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Key Factors For Loan Approval

Overcome Potential Barriers to Loan Approval

Last updated 10.23.2023

Explore key factors that can affect your mortgage loan approval and ways to overcome potential obstacles, including bankruptcy, before applying for a mortgage loan. Enter the loan process better prepared and positioned for a mortgage loan approval. Should the traditional route not work for you, take a look at alternative paths to homeownership.

Find your solution.

Debt-to-Income (DTI) Ratio

“In the consumer mortgage industry, debt-to-income ratio (often abbreviated DTI) is the percentage of a consumer’s monthly gross income that goes toward paying debts. (Speaking precisely, DTIs often cover more than just debts; they can include principal, taxes, fees, and insurance premiums as well. Nevertheless, the term is a set phrase that serves as a convenient, well-understood shorthand.) There are two main kinds of DTI, as discussed below.

  1. The first DTI, known as the front-end ratio, indicates the percentage of income that goes toward housing costs, which for renters is the rent amount and for homeowners is PITI (mortgage principal and interest, mortgage insurance premium [when applicable], hazard insurance premium, property taxes, and homeowners’ association dues [when applicable]).
  2. The second DTI, known as the back-end ratio, indicates the percentage of income that goes toward paying all recurring debt payments, including those covered by the first DTI, and other debts such as credit card payments, car loan payments, student loan payments, child support payments, alimony payments, and legal judgments.”

DTI requirements may vary by lender and mortgage product.

Source: Wikipedia: Reusing Wikipedia Content.  This work is released under CC BY-SA. 

You will need the following numbers to determine your DTI.

1. Gross Monthly Income (before taxes)

 

2. Monthly Housing Expenses

Monthly Housing Expenses = PITI + MI + HOA

  • PITI (principal, interest, property taxes, homeowner insurance)
  • Mortgage Insurance (MI or PMI)
  • HOA Dues

 

3. Total Monthly Debt

Total Monthly Debt = Monthly Housing Expenses + Other Monthly Debt Payments

  • Monthly Housing Expenses (#2)
  • Other Monthly Debt Payments: any loan payments, minimum payments on credit cards or other revolving lines of credit, alimony, child support (do not include utilities and other

____________________________________

Now, let’s calculate your DTI Ratio.

Front-end DTI Ratio =

(Monthly Housing Expenses/Gross Monthly Income) x 100

Example:

Monthly Housing Expenses = $1500

Gross Monthly Income = $6000

Front-end DTI Ratio = ((1500/6000) x 100) = 25%

……………………………………..

Back-end Ratio =

(Total Monthly Debt/Gross Monthly Income) x 100

Example:

Monthly Housing Expenses = $1500

Other Monthly Expenses = $1000

Gross Monthly Income = $6000

Back-end Ratio = ((2500/6000) x 100) = 41.7%

DTI requirements can vary depending on lender, loan program and credit score of borrower. Ideally, it’s best to keep your front-end ratio (housing expenses) below 34% and back-end ratio (total monthly debt) below 43% to qualify for a mortgage.

For example, if your gross monthly income is $6000, your mortgage payment (including taxes, insurance and HOA) should be less than $2,040 or 34% of your gross monthly income. Your total monthly debt should be less than $2,580.00 or 43% of your gross monthly income.

For a breakdown of both the front-end and back-end DTI ratios, go to Calculate Your DTI.

If your DTI exceeds the limits, the lender may consider other compensating factors, such as:

  • Large down payment – the borrower is making a down payment of 10% or higher
  • Accumulated Savings -the borrower demonstrates an ability to save
  • Previous Credit History – the borrower has the ability to apply a greater portion of income to mortgage payment
  • Compensation or Income – additional documented income not included in calculation
  • Potential for Increased Earnings – borrower has potential for higher earnings based on training, education or profession. Lenders may offer a professional loan program. A few professions that fall into this category include physicians, attorneys, engineers, veterinarians, and other highly-paid fields.
  • Substantial Cash Reserves – examples include retirement account, monetary gifts, and easily converted asset

Alternately, the lender may offer you a non-qualified loan, which may have higher rates and fees.  Learn More

Source: HUD’s Section F. Borrower Qualifying Ratios

Here are two ways to improve your DTI.

1. Look for ways to increase your income, without taking on new debt.

  • Do you have a hobby that can generate income?
  • Is working overtime an option?
  • What about a part-time job?
  • How about a roommate?

