Homebuying Glossary of Terms

Homebuying Glossary of Terms Treasury Funds Home Loans, Inc.

Homebuying Glossary of Terms

Adjustable Rate Mortgage (ARM): A mortgage with an interest rate that can change periodically based on market conditions after an initial fixed-rate period. Fixed Rate Mortgage vs. Adjustable Rate Mortgage

Amortization: The gradual repayment of a mortgage loan through regular installments over a specified period.

Annual Percentage Rate (APR): The total cost of a loan expressed as an annual percentage, including interest rates and certain fees.

Appraisal: An estimate of the value of a property, conducted by a licensed appraiser.

Arms-Length Transaction: A transaction where buyers and sellers act independently, without any undue influence, ensuring fair market value.

Assumable Mortgage: A mortgage that a buyer can take over from the seller, often with lender approval, assuming the existing terms.

Balloon Mortgage: A short-term mortgage with lower monthly payments for a set period, followed by a larger lump-sum payment at the end.

Basis Points: One-hundredth of a percentage point, commonly used to express changes in interest rates or bond yields.

Buyer’s Agent: A real estate agent or broker who represents the buyer’s interests in a real estate transaction.

Cleared to Close: The final approval from the lender, indicating that all conditions for the loan have been satisfied, and the closing process can proceed.

Closing: The final step in a real estate transaction where legal documents are signed, and ownership of the property is transferred.

Closing Costs: Fees and expenses incurred by buyers and sellers during the real estate transaction, typically paid at the closing.

Closing Disclosure: A document provided to homebuyers by lenders before closing, detailing the final terms and costs of the mortgage loan. The Closing Disclosure Explained

Co-signer: A person who agrees to be responsible for a loan if the primary borrower fails to make payments.

Condominium: A type of housing where individuals own their units and share ownership of common areas with other unit owners.

Condominium Master Insurance Policy: An insurance policy covering common elements and shared areas in a condominium complex.

Contingency: A condition that must be met for a real estate contract to be binding. Common contingencies include home inspection and financing.

Conforming Loan Limit: The maximum loan amount that meets the criteria for purchase by government-sponsored enterprises like Fannie Mae and Freddie Mac.

Conventional Mortgage: A mortgage not insured or guaranteed by a government agency, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA).

Counter Offer: A response to an initial offer in a negotiation, proposing different terms than those initially offered.

Credit Bureau: An agency that collects and maintains credit information on individuals for use by lenders and other businesses. You and Your Credit Report

Credit Score: A numerical representation of a person’s creditworthiness, based on credit history and other financial behaviors. Boost Your Credit Score

Days on Market: The number of days a property has been listed for sale on the real estate market.

Debt-to-Income Ratio (DTI): A financial metric representing the percentage of a borrower’s gross monthly income that goes toward paying debts.

Deed: A legal document that conveys ownership of real property from one party to another.

Default: The failure to fulfill a financial obligation, such as missing mortgage payments, which may lead to foreclosure.

Delayed Financing: A financing strategy where a buyer purchases a property with cash and then obtains a mortgage shortly afterward.

Discount Points: Upfront fees paid to lenders at the time of closing to lower the interest rate on a mortgage.

Down Payment: The initial payment made by the buyer towards the purchase of a home, usually a percentage of the total purchase price. The Importance of Saving for a Down Payment

Down Payment Assistance: Financial aid provided to homebuyers to help cover a portion of their down payment and closing costs.

Dual Agency: A real estate agency relationship where the agent represents both the buyer and the seller in the same transaction.

Due on Sale: A clause in a mortgage agreement allowing the lender to demand full repayment if the property is sold or transferred to another party.

Equity: The difference between the market value of a property and the outstanding mortgage balance.

Earnest Money: A deposit made by a buyer to demonstrate their serious intent to purchase a property, typically held in escrow until the closing of the real estate transaction.

Escrow: A neutral third-party account where funds, documents, or other assets are held during a real estate transaction until all conditions are met and the deal is finalized.

Escrow account: A financial account managed by a lender to collect and hold funds from a borrower for property-related expenses such as property taxes and insurance, ensuring timely payments.

Fannie Mae: A government-sponsored enterprise that facilitates the secondary mortgage market by purchasing and guaranteeing mortgages.

Federal Housing Administration (FHA): A government agency that insures mortgages, providing lenders with protection against losses, and making homeownership more accessible.

Federal Reserve: The central banking system of the United States, responsible for monetary policy, including interest rates and money supply. Federal Reserve and the Housing Market

FHA Mortgage: A mortgage insured by the Federal Housing Administration, typically requiring lower down payments and more lenient credit qualifications.

