Glossary

Accessibility. The capacity of a house to be approached, entered, or made livable.

Action plan. A plan that identifies exact tasks to be completed and assigns responsibility for completing each task to a specific person.

Adjustable Rate Mortgage (ARM). A mortgage that permits the lender to adjust the interest rate periodically on the basis of changes in a specified index changes.

Affidavit. A written declaration or statement of facts taken under oath.

Annual Percentage Rate (APR). The total cost of a mortgage stated as a yearly rate; includes the base interest rate, loan origination fee (points), commitment fees, prepaid interest, and credit costs that may be paid by the borrower.

Appraisal. An estimate of the market value of a property (determined by a professional appraiser), based on prices that have been recently paid for similar property in the same area.

Asbestos. A material formerly used for insulation in homes and businesses; now known to cause health problems.

Assumption fee. A processing fee the buyer pays to take over the payments on the seller's existing loan.

Binder. A preliminary agreement between a buyer and seller that includes the price and terms of the contract.

Budget. Summary of estimated income and expenses.

Buyer. A person who enters the home buying process.

Capacity. A person’s financial ability to make payments.

Capital. Money or property owned by an individual.

Clear title. A title that is free of liens or legal questions as to ownership of property.

Closing. A meeting to finalize the sale of property by delivery of a deed from seller to buyer. The buyer signs the mortgage documents and pays the closing costs. It is also called a "settlement."

Closing costs. The upfront expenses that must be paid at the time of purchase (over and above the price of the property.) These "closing costs" generally range from three to six percent of the total mortgage. For example: to buy a $60,000 house with a five percent down payment, your closing costs would total between $1,710 and $3,420.

Collateral. Money or property pledged by a borrower to assure the lender that the loan will be repaid.

Commercial bank. Private, profit-making business that loans money and carries out numerous financial transactions.

Commission. A fee, usually a percentage of the purchase price of the property, charged by a real estate agent to complete a sale.

Commitment letter. Letter from a lender that is a formal offer for a loan. The letter includes the amount and term of the loan; the loan origination fee (a percentage of the loan amount); the points; the annual percentage rate or APR; the monthly mortgage payment; and any terms or conditions that must be met before the closing.

Condominium. A residential unit that is individually owned, while the facilities and common areas (the surrounding land, the hallways, and elevators, and any recreational facilities) are owned collectively by the owners of each unit.

Contingency. A condition that must be met before a contract is legally binding.

Conservator. In some states, a conservator is an individual or organization who has been named by a court to exercise some or all powers and rights over a person and/or estate of the person. In other states, a conservator may be described as having control over a person’s estate only.

Contractor. A person who contracts to perform work or provide a service, such as repair or construction.

Convertible ARM. An adjustable-rate mortgage that may be converted to a fixed-rate mortgage under specified conditions.

Cooperative. A residential unit, also referred to as a co-op, in which owners own shares in a corporation rather than owning the individual units in which they live.

Counteroffer. Response from a seller to a buyer’s offer. A counteroffer is typically higher than the buyer’s offer and lower than the original sale price of the house.

Credit counselor. A person who is trained to give advice about how to manage one’s money. The counselor may either work for a lender or for an independent credit counseling agency.

Credit record. A report that shows an individual’s history as a bill payer, as well as how much money the person owes.

Credit union. A membership financial organization that provides loans to its members.

Debt. Money that is owed.

Deductible. A set amount that an insured person pays out of his or her own funds to cover repairs, or loss of a home, or belongings. Once the deductible is paid, the insurance company pays the rest of the costs involved.

Deed. A legal document that transfers and verifies ownership of (or title to) a property.

Deed of trust. Document used in place of a mortgage. With a deed of trust, a third party is involved in the sale. This person, called a trustee, holds the title to the property until the entire loan is paid.

Deposit. A "good faith" payment submitted by a buyer along with an offer to purchase a house. Assures the seller that a buyer is serious about purchasing a house.

Discretionary expense. An expense that one has control over, such as entertainment, eating out, and clothing.

Down payment. The portion of the purchase price that the buyer pays in cash and does not finance with a mortgage.

