Part One: Are You Ready to Buy a Home?

Module 2: Getting a Mortgage Loan

Mortgage:  A secured loan between the lender and the buyer that is used to buy a home.  If the buyer doesn't pay back the loan, the lender has the right to take back possession of the property.

P-I-T-I:  The four different parts of most mortgage loan payments.  The payment is made up of principal, interest, taxes and insurance (PITI).

Pre-Approved:  An approval from a lender before a home is picked out.  The pre-approval is based on verified information given by the buyer when they applied for their loan.

Mortgage Loan Application:  Forms that are filled out when applying for a loan.  It contains questions about the buyer's income, assets, debts and the property you want to buy.

Loan Processor:  They prepare the loan file to be sent it to the lender.  Their work includes ordering inspections and organizing the paperwork.

Underwriter:  Works for the lender, looks at loan applications and decides whether to approve them.

Prequalified:  The lender has determined that the borrower can afford to go to the next step in the loan process.  The borrower is given a letter that says the price range of the homes they could qualify for.

Prequalification:  The process lenders use to determine how much of a home the potential buyer could buy.  It is based on unverified information.

Pre-Approved: Buyer has received approval from the lender for a specific loan amount   The lender has used the buyer's pay stubs, bank information and other information in order to give the approval, but the property has not been looked at by the lender.

Prequalification Worksheet:  Form used to enter income and debt payments and calculates how much of a house payment that can be afforded.

Banks:  A depository institution that offers checking accounts, savings accounts, loans, and investments.

Credit Union:  A financial institution that offers checking accounts, savings accounts and loans to it's members.  You must be a member of the credit union in order to use their services.

Contract For Deed:  A type of seller financing where the buyer makes the down payment and monthly payments to the seller, but the buyer doesn't own the property.  The buyer will own the property once the loan is fully repaid or the property is refinanced into the buyer's name.

Wraparound Mortgage:  A loan in which the seller finances you a new mortgage and the seller keeps the original loan that is owed to the lender.

Secondary Market:  This is one area where lenders get money to loan to buyers of homes.  Investors purchase mortgage loans already owned by the lenders.  This gives the lender more money to loan out.

Mortgage Broker:  An individual or company that, for a fee, matches a home buyer with a home lender.

Conventional Loans:  A mortgage loan that is made by a for-profit lender and is not insured by the federal government.

Subprime Loans:  A type of loan that serves borrowers that cannot get credit in the prime market.  These borrowers usually pay higher rates when getting a mortgage loan.

Predatory Lending:  Loan made by combining certain products, practices and prices that are unfair to the borrower.

FHA Loans:  Stands for "Federal Housing Administration".  A FHA loan is a type of mortgage loan that is insured by a department of the federal government  This type of loan offers low down payment requirements.

VA Loans:  This is a loan program available to veterans that served in the U.S. armed forces.  This type of loan requires no down payment and lower closing costs.

Fixed-Rate Loan:  The interest rate will always be the same during the loan.  Your principal and interest part of your payment will stay the same, but your payment could increase if your tax or homeowner's insurance costs go up.

Adjustable-Rate Loan:  The interest rate on this loan will start out fixed for a period of time, then can change on a regular schedule.  Your payment will not remain the same during the time you have the loan.

Balloon-Payment Loan:  A loan with fixed payments, but will require the loan be paid in full at the end of a set period of time.  This type of loan will require the loan balance be paid in full at the end of the set time period and can be paid using your own money or by refinancing the loan into a new fixed-rate loan.

Graduated Payment Loan:  A loan that starts out with lower payments which increase gradually over a period of time and then stay fixed for the rest of the loan.  This type of loan could be used for a borrower that is expecting yearly pay increases, but is more risky than a fixed rate loan.

Bi-Weekly Mortgage:  The borrower makes ½ of their monthly mortgage payment every two weeks.  By doing so, you pay a thirty year loan off in approximately 22 years.

