Home Loans Glossary

Adjustable Rate Mortgage (ARM)
Adjustable Rate Mortgage; a mortgage loan subject to changes in interest rates; when rates change, ARM monthly payments increase or decrease at intervals determined by the lender; the Change in monthly -payment amount, however, is usually subject to a Cap. (last updated 03/19/2004)

Assumption
The procedure whereby the transferee becomes liable for all or part of the debt of the transferor. An assumption may be at the same rates and terms or at new rates and terms, depending on the circumstances. (last updated 03/19/2004)

Closing
Also known as Settlement, this is the time at which the property is formally sold and transferred from the seller to the buyer. (last updated 03/19/2004)

Closing Costs
Various fees required to conclude a real estate transaction. (last updated 03/19/2004)

Co-applicant
An adult member of the household who joins the applicant in applying to the lender for a loan. (last updated 03/19/2004)

Condominium
A form of ownership in which individuals purchase and own a unit of housing in a multi-unit complex. The owner also shares financial responsibility for common areas. (last updated 03/19/2004)

Cosigner
An individual or entity that joins in the execution of a promissory note to compensate for any deficiency in the applicant's repayment ability. The cosigner becomes jointly liable to comply with the terms of the promissory note in the event of the borrower's default, but is not entitled to any interest in the security or borrower's rights. (last updated 03/19/2004)

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. (last updated 03/19/2004)

Down Payment
The portion of a home's purchase price that is paid in cash and is not part of the mortgage loan. (last updated 03/19/2004)

Elderly Family
An elderly family consists of one of the following:

A.   a person who is the head, spouse or sole member of a family and who is 62 years of age or older, or who is disabled, and is an applicant or borrower; or
B. two or more persons who are living together, at least one of whom is 62 or older or disabled, and who is applicant or borrower. (last updated 03/19/2004)

FHA
Federal Housing Administration; established in 1934 to advance homeownership opportunities for all Americans; assists homebuyers 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 (last updated 03/19/2004)

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. (last updated 03/19/2004)

Funding Fee
A fee charged to guarantee a mortgage loan. (last updated 03/19/2004)

Lease Purchase
Assists low- to moderate-income homebuyers in purchasing a home by allowing them to lease a home with an option to buy. The rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment. (last updated 03/19/2004)

Low Income
An adjusted income that is greater than the HUD established very low-income limit, but that does not exceed the HUD established low-income limit (generally 80 percent of median income adjusted for household size) for the county or Metropolitan Statistical Area where the property is or will be located. (last updated 03/19/2004)

Mortgage Insurance
A policy that protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan. Mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price. (last updated 03/19/2004)

Mortgage Insurance Premium
A monthly payment - usually part of the mortgage payment - paid by a borrower for mortgage insurance. (last updated 03/19/2004)

PITI Ratio
The amount paid by the borrower for principal, interest, taxes and insurance, divided by repayment income. (last updated 03/19/2004)

Payment Assistance
A payment subsidy available to eligible Section 502 borrowers that reduces the effective interest rate of a loan. (last updated 03/19/2004)

Rehabilitation Mortgage
A mortgage that covers the costs of rehabilitating (repairing or improving) a property. (last updated 03/19/2004)

Rural Area
A rural area is:

A.     Open country which is not part of or associated with an urban area.
B.     Any town, village, city or place, including the immediately adjacent densely settled area, which is not part of or associated with an urban area, and which

1.       has a population not in excess of 10,000 if it is rural in character, or
2.       has a population in excess of 10,000 but not in excess of 20,000, is not contained within a Metropolitan Statistical Area, and has a serious lack of mortgage credit for low- and moderate- income households as determined by the Secretary of Agriculture and Secretary of HUD.

C. An area classified as a rural area prior to October 1, 1990, (even if within a Metropolitan Statistical Area) with a population exceeding 10,000 but not in excess of 25,000, which is rural in character and has a serious lack of mortgage credit for low- and moderate-income families. This is effective through receipt of census data for the year 2010. (last updated 03/19/2004)

Service Connected Disability
Disability incurred or aggravated in line of duty. (last updated 03/19/2004)

Settlement
Also known as Closing, this is the time at which the property is formally sold and transferred from the seller to the buyer. (last updated 03/19/2004)

Specially-Adapted Housing
Housing that provides a barrier-free living environment which affords a level of independent living. (last updated 03/19/2004)

Total Debt Ratio
The amount paid by the borrower for principal, interest, taxes and insurance and any recurring monthly debt, divided by repayment income. (last updated 03/19/2004)

Very Low Income
An adjusted income that does not exceed the HUD-established very-low income limit (generally 50 percent of the median income adjusted for household size) for the county or Metropolitan Statistical Area where the property will be located. (last updated 03/19/2004)