FHA Mortgage Insurance: Insurance provided by the FHA to protect lenders against losses on FHA-insured loans, allowing for more favorable terms to borrowers.

FICO Score: A credit score developed by Fair Isaac Corporation, commonly used by lenders to assess a borrower’s creditworthiness.

Fixed-Rate Mortgage: A mortgage with a constant interest rate and monthly payments that remain unchanged throughout the loan term. Fixed Rate Mortgage vs. Adjustable Rate Mortgage

Flipped Home: A property purchased, renovated, and quickly resold for profit, often done by real estate investors.

Foreclosure: The legal process by which a lender repossesses and sells a property due to the borrower’s failure to make mortgage payments. The Foreclosure Process

Freddie Mac: A government-sponsored enterprise that works in the secondary mortgage market, purchasing and securitizing mortgages.

Free and Clear: Owning a property outright without any mortgage or liens.

For Sale by Owner (FSBO): A property listed for sale by the owner without the involvement of a real estate agent.

High-Cost Area: A geographic region where property values and living costs are notably higher than the national average.

Home Equity Line of Credit (HELOC): A revolving line of credit secured by the equity in a home, allowing homeowners to borrow against the value of their property. The Power of Home Equity Line of Credit

Home Equity Loan: A fixed-rate loan that enables homeowners to borrow against the equity in their home, with funds received as a lump sum.

Home Inspection: A thorough examination of a property’s condition, conducted by a professional inspector, to identify potential issues.

Home Inspection Clause: A provision in a real estate contract that allows the buyer to conduct a professional inspection of the property before finalizing the purchase.

Homeowners Association (HOA): An organization in a planned community or condominium complex that establishes and enforces rules and regulations for property owners.

Homeowners Insurance: A type of insurance that provides coverage for damage to a home and its contents, as well as liability protection.

Housing Market Index (HMI): An economic indicator measuring the confidence of homebuilders in the residential construction market, assessing current and future market conditions.

Interest Rate: The cost of borrowing money, expressed as a percentage, paid by the borrower to the lender.

Investment Property: Real estate purchased with the goal of generating income through rental or capital appreciation.

Lease: A legal agreement between a landlord and tenant outlining the terms and conditions for renting a property.

Lease-Purchase: A hybrid arrangement where a tenant leases a property with an option to purchase it at a later date.

Lender Overlay: Additional requirements imposed by a lender that go beyond the standard underwriting guidelines set by government-backed mortgage programs.

Lien: A legal claim against a property, often as security for a debt or obligation.

List Price: The advertised or asking price of a property set by the seller.

Loan Estimate: A document provided by a lender to a borrower, outlining the estimated terms and costs associated with a mortgage loan.

Loan Term: The specified duration over which a loan is scheduled to be repaid.

Loan-to-Value (LTV): The ratio of the loan amount to the appraised value of the property, expressed as a percentage.

Low Downpayment Mortgage: A mortgage that requires a relatively small down

Mortgage: A loan used to finance the purchase of a home, with the property serving as collateral.

Mortgage Broker: A financial intermediary that connects borrowers with mortgage lenders and helps facilitate the loan application process. The Mortgage Broker Advantage

Mortgage Guidelines: Specific criteria and requirements set by lenders to assess a borrower’s eligibility for a mortgage loan.

Mortgage Lender: A financial institution or individual that provides funds to borrowers for the purpose of purchasing or refinancing real estate.

Mortgage Rate: The interest rate charged by a lender on a mortgage loan, determining the borrower’s cost of borrowing. Understanding Mortgage Rates

Mortgage Rate Lock: An agreement between a borrower and lender to secure a specific interest rate for a specified period, protecting against rate fluctuations.

Mortgage-Backed Securities (MBS): Financial instruments representing an ownership interest in a pool of mortgage loans, often traded in the secondary market.

Multiple Listing Service (MLS): A database used by real estate professionals to share information about properties for sale, enhancing collaboration and exposure.

Multi-Unit Home: A residential property designed to accommodate more than one household, such as a duplex, triplex, or apartment building.

National Association of REALTORS® (NAR): A professional organization for real estate agents and brokers that promotes ethical standards and provides advocacy and resources for its members.

Net Tangible Benefit: The positive financial outcome or advantage gained by a borrower through refinancing or modifying their mortgage.

Non-Conforming Loan: A mortgage that exceeds the loan limits set by government-sponsored enterprises, such as Fannie Mae and Freddie Mac.

Non-Occupant Co-Borrower: A person who is jointly responsible for a mortgage but does not reside in the property securing the loan.