Interest Rates:   This is the rate you pay for borrowing money.  The lower the rate, the lower your payment will be.  Interest rates vary from lender to lender, so shop around for the best rate.

Annual Percentage Rate:  The cost of borrowing money expressed at a yearly (annual) rate.  It includes the interest, points and other fees charged by the lender.  This rate will be different than your interest rate.  Your loan payments will not be based on this rate.  They will be based on the interest rate that was locked in by your lender.

Points:  Equals 1% of a loan amount.  Points are paid in order to get a lower interest rate.  The more points you pay, the lower your rate and payment will be.  Consider all of your options before paying points on a loan.

Mortgage Insurance:  This is insurance that is required to be paid by the buyer if 20% of the purchase price is not be made as a down payment on the loan.  It protects the lender, not the buyer, is the buyer doesn't make their payments on time.

Escrow:  A special account that money is put into each month so there will be money available to pay certain bills when they come due.  The money put into the account is collected each month and included as part of your mortgage payment.

Fees:  Fees are the expenses that the lender is charged in order to get your loan approved.  Each lender will have a different amount of fees they will charge.  Obtain an estimate of all fees that they will charge and ask if any of the fees can be refunded if the loan doesn't go through.

Prepayment:  Prepayment is paying your loan off before all the payments are made.  When you do this, you will own the own free and clear.  Usually there is not prepayment penalty, but ask your lender before you sign your loan papers.

Lock-In:  This sets your rate so if the rates go up you are protected.  Ask your lender if there is a fee to lock in your rate.

Amortization:  This is paying back your loan with regular payments of a fixed period of time.

Truth-In-Lending (TIL) Statement:  A statement that tells how much you are borrowing and the cost to do so.This document must be given to you within three days after you give your lender a contract on a home.

Good Faith Estimate (GFE):  A statement that lists all of the possible fees that would have to be paid to get a loan.  This document must also be give to you within three days after you give your lender a contract on a home.

Loan Processor:  They prepare the loan file to be sent it to the lender.  Their work includes ordering inspections and organizing the paperwork.

Underwriter:  Reviews the loan file and decides if the file can be approved.

Refinancing:  The process of taking out a new mortgage and using the money to pay off the old one.  This is usually done so your loan would have a lower interest rate.

Module 3: Shopping for a Home

Prequalification:  The process lenders use to determine how much of a home the potential buyer could buy.  It is based on unverified information.

Pre-approval:  An approval statement with a specific loan amount issued by the lender.  The lender used the buyer's pay stubs, bank information and other information in order to give the approval, but the property has not been looked at by the lender. 

Offer:  To present the terms to the seller that would be acceptable by the buyer in order to buy their house.

Home Inspection:  This is a detailed review of the property done by someone other than the buyer or seller.  The home inspection covers many parts of the home and lists any problems with the home.

Insurance:  There are many types of insurance when learning about mortgage loans.  They include homeowner's insurance, which covers your home if a fire occurs; mortgage insurance, which is required by most lenders if you don't put a 20% down payment; and title insurance, which covers the mortgage loan should any question come up about the buyer's ownership of the property.  

Survey:  The most common type of survey is a land survey.  This survey determines the legal boundaries of the property.  

Close The Loan:  The final step in the home buying process.  This is when all the closing documents are signed and when you are given the house keys to the property.

Real Estate Agent:  A licensed real estate professional who assists with the buying and selling of homes.  Realtors can work for a buyer or a seller.  When you are ready to purchase a home, it is a good idea to consider finding a REALTOR to assist you with locating properties that meet your needs.  They are paid a fee, but the fee is usually paid by the seller.  Make sure you know who will be paying their fee before you sign any loan papers.  

Listing Agent:  This type of real estate agent has a contract with the seller of the property for sale.  They will advertise the property for sale and represent the seller during the loan process.