Earnest money (deposit). A "good faith" payment submitted by a buyer with an offer to purchase a house. Assures the seller that a buyer is serious about purchasing a house.

Escrow. The holding of documents and/or money by a neutral third party prior to closing; also, an account held by the lender into which a homeowner deposits money for taxes and insurance.

Estate sale. Sale of a property after the death of an owner.

Estimate. A statement of the approximate cost of a service.

Expense. Cost or allotment for an item or a service.

Facilitator. A person who knows a potential home buyer well, believes in his or her dream of owning a home, and is willing and able to assist the person to reach his or her goal of homeownership.

Fair Housing Act. Law which prohibits discrimination on the basis of race, religion, age, national origin, receipt of public assistance funds, sex, marital status, or disability.

Fannie 97. A Fannie Mae mortgage product that requires only a 3 percent down payment from the borrower. Family members, non-profit groups, or government agencies may pay the closing costs. Two options are available--a 30-year, fixed-rate mortgage with a debt-to-income ratio of 28/36, and a 25-year, fixed-rate mortgage with a ratio of 33/36.

Federal Deposit Insurance Corporation (FDIC). A government agency that provides insurance protection for individuals and businesses who deposit money in banks.

Federal Housing Administration (FHA). The government agency established to improve housing standards and conditions, and provide an adequate home financing system through insurance of mortgages, as well as stabilize the mortgage market.

Financing. Funds or credit provided to a buyer from a bank or other lending source.

Fixed expense. An expense such as a mortgage payment, utilities, and insurance premiums.

Fixed-rate mortgage. A mortgage in which the interest rate does not change during the entire term of the loan.

Formaldehyde. A colorless, gaseous chemical compound that is released by many construction materials. It was also an ingredient in the foam used for insulating houses until the early 1980s. It may cause irritation of the eyes, nose, and throat, and is suspected of causing cancer.

Foreclosure. Legal action taken by a lender if a borrower fails to pay monthly mortgage payments on time. The bank or lender takes back the property and sells it to try to recover the money it loaned.

Grace period. The length of time after the payment due date that a lender or other creditor will allow a monthly payment to be paid without charging a penalty.

Graduated payment mortgage. A mortgage that starts with low monthly payments that increase at a predetermined rate for a specified time. The initial monthly payments are set at an amount lower than that required for full amortization of the debt.

Grant. Money that does not need to be repaid. Grants may be obtained from numerous agencies; affordable housing programs; endowments for first-time home buyers; and/or private foundations.

Guardian. A individual or organization who has been named by a court to exercise some or all powers and rights over a person and/or estate of the person.

Hazard insurance. Also called "property insurance," protects a homeowner and the lender from loss in the event the house is destroyed or damaged in any way.

Hazardous waste. Chemicals and other materials that have been or need to be discarded that cause potential health problems.

Home improvements. Repairs or renovations that restore or increase the value and may beautify a home.

Home inspection. A property inspection to evaluate the structural and mechanical condition (not the market value) of the property. Performed by a professional inspector, the inspection is based on observable, unconcealed structural conditions.

Homeowner’s warranty. Serves as an insurance policy. If a major system (such as the heating system, air conditioning, or a major appliance) breaks down during the term covered by the warranty, the warranty will cover the cost, or part of the cost, to replace or repair it.

Housing counselor/education provider. A person who is trained to assist prospective home buyers throughout the purchase process.

Housing finance agency. State-mandated agency that finances housing for low- and moderate-income people.

HUD-1 Settlement Statement. This form is required by federal law. The purpose of the form is to itemize the services provided and list the charges to the buyer and the seller. The form is filled out by the settlement agent who conducts the closing. Both the buyer and seller must sign it.

Inspection. A thorough examination of a property by a professional home inspector.

Insufficient funds. A shortage of money to cover an expense.

Insurance. A contract providing protection against loss or harm, in return for a payment of money.

Interest. The fee charged for borrowing money. Interest rates may change from day to day and can vary between different lenders and different types of loans.

Interest rate cap. A provision of an ARM limiting how much interest rates may increase per adjustment period or over the life of a mortgage.

Investment. The purchase of an item or piece of property that will hold its value or is likely to increase in value.