Non-Warrantable Condo: A condominium unit that does not meet the criteria for financing approval set by Fannie Mae, Freddie Mac, or other government agencies.

Origination Fee: A fee charged by a lender for processing a mortgage application, typically expressed as a percentage of the loan amount. Origination Fee Reduction Program Understanding Loan Origination Fee

Payment Shock: A significant increase in the borrower’s monthly mortgage payment, often experienced when adjustable-rate mortgages adjust to higher interest rates.

Personal Liability Insurance: Insurance coverage that protects individuals against claims of personal injury or property damage for which they may be legally responsible.

PITI: An acronym representing the four components of a mortgage payment: Principal, Interest, Taxes, and Insurance.

Portfolio Loan: A mortgage loan that is originated and held by the lender rather than being sold on the secondary market.

Pre-approval: A preliminary determination by a lender of the amount a buyer can borrow, based on income, credit, and other factors.

Prepaid Costs: Upfront expenses paid by a borrower at the time of closing, including property taxes, homeowners insurance, and prepaid interest.

Pre-Qualification: An informal process where a lender assesses a borrower’s financial situation to provide an estimate of the amount they may be qualified to borrow. The Power of Pre-Qualification

Private Mortgage Insurance (PMI): Insurance coverage that lenders may require from borrowers who make a down payment of less than 20% to protect against potential default.

Planned Urban Development (PUD): A type of community or neighborhood planning that combines residential, commercial, and recreational spaces in an integrated manner.

Principal: The amount of money borrowed in a loan, excluding interest.

Real Estate Agent: A licensed professional who represents buyers or sellers in real estate transactions.

Real Estate Taxes: Taxes imposed by local governments on the value of real property, typically used to fund public services and infrastructure.

Refinance: The process of obtaining a new mortgage to replace an existing one, often to secure a lower interest rate or change the loan terms.

Rent-to-Own: A contractual arrangement allowing tenants to rent a property with the option to purchase it at a later date.

Seasoning: The amount of time a borrower has held a particular type of debt or the age of funds in a bank account, often considered by lenders during mortgage underwriting.

Second Home: A property that is not a primary residence but is used for personal enjoyment, such as a vacation home.

Seller’s Agent: A real estate agent or broker who represents the seller’s interests in a real estate transaction.

Seller’s Concessions: Agreements made by a home seller to contribute towards the buyer’s closing costs or other expenses as part of the real estate transaction.

Seller’s Market: A market condition where demand for homes exceeds the supply, giving sellers an advantage.

Single Entity Coverage: An insurance policy that provides coverage for a single identified entity, often used in commercial real estate to insure a specific property or project.

Soft Credit Pull: A credit inquiry that doesn’t impact an individual’s credit score, often done for informational or pre-qualification purposes.

Tax Deduction: A reduction in taxable income that results in a lower amount of income subject to taxation, often associated with expenses like mortgage interest or property taxes.

Teaser Rate: An initial, lower interest rate offered by lenders at the beginning of an adjustable-rate mortgage to attract borrowers, typically followed by rate adjustments.

Title: Legal ownership and right to possession of a property, represented by a document known as a title deed.

Title Insurance: A policy that protects the buyer and lender from potential defects in the property title. The Title Company for Buyers & Sellers

Townhome: A residential dwelling that shares walls with adjacent units, often forming a row of similar structures.

Trust: A legal arrangement where a trustee holds and manages assets for the benefit of specified individuals or entities, known as beneficiaries.

Underwriting: The process by which a lender evaluates a borrower’s creditworthiness and approves or denies a mortgage application.

USDA Mortgage: A mortgage program offered by the U.S. Department of Agriculture to assist eligible rural and suburban homebuyers with low to moderate incomes.

VA Loan: A mortgage loan guaranteed by the U.S. Department of Veterans Affairs, available to eligible veterans and military personnel. Benefits of a VA Mortgage Loan

Variable Interest Rate Loan: A loan with an interest rate that can change over time based on fluctuations in a specified financial index.

Warrantable Condominium: A condominium unit that meets the criteria for financing approval set by government-sponsored entities like Fannie Mae or Freddie Mac.

Walk-through: A final inspection of the property by the buyer before closing to ensure that agreed-upon repairs have been made.

Zoning: Regulations that control the use of land and structures within a specific area, established by local authorities.

This glossary provides a starting point for understanding key terms in the homebuying process. If you have specific questions about any term or need more information, feel free to ask!

Thank you for considering Treasury Funds Home Loans, Inc. for your mortgage needs. We look forward to the opportunity to assist you in achieving your homeownership goals.

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