Buyer's Agent:  This type of real estate agent works for the buyer only.  They represent the buyer during the loan process.  

Dual Agent:  A dual agent represents both the buyer and the seller during the sale of the same home.  This agent may be paid by either the buyer or the seller.  Make sure you know who will be paying their fee.

For Sale By Owner:  A home for sale without a real estate agent representing the seller.  Before signing a contract with this type of sale, it is a good idea to have an attorney look at it to make sure you are not getting into a contract that you will regret.  

Attorney:  Attorney's are educated and licensed to practice law.  They can review your paperwork to make sure it is filled out correctly and can let you know what is likely to happen if you sign it and what it would take to not go through with buying the home.

Appraisal:  An estimate of how much a home is worth.  This is completed by a licensed individual and compares the home you are trying to buy with other homes in the area.  The lender has the right to adjust the value given by the appraisal if they feel it is necessary.

Lender:  Lenders can be banks, savings and loans, credit unions, mortgage companies, governments agencies or private individuals.  They are the ones that loan the money to buy the home you want. 

Attorney:  Attorney's are educated and licensed to practice law.  They can review your paperwork to make sure it is filled out correctly and can let you know what is likely to happen if you sign it and what it would take to not go through with buying the home.

Escrow Officer:  A person that keeps the original purchase contract and other documents, holds any earnest money, and makes sure that all the people involved in the home purchase are doing their job.

Earnest Money:  A deposit that a buyer puts down to show they are serious about buying the home for sale.

Title Insurance Officer:  They research the past owners of the home and make sure they sold their interest in the property previously.  They also make sure the seller that is selling you the home has the right to sell it to you.

Home Inspection:  This is a detailed review of the property done by someone other than the buyer or seller.  The home inspection covers many parts of the home and lists any problems with the home.

Appraisal:  An estimate of how much a home is worth.  This is completed by a licensed individual and compares the home you are trying to buy with other homes in the area.  The lender has the right to adjust the value given by the appraisal if they feel it is necessary.

Surveyor:  A licensed professional who checks the measurements of a property and the land around it.  Survey's are not always required to buy a home.  Check with you lender and they will let you know if one is required.  If you are not certain of the property lines for the home you are buying, a survey is recommended.

Insurance Agent:  They offer many types of insurance.  They include: car, health, life and  hazard insurance (also known as homeowner's insurance).  Insurance agents can quote you on how much it will cost to insure the home you want to buy.  It is a good idea to shop around because different insurance companies offer different services and the cost of the homeowner's insurance can vary from insurance agent to insurance agent.

Housing Counselor:  A trained professional who provides homebuyer education, credit counseling or both.

Detached Single-Family Home:  This type of home is a built for one family and is not attached to any other homes.

Duplex:  This is two homes attached in the middle with a wall that is shared by both homes.

Triplex:  This is a three home property with all units attached together.

Fourplex:  This is four homes attached together on one piece of property.

Planned Unit Development (PUD):  Each home owner owns their home and the land it sits on.  Each homeowner must pay a monthly or yearly fee in order to take care of the areas shared by all home owners.

Townhouse:  Consists of three or more one family homes attached by the side walls.  The side wall is equally shared and owned by each owner that is attached to it.

Cooperative (Co-op):  A "group" ownership development.  Each homeowner owns both their home and the common areas of the development.  Co-op's may have rules you must follow in order to change or sell your property.  Make sure you know what you can and can't do before you buy a home in a co-op development.

Manufactured Home:  A home made in a factory.  It can be made as one piece or several pieces.  The home is taken to the home site using a truck and the home has wheels under it when it arrives.  The home is bolted together if it contains two or more pieces.  Under the home, supports are used to hold the house up and to give it the support it needs.  Supports can be concrete blocks or poles and they attach to the steel located below the floor.

Modular Home:  A factory-built home that is similar to a manufactured home, but does not have wheels, metal or poles under it.  It is more similar to a home that is built on site, than a manufactured home is.