Lead-based paint. Paint containing lead, used on nearly all homes before 1950, and for many built between 1950 and 1978. The presence of lead paint should be investigated as even low levels of lead exposure can have very serious health-related consequences, especially for infants, young children, and pregnant women.

Lease-Purchase Mortgage Loan. A mortgage product that allows low- and moderate-income home buyers to lease a home from a non-profit organization, or private seller, with an option to buy. Each month's rent payment consists of PITI payments on the first mortgage, plus an extra amount designated for deposit to a savings account where money for a down payment accumulates.

Lender. A person or institution that provides funds to a borrower.

Lien. A legal claim filed against a property by creditors trying to collect unpaid bills, or by the IRS for nonpayment of taxes. A lien gives creditors the right to collect the money owed them when the owner sells the property.

Lifetime cap. A provision of an ARM that limits how high the interest rate on the loan may be at any point over the life of the loan.

Loan. A sum of money that is provided with the expectation of repayment.

Loan interview. A meeting between the person applying for a mortgage and an agent from the lending institution (the loan officer or originator).

Loan officer. Agent of the bank or lending institution who collects the data required by the underwriter who determines whether a borrower is granted a loan. Also called an originator.

Loan origination fee. A fee paid by the buyer to cover the administrative costs of processing the loan. The fee may be described as a percentage of the loan (for example, one percent of the mortgage amount).

Loan processing. The steps performed by a loan officer or other lender to determine whether to grant a loan to a borrower. These include a review of the borrower’s financial circumstances, credit history, and appraisal of the property.

Loan servicing. The collection of mortgage payments from borrowers and the related responsibilites of a loan servicer.

Loan term. The length of time you have to pay back the loan. Most mortgages are paid back over 15 to 35 years. First-time home buyers usually request the longest possible mortgage term in order to have the lowest monthly payment.

Loan-to-Value Percentage (LTV). The relationship between the unpaid principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. Typically, the difference is expressed as a percentage of the amount the lender is willing to lend.

Maintenance. Ongoing care of a property to keep it in good condition.

Mortgage. A legal document that pledges a property to the lender as security for repayment of a loan.

Mortgage broker. An individual or company that, for a fee, acts as intermediary between borrowers and lenders.

Mortgage company. Private, profit-making business that offers mortgage loans.

Mortgage insurance. A contract to protect the lender if the buyer fails to repay the mortgage loan. Loans with private mortgage insurance (or PMI) enable the home buyer to purchase a home with a lower down payment than would otherwise be acceptable to the lender.

Mortgage life insurance. A contract to insure that the lender will be paid any money owed if a buyer dies before paying off a mortgage.

Multiple listing service (MLS). An electronic system used by real estate agents that generates a list of properties for sale.

Negotiate. To deal or bargain with another person.

Net income. The amount of money one has after taxes and any other deductions, such as medical insurance. Also called take-home pay.

Nontraditional credit history. Documentation of monthly payments to previous landlords or property managers; utility companies for electricity, gas, water, and telephone services; cable television companies; and to insurance companies for medical or life insurance. These payments will not appear on a credit report, but canceled checks, receipts, and reference letters from creditors will provide proof that payments were made.

Note. The mortgage note is simply an IOU. It represents the buyer’s promise to pay back a loan. The note spells out the terms of the loan, including the date that payments must be made and where to send or present the payment.

Obligation. A moral or legal responsibility or promise.

Occupancy date. The date that a buyer may move into a newly-purchased home.

Owner financing. A property purchase transaction in which the property seller provides all or part of the financing.

Personal profile. An organized listing describing a person’s life, or a particular aspect of it.

PITI. Stands for principal, interest, taxes, and insurance--the components of a monthly mortgage payment.

Points. A one-time fee charged by the lender to increase the amount of profit for the lender on the loan; a point is one percent of the amount of the mortgage. Some lenders will charge one point to originate a loan.

Prepayment penalty. A fee that may be charged to a borrower who pays off a loan before it is due to be paid off.

Pre-qualification. Process that determines the amount a lender may be willing to lend a borrower to purchase a house.