2. Decrease Your Debt

  • Create a budget to see where you can cut back on discretionary spending and apply savings to debt payments. 
  • Target debt that can help to quickly reduce your DTI. If you have a debt payment that is 40%  of the balance, versus one that is 10% of the balance, focus on paying off the debt with a payment that’s 40% of the balance.

 

Click here for a fillable budget worksheet.

Credit Score

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Decipher Reason Codes on Credit Reports

Credit scores and other relevant information are used by lending institutions to determine creditworthiness and potential risks associated with extending credit to a consumer. Scores range from 300 to 850. Generally, the higher your credit score, the more creditworthy you are.

FICO Score

VantageScore

Credit scores are derived from the information in a consumer’s credit report using a mathematical formula called a credit scoring model. There are two main credit scoring models: FICO and VantageScore. Experian estimates that 90% of lenders use the FICO Score.

A variety of factors influence credit scores, as shown below.

FICO Score Credit Modeling

“FICO Scores are calculated using many different pieces of credit data in your credit report. This data is grouped into five categories: payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).” – myFICO

VantageScore Credit Modeling

“Not all factors are created equal when it comes to your credit score. Some, such as payment history, are influential, while others are less important, like new accounts opened. While everyone’s credit profile is different, there are similarities in what lenders look for in a borrower’s history to make their lending decisions, listed below. Learn how credit scores are determined. Each is ranked from most important to least.” – VantageScore

 

1. Review Credit Report for Errors and Dispute

Check credit reports from all 3 credit bureaus for errors, including inaccuracies and missing information. Common errors to look for include:

  • Wrong name – misspelling or a different person
  • Incorrect address
  • Inaccurate payment history on account
  • Former spouse’s debt is on your credit report
  • Same account is being reported twice
  • Unauthorized hard credits
  • Closed credit account should reflect that it was “closed by grantor” making it appear that the creditor closed the account, and not you.
  • Debts older than 7-years should be removed
2. Development Strategy to Manage and Remove Collection Account(s)
  • Click here to go to the Consumer Financial Protection Bureau (CFPB) and access sample letters to send to debt collectors.
  • Find out the statute of limitations for debt collections in your state and understand your rights. Per CFPB, “A statute of limitations is the limited period of time creditors or debt collectors have to file a lawsuit to recover a debt. Most statutes of limitations fall in the three to six years range, although in some jurisdictions they may extend for longer. Statutes of limitation may vary depending on state laws, the type of debt you have, or the state law named in your credit agreement.”
  • Before you agree to pay anything, ask the collection agency to validate the debt by certified mail. Per CFPB, the collection agency has 30-days to respond. Click here for CFPB’s sample validation letter.
  • Negotiate Settlement – click here for settlement tips from the CFPB.
  • You may be able to dispute the account and have it deleted, if:
    • debt was sold to another collection agency
    • statute of limitations has expired
    • collection agency failed to provide a validation letter
    • there are reporting errors
  • Work with an approved nonprofit credit counseling agency. Click here to search for approved agencies by state.
  • Consider all your options before working with a debt settlement/relief services company.
3. Limit Hard Inquiries for New Credit

Hard inquiries are conducted when you apply for credit. Excessive inquiries can negatively impact your credit score.

4. Pay Down Credit Card Balances

This will help to reduce your credit utilization or balance-to-limit ratio. A balance more than 30% of your credit limit will negatively impact your credit.

5. Increase Your Credit Limit

You can also ask your credit card company to increase your credit limit. This will help to lower your credit utilization ratio as long as you don’t increase your balance.

6. Avoid Closing Old Credit Card Accounts and Use Periodically to Keep Active

Closing old credit card accounts can impact the length of credit history and credit utilization ratio. Instead, keep these cards open and use them periodically to make small purchases (gas, groceries, etc.). This way the card is reported as active and rolls up into your overall score.

7. Avoid Opening New Credit Cards, If You Already Have 3 or More

Again new accounts will temporarily shorten the length of your credit history, which impacts your credit score.

8. Open A Secured Credit Card

A great way to establish or rebuild credit is to open a secured credit card.

9. Pay Your Rent and Bills on Time

Paying your rent and bills on time can positively impact your payment history.