Land Lease:  The homeowner owns the home, but doesn't own the land it sits on.  The homeowner must pay a monthly fee to keep their home on the land.  This fee is known as a lease payment.  The terms of a lease vary, but commonly they are for 60 or 90 years.

Sole and Separate:  Only one person owns the property and is usually not married.

Tenancy in Common:  Two or more people own the same property.  They may not have equal ownership in the property.  If they want to sell, they can sell the part (percentage) of the property they own.

Open House:  The seller of a property decides to invite people into their home to see the house and to talk about it.  This is usually done on the weekends and is for a set period of time.  This is your chance to see the inside and outside of a home before you make an offer on it.

Foreclosed Homes:  These are homes that were taken back from the buyer.  The buyer stopped making their mortgage payments for several months so the lender decided to take the home back and sell it.  Many of these homes can be bought below what they are worth because the lender wants to get rid of them.

Auctions:  Homes are sold to the person that offers the most money.  This usually takes place at the home and everyone present has a chance to offer what they want to buy it.  Auction property sales typically require the winning bidder to put ten percent down the day of the auction.

For Sale By Owner (Fisbo):   A home for sale without a real estate agent representing the seller.  Before signing a contract with this type of sale, it is a good idea to have an attorney look at it to make sure you are not getting into a contract that you will regret.  

Fixer Upper:  A home that you think needs a lot of work done to it so the home can become worth what other homes in the area are worth.  Many fixer upper homes require a lot of time and money to fix up.  Make sure money is available to do the desired work after the home is purchased.

Fair Market Value:  The price a buyer will pay and the seller will accept for a property for sale.

Cul-de-sac Location:  A street that is closed at one end and is usually in a residential area.  The street location has one way in and one way out.  

Purchase Contract:  A signed sales offer that becomes binding once all parties sign it.

Earnest Money:  A deposit that a buyer puts down to show they are serious about buying the home for sale.

Contingency:  A statement in a purchase offer that must happen before the buyer or the seller can complete the purchase.

Appraisal:  An estimate of how much a home is worth.  This is completed by a licensed individual and compares the home you are trying to buy with other homes in the area.  The lender has the right to adjust the value given by the appraisal if they feel it is necessary.

Clear Title:  A search of the properties records that finds that the title is free of liens and legal questions about the ownership of the property.  A lien is a legal right to claim a piece of the property.

Accept:  The seller likes the offer made by the buyer and signs the contract the way it was written.

Counteroffer:  A change made by the seller that changes some of the terms of the first offer.

Reject:  The seller turns down the offer.

Hazard Insurance:  Also known as homeowner's insurance.  This type of insurance protects a the owner if something happens to the property that was covered by the insurance policy.  Typically, a hazard insurance policy covers the home in the event of fire damage.

Flood Insurance:  This type of insurance is not required for all properties.  It is typically required if the home you are buying or currently own is in a flood zone.  Many people think that if they have hazard insurance then they are covered in the event that their house floods.  This is not true with all insurance policies.  Make sure you check your insurance policy coverage so you know what is covered.

Mortgage Insurance:  This is insurance that is required to be paid by the buyer if 20% of the purchase price is not be made as a down payment on the loan.  It protects the lender, not the buyer, is the buyer doesn't make their payments on time.

Title Insurance:  Insurance to protect the lender or the buyer against any loss from disagreements over the ownership of the property.

Mortgage Life Insurance:  An optional form of life insurance that pays off the mortgage if the borrower dies.

Home Warranty:  A guarantee on a home for things such as materials, the way it was made by the builders and the main equipments such as the heating and air conditioning system.

Replacement Cost:  Coverage in a homeowner insurance policy that pays to restore the house to its original condition if it is damaged.  It can also replace items that are lost.  Check your policy about this kind of coverage and make sure you understand what will be covered.

