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Debt-to-Income Ratio
A comparison 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.
Deed
The document that transfers ownership of a property.
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 doesn't allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure.
Default
The inability to pay monthly mortgage payments in a timely manner or to otherwise meet the mortgage terms.
Delinquency
Failure of a borrower to make timely mortgage payments under a loan agreement.
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.
Down Payment
The portion of a home's purchase price that is paid in cash and is not part of the mortgage loan.
E
Earnest Money
Money put down by a potential buyer to show that he or she is serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal.
EEM
Energy Efficient Mortgage; an FHA program that helps home buyers save money on utility bills by enabling them to finance the cost of adding energy efficiency features to a new or existing home as part of the home purchase.
Equity
An owner's financial interest in a property; calculated by subtracting the amount still owed on the mortgage loan(s)from the fair market value of the property.
F
Escrow Account
A trust account created by a third party to hold money. A mortgage escrow account is an account set-up to pay taxes and insurance. Monthly mortgage payments may include 1/12 of annual property taxes and insurance. When the bills comes due, lenders use the money in the escrow account to pay them.
Fair Housing Act
A law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.
Fair Market Value
The hypothetical price that a willing buyer and seller will agree upon when they are acting freely, carefully, and with complete knowledge of the situation.
Fannie Mae
Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential home buyers.
Federal Housing Administration (FHA)
Federal Housing Administration; established in 1934 to advance home ownership opportunities for all Americans; assists home buyers by providing mortgage insurance to lenders to cover most losses that may occur when a borrower defaults; this encourages lenders to make loans to borrowers who might not qualify for conventional mortgages.
Fixed-Rate Mortgage
A mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.
Flood Insurance
Insurance that protects homeowners against losses from a flood; if a home is located in a flood plain, the lender will require flood insurance before approving a loan. Foreclosure A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.
Freddie Mac
Federal Home Loan Mortgage Corporation (FHLM); a federally-chartered corporation that purchases residential mortgages, secures them, and sells them to investors; this provides lenders with funds for new home buyers.
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.
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.
H
HELP
Home buyer Education Learning Program; an educational program from the FHA that counsels people about the home buying process; HELP covers topics such as budgeting, finding a home, getting a loan, and home maintenance; in most cases, completion of the program may entitle the home buyer to a reduced initial FHA mortgage insurance premium-from 2.25% to 1.75% of the home purchase price.
Home Inspection
An examination of the structure and mechanical systems to determine a home's safety; makes the potential home buyer aware of any repairs that may be needed.
Home Warranty
Offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowners insurance; overage extends over a specific time period and does not cover the home's structure.
Homeowners Insurance
An insurance policy that combines protection against damage to a dwelling and it's contents with protection against claims of negligence or inappropriate action that results in someone's injury or property damage.
Housing Counseling Agency
Provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and home buying.
HUD
The U.S. Department of Housing and Urban Development; established in 1965, HUD works to create a decent home and suitable living environment for all Americans; it does this by addressing housing needs, improving and developing American communities, and enforcing fair housing laws.
HUD1 Statement
Also known as the "settlement sheet," it itemizes all closing costs; must be given to the borrower at or before closing.
HVAC
Heating, Ventilation and Air Conditioning; a home's heating and cooling system.
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