  • Approved Fannie Mae and Freddie Mac lenders can now factor in on-time rent payments as part of a borrower’s credit history.
  • Signup for Experian Boost to get credit for on-time bill payments, including phone, utilities, and streaming services. The service is free and the average user boosts their score by 13 points, according to Experian. Click here to signup.
  • Consider setting up auto-pay to avoid missing payments. If you have fallen behind on your payments, make arrangements to get back on track.
10. Keep a Good Credit Mix

A good credit mix can positively impact your credit score (i.e. mortgage, car loan, and 2 or 3 credit cards). However, be careful about opening new accounts just to establish a credit mix. Per myFICO:

“Creditors check your credit (a “hard inquiry”) which typically lowers your credit score and remains on your credit report for two years. (Note: FICO Scores only consider inquiries made during the 12 months prior to the time the Score is calculated.)If a creditor sees you’ve opened an inordinate amount of new accounts within a small time frame, it could indicate to them that you’re experiencing financial distress, whether true or not. The result? A likely denial of the loan.”

11.  Ask a friend or relative with good credit and payment history to add you as an authorized user on a credit card account. Issuance of a credit card is not necessary. The goal is for the account information, such as the credit limit and payment history, to show up on your personal credit report, which can help to improve your score.  Keep in mind the following:
  • Not all issuers provide information for authorized users to the credit bureaus, so please be sure to ask beforehand.
  • If the primary cardholder falls behind or keeps a large credit balance (greater than 30% of the credit limit), you could be negatively impacted. 
  • The cardholder can remove authorized users at any time.

 

Sources:

“Federal law requires each of the three nationwide consumer credit reporting companies – Equifax, Experian and TransUnion – to give you a free credit report every 12 months if you ask for it.” – Annual Credit Report

UPDATE: You can now receive a free weekly credit report from all 3 major credit bureaus.

Click here to order your free weekly credit reports.

Click the links below to get a free copy of your credit score.

FICO Free: 1-bureau FICO Score updates or FICO Advanced for all 3 bureaus | myFICO
Free Credit Scores – VantageScore

Real estate ownership is still within reach for borrowers with a credit score below 625.

  • Look into programs that do not use credit scores as a criterion to determine eligibility, such as NACA.
  • Certain FHA-insured mortgage products will consider credit scores as low as 500.
  • Certain mortgage products backed by Fannie Mae and Freddie Mac have a minimum credit score requirement of 620.
  • Consider shared equity or rent-to-own programs.


To review the aforementioned programs and more, please click here and search using the filter below:

  • Min Credit Score 625 or less

Proof of Income

Mortgage lenders require proof of income. Documentation will be reviewed by lenders to determine whether the borrower has a stable income or enough assets to afford the mortgage payment.

The following information may be requested by a lender to verify income:

  • 2 years of W-2 forms
  • 2 years of Tax Returns
  • 2 most recent pay stubs
  • Proof of Income Letter from Employer
  • Bank Statements
  • List of Other Assets

If you are self-employed, a business owner, a freelancer, etc., the lender may ask for the following documents:

  • 2 years of Personal Tax Returns
  • 2 years of Business Tax Returns
  • Bank Statements
  • Profit and Loss Statement
  • Balance Sheet
  • List of Other Assets

If you are living off retirement income, social security, pensions, investments, and/or other savings, you may be asked to provide the following documents:

  • Statement from the organization providing income
  • Award Letter from Social Security Administration
  • Proof of Recent Receipt
  • 2 years of Tax Returns
  • Bank Statements
  • List of Other Assets

Listed below are other sources of income that may be considered for certain mortgage products. Evidence of income must be provided.

  • Roommate or boarder income
  • Non-occupant borrower income

A non-occupant borrower is anyone, such as a parent, who is willing and financially able to be a borrower on the mortgage, but who will not live in the home. – Fannie Mae

  • Alimony
  • Child Support

Low-income borrowers have several mortgage options. Here are a few to consider.

  • If you are thinking about buying a property in a rural area, consider the  USDA’s Section 502 Direct Loan Program, which provides subsidies to assist very low to low-income applicants obtain single-family housing in eligible rural areas.  As of July 1, 2022, the current interest rate is 3.25% for low-income and very low-income borrowers.
  • Consider a shared-equity program, which seeks to make homes affordable for lower-income families and individuals. For more info, review section 9 – Alternative Paths to Homeownership.
  • Another option to consider is Habitat for Humanity, which helps families to realize their dream of homeownership.

For additional options, please click here for the Mortgage Programs | Products page and search using the following filters:

  • Low Income
  • Special Programs

Down Payment

A down payment is usually required by lenders. Amounts vary however depending on the borrower’s financial situation, lender, and type of mortgage.