Liability Insurance:  This insurance coverage covers people, other than the owner, in case they are injured or hurt while on the homeowner's property.

Premiums:  The sum of money that must be paid in order to keep the insurance coverage on a property.

Truth-In-Lending (TIL) Statement:  A statement that tells how much you are borrowing and the cost to do so.This document must be given to you within three days after you give your lender a contract on a home.

HUD-1 Settlement Statement:  The final statement at the closing that lists all of the fees and costs that were a part of the purchase and sale of the property.  The statement also lists who is paying each fee.

Mortgage Note:  The note is a legal paper that requires the borrower to repay a loan at a listed interest rate and period of time.  

Mortgage:  A written agreement between the buyer and the lender for the property that is being purchased or refinance.  The mortgage gives the lender the right to collect payments on the loan and to foreclose if the loan payments are not made.

Affidavits:  Sworn statements, in writing, that confirm certain information is true and correct.

Deed:  A legal paper that transfers the ownership of a property.  It is also known as a "warranty deed".

Title Abstract:  The searching of information on a specific property for a given period of time.

Escrow Analysis:  A statement that shows the activity that will likely occur over the next 12 months with the borrowers escrow account.  It reflects deposits given and payments made throughout the year.

Prepaid Costs:  Costs paid before they are due, usually to set up part of the escrow account.  These costs are paid at the closing and are included in the HUD-1 settlement statement.  Prepaid interest is one example of a prepaid cost.

Recording and Transfer Charges:  Charges that must be paid for the recording of the mortgage and the transfer of the deed. 

Module 4: Keeping Your Home and Managing Your Finances

Closing: The final steps in the transfer of property ownership, which usually occurs at a formal meeting between the buyer, seller, settlement agent and, possibly, real estate agents.

Building Permit: A written permit that must be purchased from the local government by anyone doing remodeling or rehabilitation work on a property.

Contractor: An individual hired to build, remodel or rehabilitate a property.

Encroachment: A building, driveway, fence or other structure that extends over the legal property line or beyond the buildable space of the lot.

Home Improvement: Changes to a house that increase its value, such as modernizing a kitchen or adding a second bathroom to a three-bedroom home.

Liability Protection: Insurance that covers people (other than the insured homeowner) and their personal property in case of injury or damage while on the homeowner's property.

Remodeling: To rebuild and improve a house, often changing the house's layout or adding rooms.

Specifications: A detailed description of the size, shape, materials and other details of a building or remodeling project.

Zoning: A county or city law stating the types of use to which properties can be put in specific areas.

Homeowners Association: A group of homeowners within a defined community, neighborhood or complex who make decisions, pay to maintain and repair land and common areas and/or enforce community rules and covenants.

Appreciation: An increase in the value of a house due to changes in market conditions,
home improvement or other factors.

Assessed Value: The value placed on a house by a public tax assessor for the purpose of determining property taxes.

Asset: Anything an individual owns that has commercial or exchange value.

Mortgage Payment: The total monthly loan payment known as principal, interest, taxes and insurance (PITI).

Reserves: Money set aside for emergencies or repairs.

Homeowners Insurance: An insurance policy on a house and its contents that combines liability coverage and hazard insurance.

Mortgage Insurance (MI): A policy required by the lender if a borrower puts less than 20 percent cash down when buying a home with a conventional or FHA loan. It protects the lender from collateral risk in case of default. Also called "private mortgage insurance (PMI)" for conventional loans and "mortgage insurance premium (MIP)" for FHA loans.

Point: A fee that is 1 percent of the loan amount.

Property Tax: A tax charged by the local government and used to fund a variety of municlpal services, such as schools, police or street maintenance.

Annual Percentage Rate (APR): The cost of borrowing money expressed as a yearly rate, which includes the interest, points and other fees charged by the lender.

Balloon Payment Mortgage: A loan with fixed monthly payments based on a 30-year schedule of payments on which the entire balance of the loan comes due at the end of a set period, usually five, seven or 10 years.

