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HOUSING & HOME OWNERSHIP

CHECKLIST OF TERMS
Adjustable-rate Mortgage (ARM) - A mortgage in which the interest rate is not fixed but changes over the life of the loan. Adjustment Period - The time period specified in an adjustable rate mortgage when the interest rate is liable to change, such as annually. Affordability Ratios - The ratios comparing income and expenses, designed to reveal how much a person can spend on a mortgage payment. Amortization - Payment of a loan on an installment basis. Assumable Mortgage - A mortgage by which purchaser takes ownership of real estate encumbered by an existing mortgage and assumes responsibility as the guarantor for the unpaid balance of the mortgage. Balloon Payment or Clause - Last loan payment when it is significantly more than the prior payments, also called partially amortized loan. Buy-down - A cash payment to a lender to reduce a rate of interest on a loan a borrower must pay. Buyer Broker - Individual licensed in a state to act as a middleman in the purchase and sale of real estate; more recently, this applies to brokers paid by the buyer to represent the buyer's interest. Closing Costs - The fees paid by parties in negotiating and financing the purchase of a home and paid at the closing. Closing - The process of financially and legally transferring a house to a buyer. Condominium - Ownership of a divided interest; for example, a home ownership arrangement in which the owner hold title to a housing unit within a building or project and a proportionate interest in the common grounds and recreational facilities. Contingency Clause - In a contract, a provision describing some contingency specifying an important matter such as coverage, exclusions, or termination rights. Conventional Mortgage - A mortgage that requires a large down payment, is typically available only to good credit risks, and has fixed monthly payments for the life of the loan. Convertible ARM - An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under terms specified in the original mortgage. Deed - A written document used to convey title to real estate, when properly executed and delivered. Deed of Trust - A document that conveys title to a neutral third party (trustee) during the period in which the mortgage loan is outstanding as security for debt. Down Payment - A partial payment of the purchase price required to be made at the time a purchase agreement is entered into. Dual Agency - The situation where a real estate broker represents both buyer and seller in the same transaction, which creates a conflict of interest.
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Due-on-sale Clause - A provision in a mortgage that says the outstanding balance on the loan must be paid in full when the property is sold. Earnest Money (Deposit) - Sum of money given by the buyer to the seller at the time of purchase to indicate the buyer's willingness and ability to consummate the sale. Equity - The portion of an asset owned by an individual, that is, the market value of the property less any amount owed on the property. Escalator Clause - A clause in a contract providing for increase or decrease in prices, based on fluctuations in the cost of living, production costs, interest rates, etc. Escrow - The arrangement in which a buyer puts a deed and/or money into the care of a neutral third party (an escrow agent) to hold until certain conditions are fulfilled. Fannie Mae - Acronym for the Federal National Mortgage Association (FNMA) that is one of the major agencies in the secondary-mortgage market that purchases mortgages from lending institutions and sells them to investors. FHA Mortgage (Federal Housing Administration) - A federal agency that offers home financing to qualified individuals who are generally first-time buyers. Freddie Mac - Acronym for the Federal Home Loan Mortgage Corporation (FHLMC) that is one of the major agencies in the secondary-mortgage market that purchases mortgages from lending institutions and sells them to investors. Fixed-rate Mortgage - A mortgage loan that is at a set, specified interest rate for the lifetime or maturity of the mortgage. Full Disclosure - A broker is required to present all known facts about the financial and physical condition of the subject property. Graduated Payment Mortgage (GPM - A special type of fixed rate mortgage (conventional mortgage) in which the monthly payments are lower in the early years of the loan than they are in the later years. Habitability - The condition of a property, if it is fit to be lived in. Homestead Law- A law exempting a homestead from seizure or forced sale to meet general debts. Housing Ratio or Front Ratio - The percentage of housing costs (PITI) to monthly gross income used to determine if borrowers qualify for loans; a common ratio is 28 percent. Index Rate - The basis for setting an adjustable rate such as the one-year Treasury bill average, three-month certificate of deposit, or prime rate. Inflation Hedge - An investment made to protect against the loss of buying power produced by inflation. Interest Rate Cap - Feature on an adjustable-rate mortgage specifying limitations on how much the interest rates can change at periodic adjustment intervals and/or over the life of the loan. Interim Construction Loan - A temporary source of financing on a short-term basis until construction is completed and a long-term financing source many be arranged. Landlord's Lien - A claim of the owner of the property, to hold or control the property of another party to satisfy a debt or liability.