According to RealEstateWords.com, the down payment is “the upfront cash commitment paid by the buyer. It makes up the difference between the sales price of a property and the loan amount obtainable.” Down payments can vary depending on the mortgage product and credit history of the buyer.

The following are some options for raising funds for a down payment.

  • First-time homebuyers may withdraw up to $10,000 from their Roth or Traditional IRA accounts without penalty.
  • Identify ways to cut back and save money by creating and/or reviewing your budget.
  • Start a side hustle to generate extra income.
  • Crowdfund using platforms, such as FreeFunder. FreeFunder does not charge a platform fee, nor takes a portion of donations.
  • Ask family and friends to give monetary gifts towards a home purchase. Per IRS, up to $15,000 per person can be gifted tax-free.
  • As a replacement for birthday, wedding, or other special occasion gifts, set a down payment goal and ask friends and family to contribute.
  • Consider mortgage programs that accept secondary financing, swear equity, and down payment grants, or do not have this as a requirement. Refer to Down Payment Options for more information.
  • Check out our blog series on down payment assistance programs by state.
  • Check out forgivable and repayable loan programs that provide down payment assistance, such as the Chenoa Fund.
  • Consider matching homeownership grants, such as WISH and IDEA, or special programs that offer down payment or buyer assistance, such as NeighborWorks America.
  • Check with your state’s Housing Finance Agency (HFA), Community Development Financial Institutions (CDFIs), and other lenders for any special programs they may offer directly.
  • Consider loan programs that require no or low down payment, or allow flexible down payment funding sources.
  • Consider loans that allow secondary financing options, such as Fannie Mae’s Community Seconds or Freddie Mac’s Affordable Seconds.
  • If you plan to fix up a house yourself, look into loan programs that will apply sweat equity towards the down payment and/or closing costs.
  • If you are a law enforcement officer, teacher, firefighter, or emergency medical technician, check out the HUD’s Good Neighbor Next Door program.

“HUD offers a substantial incentive in the form of a discount of 50% from the list price of the home. In return, an eligible buyer must commit to live in the property for 36 months as his/her principal residence.”  – HUD

  • You can also Google down payment assistance grants in (list your state, county, or city).


Click here for the Mortgage Products | Programs page. Filter by the following to see available products and programs.

 

  • No or Low Down Payment
  • Down Payment Flexibility
  • Down Payment or Buyer Assistance
  • Secondary Financing
  • Sweat Equity
  • Special Programs

Down payment assistance programs by state

Condition of Property

 In order for a lender to approve a property, it must meet minimum standards.

It is possible for mortgage products to have different property standards. Most, however, share the following.

  1. The property must be safe and not pose any health threats to occupants.
  2. The property must be structurally sound.
  3.  The property must be secure.

In the event that you’re considering a home that needs major work, all hope is not lost. Look into renovation mortgage loans.

  1. FHA 203(k) Rehabilitation Mortgage Insurance – “enables homebuyers and homeowners to finance both the purchase (or refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home.” Learn More
  2. Fannie Mae HomeStyle® Renovation Mortgage –  “eligible homebuyers and owners can renovate a home to fit their needs and personal style with just one loan that covers the mortgage and improvements.” Learn More
  3. Freddie Mac Renovation Mortgages – “borrowers can get access to permanent financing options they need to repair, restore, rehabilitate or renovate their existing site-built homes.” Learn More
  4.  VA-backed Purchase  Loan – “buy a home and improve it.” Learn More

Click here for the Mortgage Programs | Products page. Select Renovation/Rehabilitation for search filter criteria.

Property Appraisal

In order to determine the value of a property, lenders will require an appraisal.

An appraisal is a process of determining the market value of a real property. The person performing the valuation is called an appraiser. When determining a property’s market value, the following areas may be considered and/or inspected:

  • Location
  • Land/Lot
  • Condition (Interior and Exterior)
  • Age of Property
  • Size/Square Footage
  • Design, Floor Plan, and Features
  • Home Improvements
  • Signs of Pests (Termites, Rodents, etc.)
  • Signs of Water Damage (i.e. mildew, mold)
  • Recent Sales Data for Similar Properties

An appraiser may employ 2 to 3 valuation methods for determining a property’s value.