Cash-Out Refinance: When an owner refinances a loan and takes some equity out as cash.

Credit Counseling: Advice given by professional counselors to inform people about how to use credit responsibly and how to get out of debt.

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

Equity: Ownership interest in an asset after liabilities are deducted, or the part of the house the borrower owns.

Home Equity Line Of Credit: A type of home equity loan that allows the homeowner to access the loan money with checks or a credit card as needed.

Home Equity Loan: A loan secured by a mortgage lien that allows a homeowner to borrow against equity in their house to pay for repairs or other home improvements, refinance other debt or use for other purposes.

Interest Rate: The percentage of the loan amount charged for a loan.

Negative Amortization: Payment terms under which the borrower's monthly payments do not cover the interest due and the loan balance subsequently increases.

Predatory Lending: A type of lending that falls between appropriate risk-based pricing and blatant fraud and combines certain products, terms, prices and practices.

Prepayment: Paying more each month than the amount of the mortgage loan payment to pay the loan off sooner and save money on interest charges.

Prepayment Penalty: A fee charged on some loans to a borrower who pays off a loan before it is due.

Refinancing: The process of paying off one loan with the proceeds from a new loan secured by the same property.

Reverse Mortgage: A type of home loan in which a homeowner 62 years old or older can convert the equity in the home into cash.

Second Mortgage: A home loan that has rights subordinate to the rights of the first mortgage - in other words, that is repaid after the first mortgage in case of foreclosure.

Chapter 7 Bankruptcy: A form of bankruptcy that involves total liquidation of assets. Also called ''straight bankruptcy.''

Chapter 13 Bankruptcy: A form of bankruptcy that involves a wage-earner repayment plan.

Deed-In-Lieu: An agreement where a delinquent borrower gives the lender the deed and the keys and moves out of the property in exchange for forgiveness of the loan. Also called deed-in-lieu of foreclosure.

Default: Failure to meet financial obligations, which may result in the lender foreclosing on the loan.

Discounted Payoff: An agreement negotiated with a creditor that allows a borrower to pay less money than is actually owed to cease collection activities. Also called "settlement."

Due-On-Sale Clause: A provision in a mortgage allowing the lender to demand repayment in full if the borrower sells the property securing the mortgage.

First Mortgage: A home loan that has priority over the claims of subsequent lenders for the same property in the event of default.

Forbearance: An agreement by the lender to allow a delinquent borrower to skip one or more payments completely and make them up later through a payment plan.

Foreclosure: The legal process used to force the payment of debt secured by collateral whereby the property is sold to satisfy the debt.

Loan Modification: An agreement between a lender and a delinquent borrower that changes the terms of the loan.

Partial Claim: When the mortgage insurance company lends a delinquent borrower money to bring a loan current by making a second mortgage on the property.

Payment Plan: An agreement with a lender in which a borrower promises to make up any missed payments by sending one full payment and one partial payment each month until delinquent mortgage payments are caught up.

Preforeclosure Sale: When the lender agrees to allow a delinquent borrower to sell the house to avoid foreclosure.

Arbitration - The hearing and determining of a dispute or the settling of differences between parties by a person or persons chosen or agreed to by them.

Intermediary - Someone acting as a mediator or an agent between persons.

Module 1: Managing Your Money

Module 2: Understanding Credit

Form 1003 Standard Loan Application

1003 Standard Loan Application PDF

Truth in Lending Statement

Truth in Lending Statement PDF

Good Faith Estimate

Good Faith Estimate PDF

HUD-I Settlement Statement

Hud-1 Settlement Statement PDF

Mortgage

Sample Mortgage

Real Estate Agency Disclosure

Real Estate Agency Disclosure PDF

Multiple Listing Service Listing

MLS Listing

Grant Deed

Grant Deed

Homeowners Insurance Policy

Homeowners Insurance Policy

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