ceiling fan, which transfers with the property.

Property Tax

A tax charged by local government and used to fund municipal services such as schools, police, or street maintenance. The amount of property tax is determined locally by a formula, usually based on a percent per $1,000 of assessed value of the property.

Property Tax Deduction

The U.S. tax code allows homeowners to deduct the amount they have paid in property taxes from there total income.

Public Record Information

Court records of events that are a matter of public interest such as credit, bankruptcy, foreclosure and tax liens. The presence of public record information on a credit report is regarded negatively by creditors.

Punch List

A list of items that have not been completed at the time of the final walk through of a newly constructed home

Purchase Offer

A detailed, written document that makes an offer to purchase a property, and that may be amended several times in the process of negotiations. When signed by all parties involved in the sale, the purchase offer becomes a legally binding contract, sometimes called the Sales Contract.

Glossary: Q

Qualifying Ratios

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.

Quitclaim Deed

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

Glossary: R

Radon

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

Rate Cap

A limit on an ARM on how much the interest rate or mortgage payment may change. Rate caps limit how much the interest rates can rise or fall on the adjustment dates and over the life of the loan.

Rate Lock

A commitment by a lender to a borrower guaranteeing a specific interest rate over a period of time at a set cost.

Real Estate Agent

An individual who is licensed to negotiate and arrange real estate sales; works for a real estate broker.

Real Estate Mortgage Investment Conduit (REMIC)

A security representing an interest in a trust having multiple classes of securities. The securities of each class entitle investors to cash payments structured differently from the payments on the underlying mortgages.

Real Estate Property Tax Deduction

A tax deductible expense reducing a taxpayer's taxable income.

Real Estate Settlement Procedures Act (RESPA)

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

Real Property

Land, including all the natural resources and permanent buildings on it.

REALTOR

A real estate agent or broker who is a member of the NATIONAL ASSOCIATION OF REALTORS, and its local and state associations.

Recorder

The public official who keeps records of transactions concerning real property. Sometimes known as a "Registrar of Deeds" or "County Clerk."

Recording

The recording in a registrar's office of an executed legal document. These include deeds, mortgages, satisfaction of a mortgage, or an extension of a mortgage making it a part of the public record.

Recording Fees

Charges for recording a deed with the appropriate government agency.

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.

Reinstatement Period

A phase of the foreclosure process where the homeowner has an opportunity to stop the foreclosure by paying money that is owed to the lender.

Remaining Balance

The amount of principal that has not yet been repaid.

Remaining Term

The original amortization term minus the number of payments that have been applied.

Repayment Plan

An agreement between a lender and a delinquent borrower where the borrower agrees to make additional payments to pay down past due amounts while making regularly scheduled payments.

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

Return On Average Common Equity

Net income available to common stockholders, as a percentage of average common stockholder equity.

Reverse Mortgage (HECM)

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.

Right Of First Refusal

A provision in an agreement that requires the owner of a property to give one party an opportunity to purchase or lease a property before it is offered for sale or lease to others.

Risk Based Capital

An amount of capital needed to offset losses during a ten-year period with adverse circumstances

Risk Based Pricing

Fee structure used by creditors based on risks of granting credit to a borrower with a poor credit history

Risk Scoring

An automated way to analyze a credit report verses a manual review. It takes into account late payments, outstanding debt, credit experience, and number of inquiries in an unbiased manner.

Glossary: S

Sale Leaseback

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

Schools

A website that can help you compare schools and school districts as well as get test scores and various statistics. Visit GreatSchools.net today!

Second Mortgage

an additional mortgage on property. In case of a default the first mortgage must be paid before the second mortgage. Second loans are more risky for the lender and usually carry a higher interest rate.

Secondary Mortgage Market

the buying and selling of mortgage loans. Investors purchase residential mortgages originated by lenders, which in turn provides the lenders with capital for additional lending.

Secured Loan

a loan backed by collateral such as property.

Security

the property that will be pledged as collateral for a loan.

Seller Take Back

an agreement where the owner of a property provides second mortgage financing. These are often combined with an assumed mortgage instead of a portion of the seller's equity.

Serious Delinquency

a mortgage that is 90 days or more past due.

Servicer

a business that collects mortgage payments from borrowers and manages the borrower's escrow accounts.

Servicing

the collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

Setback

the distance between a property line and the area where building can take place. Setbacks are used to assure space between buildings and from roads for a many of purposes including drainage and utilities.

Settlement

another name for closing.

Settlement Statement

a document required by the Real Estate Settlement Procedures Act (RESPA). It is an itemized statement of services and charges relating to the closing of a property transfer. The buyer has the right to examine the settlement statement 1 day before the closing. This is called the HUD 1 Settlement Statement.

Short Sale

a procedure in which the borrower is allowed to sell a property for an amount less than what is owed on it to avoid a foreclosure. This sale fully satisfies the borrower's debt. It also allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure.

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.

Stockholders' Equity

the sum of proceeds from the issuance of stock and retained earnings less amounts paid to repurchase common shares.

Stripped MBS (SMBS)

securities created by "stripping" or separating the principal and interest payments from the underlying pool of mortgages into two classes of securities, with each receiving a different proportion of the principal and interest payments.

Sub-Prime Loan

"B" Loan or "B" paper with FICO scores from 620 - 659. "C" Loan or "C" Paper with FICO scores typically from 580 to 619. An industry term to used to describe loans with less stringent lending and underwriting terms and conditions. Due to the higher risk, sub-prime loans charge higher interest rates and fees.

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. Surveys are conducted by licensed surveyors and are normally required by the lender in order to confirm that the property boundaries and features such as buildings, and easements are correctly described in the legal description of the property.

Sweat Equity

using labor to build or improve a property as part of the down payment.

Glossary: T

Terms

The period of time and the interest rate agreed upon by the lender and the borrower to repay a loan.

Third Party Origination

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.

Title

a legal document establishing the right of ownership and is recorded to make it part of the public record. Also known as a Deed

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 Company

a company that specializes in examining and insuring titles to real estate

Title Defect

an outstanding claim on a property that limits the ability to sell the property. Also referred to as a cloud on the title.

Title Insurance

insurance that protects the lender against any claims that arise from arguments about ownership of the property; also available for homebuyers. An insurance policy guaranteeing the accuracy of a title search protecting against errors. Most lenders require the buyer to purchase title insurance protecting the lender against loss in the event of a title defect. This charge is included in the closing costs. A policy that protects the buyer from title defects is known as an owner's policy and requires an additional charge.

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.

Transfer Agent

a bank or trust company charged with keeping a record of a company's stockholders and canceling and issuing certificates as shares are bought and sold.

Transfer Of Ownership

any means by which ownership of a property changes hands. These include purchase of a property, assumption of mortgage debt, exchange of possession of a property via a land sales contract or any other land trust device.

Transfer Taxes

State and local taxes charged for the transfer of real estate. Usually equal to a percentage of the sales price.

Treasury Index

can be used as the basis for adjustable rate mortgages (ARMs) It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities.

Trustee

a person who holds or controls property for the benefit of another

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.

Two Step Mortgage

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.

Glossary: U

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.

Up Front Charges

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.

Glossary: V

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

VA Mortgage

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

Variable Expenses

Costs or payments that may vary from month to month, for example, gasoline or food.

Variance

a special exemption of a zoning law to allow the property to be used in a manner different from an existing law.

Vested

a point in time when you may withdraw funds from an investment account, such as a retirement account, without penalty.

Glossary: W

Warranty Deed

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.

Glossary: Z

Zoning

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.