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Lease Agreement (Rental contract) - A contractual agreement between a lessor and a tenant for the use and possession of property for a certain period of time at a certain cost. Loan Application - A form filled out by a borrower providing personal and financial information used by the lender in assessing borrower risk. Loan Origination Fee - The lender's charge to borrower for doing all the paperwork and setting up the mortgage loan. Loan-to-value Ratio - The ratio of the loan principal amount (amount borrowed) to the property's fair market value or sales price. Margin - The difference between the index a lender uses to adjust ARM rates and the interest rate the lender actually charges the borrower. Mortgage - A long-term loan secured by property. Mortgage Banker or Broker - An individual or company that originates mortgages and collects payments on them. Mortgage Life Insurance - An insurance policy that will pay off the balance of the mortgage in the event of death of the wage earner. Mortgage Loan - A long-term loan secured by property in which the borrower pledges not only the property but also his or her personal credit to repay the loan. Negative Amortization - Increase in the outstanding loan balance that occurs when the mortgage payment does not fully cover the required interest charge on the loan. Overall Debt Ratio or Back Ratio - The percentage of housing costs (PITI) plus other long-term debt to monthly gross income used to determine if borrowers qualify for loans; a common ratio is 36 percent. Payment Cap - The highest payment the borrower will assume over the life of the mortgage. PITI (Principal, Interest, Taxes, Insurance) - The four components of the monthly mortgage loan payments. Points - An additional cost a lender adds to the basic mortgage charges to provide a lower interest rate than market conditions provide. Each point represents1% of the face value of the mortgage loan and is a form of prepaid interest. Prepaid Items - Money prepaid at closing and in the monthly house payment by the borrower for future disbursement by the lender for taxes and insurance. Prepayment Penalty - A penalty charge levied by a lender when a borrower repays a loan before a specified time. Pre-qualification - The process of being pre-approved by a lender to assume a specific mortgage amount.

Property Taxes (Real Estate Taxes) - A tax assessed on real property determined by its land use, classification, ranging from rural farmland to heavy industry, improvements made, its assessed valuation, and the mileage rate. Private Mortgage Insurance (PMI) - Insurance for lenders that insures against loss on certain mortgages, in case of default.
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Purchase Agreement - A written agreement between a buyer and a seller in which the former agrees to purchase real estate property upon mutually agreeable terms. Purchase Money Mortgage - A mortgage loan from a seller in place of cash for the acquisition of real estate. Real Estate Settlement Procedures Act (RESPA) - A federal act that deals with procedures to be followed in certain types of real estate closings. Rollover Mortgage - A mortgage in which the rate of interest is fixed but the whole loan is negotiated, or rolled over, after a fixed time period. Second Mortgage - A mortgage debt with a subordinated claim to that of the first mortgage. A second mortgage is senior to subsequent liens. Seller Broker or Agent - The real estate professional who finds a buyer for a property but who represents the seller's interests. Seller Financing- Arrangements under which the seller of a home agrees to lend the buyer some or the entire purchase price. Title Check (search) - An inquiry of the history of the property to determine whether there are any restrictions or defects on the title including mortgages, encumbrances, and all liens. Title Insurance - A contract whereby the insurer promises to pay the insured, generally the purchaser and/or lender, up to a certain amount for losses sustained by title defects on real estate.
VA Guaranteed Mortgage (Veterans Administration) - A mortgage given to an eligible veteran or to a surviving spouse guaranteed by the pledge of the Veterans Administration to the financial institution which allows the purchaser a low or no down payment.