Premium. The amount paid by a borrower or insurance policy holder.

Principal and interest (P&I). The portion of a mortgage payment that includes the principal (the amount you actually borrowed) and the interest (a fee for borrowing the lender's funds).

Private mortgage insurance (PMI). A contract paid for by the borrower to protect the lender against loss if a borrower fails to repay the mortgage.

Property insurance. Also called "hazard" insurance, protects a homeowner and the lender from loss in the event the house is destroyed or damaged in any way.

Public benefits. Income from a governmental agency. This includes funds received from the Social Security Administration, Medicaid, and federal and state agencies.

Public Housing Authority. Local housing agencies that administer public housing.

Purchase and sale agreement. A written and signed offer to purchase a house for a given price under specified terms.

Probate court. Court that grants and oversees guardianship and conservatorship, as well as, establishes the validity of wills.

Radon. A naturally occurring, odorless gas that may seep into houses and cause health problems.

Rate lock-in. A written agreement guaranteeing the home buyer a specified interest rate provided the loan is closed within a set period of time. The lock-in usually specifies the number of points to be paid at closing.

Real estate sales professional. A person who is trained and licensed to sell real estate. Also referred to as a realtor, agent, or broker.

Recording fee. A fee required by most states to record the purchase documents.

Reference. A statement regarding a person’s character or abilities.

Renovations. Repairs or construction which either restores a house to its original condition or improves its condition.

Representative payee. A person or organization selected by the Social Security Administration (SSA) to manage the benefit payments of an individual receiving cash benefits from the Social Security Administration (i.e., SSI, SSDI) who is unable to do so on their own. The representative payee receives cash benefit payments on the individual’s behalf and determines how these funds will be spent.

Reserve. Money that is set aside, such as an escrow account.

Resource. A source of financial or other support that can be readily drawn upon.

Rider. Additional coverage to an insurance policy that may be purchased to cover such items as expensive camera, stereo, computer equipment, or valuable jewelry.

Rural Housing Service (RHS). Formerly known as the Farmers Home Administration, this branch of the U.S. Department of Agriculture offers low interest rate home loans with no down payments to persons with low and moderate incomes who live in rural areas.

Savings and loan association. A financial institution that invests primarily in mortgage loans.

Seller. A person or organization who offers a property for sale.

Settlement agent. A lender, title insurance company, escrow company, real estate broker, or attorney who conducts a closing.

Single-family home. A house that usually stands on its own, unattached to another home, and is designed to be occupied by one person or family. In some urban areas single-family homes share a common wall. Generally, the land and the house are owned by the same person.

Survey. A drawing or map that shows the exact legal boundaries of a property. The survey shows physical features, such as improvements to the property.

Termites. Ant-like insects that feed on wood.

Tax. A sum of money paid by an individual or organization to the government in return for its services.

Title. A legal document , a claim or right, stating that there are no legal questions as to who owns a property.

Title insurance. A contract providing protection against any problems that may arise with the title.

Townhouse. Type of condominium. These units share common walls, and may have two or more stories. Each unit has its own ground space, but as with condos, the common spaces and facilities are collectively owned by all of the unit owners.

Transfer fee. The fee imposed by most states on the transfer of property.

Transfer of servicing. The change of responsibility for servicing (collecting and processing your mortgage payments) from one lender to another.

Trust. A legal agreement between two or more people where one person places money or property in the name of an individual or a bank (the trustee) for the benefit of another person (the beneficiary). The trustee owns the property but is legally required to use the money or property for the benefit of the beneficiary.

Truth-in-lending Act (TILA) statement. A document required by the Truth-in-lending Act that obligates mortgage lenders to explain in writing the terms and conditions of a mortgage. The lender is required to give a copy to the loan applicant within three business days of receiving the initial application.

Verification. Proof of a statement’s truth.

Veteran’s Affairs (VA) loan. A loan that allows qualified veterans to buy a house with no down payment.

Warranty. A legally binding guarantee which covers the cost, or part of the cost, to replace or repair an item.

Wish list. A list or outline of one’s desires.

Zone. A "zone" is a specific section of land, such as a neighborhood. Zoning laws dictate how the section of land is to be used.