Cost Approach or Contractor’s Valuation Method

The cost approach is the appraiser’s opinion of the current replacement cost of constructing a reproduction of the existing structure, less any estimated depreciation, plus the value of the land. The cost approach is a valuable approach to use when appraising newer homes that might have little or no depreciation. – TAF

Sales Comparison Approach

The sales comparison approach utilizes recent sales of comparable properties. An appraiser will analyze and compare characteristics that include the living area of the home, land area, style, age, quality of construction, number of bedrooms and bathrooms, presence or absence of a garage, etc. – TAF

Income Approach

The income approach is most often used in appraisals of properties that have two, three or four living units, where income is a factor in the decision-making process of buyers and sellers. It is generally not used for one-unit residential properties in areas where the majority of the homes are owner-occupied. – TAF

 

So you found the perfect property, made an offer, and the seller accepted. However, the appraisal came back lower than the offer, so the lender will not approve the loan. What are your options?

  1. You should contact your lender if you believe the appraisal is inaccurate due to an error or omission of important information.
  2. Go back to the seller and negotiate the sale price.
  3. The appraisal contingency can be used to cancel the contract.
  4. Increase your down payment to cover the difference between the sales price and the appraised value.

If you suspect fraud or incompetence, speak to your lender. You can also file a complaint with the regulatory agency in your state. Click here to locate info for your state.

Source: A Guide to Understanding A Residential Appraisal. The Appraisal Foundation.

Loan-to-Value (LTV) Ratio

“The loan-to-value (LTV) ratio is a financial term used by lenders to express the ratio of a loan to the value of an asset purchased.

In Real estate, the term is commonly used by banks and building societies to represent the ratio of the first mortgage line as a percentage of the total appraised value of real property. For instance, if someone borrows $130,000 to purchase a house worth $150,000, the LTV ratio is $130,000 to $150,000 or $130,000/$150,000, or 87%. The remaining 13% represent the lender’s haircut, adding up to 100% and being covered from the borrower’s equity. The higher the LTV ratio, the riskier the loan is for a lender.”

Source: Wikipedia: Reusing Wikipedia Content.  This work is released under CC BY-SA. 

LTV ratios of 80% or less are considered ideal by Experian.

There are conventional and government-backed mortgages that allow a LTV ratio exceeding 80%, but private mortgage insurance may be required.

  • Some FHA loans allow a loan-to-value ratio of 96.5%.
  • Loans backed by the VA and USDA allow LTV ratios up to 100%.

The other option is to increase your down payment to lower the loan amount.

Click here for the Mortgage Products | Programs page.  

Bankruptcy

Will bankruptcy keep me from realizing my dream of real estate ownership?

It is possible to get a mortgage after bankruptcy. Some lenders, however, may require a waiting period or that certain conditions be met. 

 Lenders may also want to know the following:

  • Has your bankruptcy been discharged or dismissed? – Without a discharge, you will not be considered for a mortgage.
  • What have you done to rebuild your credit? – Lenders will review your credit to determine creditworthiness. Refer to the Credit Score section for ways to rebuild or improve your credit score.
  • How are you managing your finances now? – Lenders want to know if you are financially responsible and paying your bills on time.

It’s possible to apply for government-backed (FHA, USDA, & VA) and conventional (Fannie Mae & Freddie Mac) loans, once your bankruptcy has been discharged. However, you may have to wait a period of time after you have been discharged before you can apply. Listed below is a list of loan waiting periods.

FHA Loans:

  • Chapter 7 – two years
  • Chapter 11 – no waiting period
  • Chapter 13 – one year

USDA Loans:

  • Chapter 7 – three years
  • Chapter 11 – no waiting period
  • Chapter 13 – one year

VA Loans:

  • Chapter 7 – two years
  • Chapter 11 – no waiting period
  • Chapter 13 – one year

Conventional Loans:

  • Chapter 7 – four years
  • Chapter 11 – four years
  • Chapter 13 – two years

Source: Experian

Alternative Paths to Homeownership

Explore non-traditional alternatives to homeownership.

Rent-to-own home programs grant tenants the option to purchase the property they are renting within a specified time period. In this way, tenants are provided with a window of time to better position themselves for mortgage loan approval, while living in the home they desire.

There are two types of rent-to-own contracts.

1. Lease Option

  • Residential lease that provides the tenant with the option of purchasing the property from the owner within a specified time period.
  • The tenant generally pays a non-refundable option fee for the right to purchase the property at a later time.
  • The owner cannot sell the property to another buyer during the lease-option period.
  • The owner and tenant will agree to a purchase price ahead of time.
  • Potentially, a portion of the monthly rent is held in escrow and applied towards the purchase price.
  • The tenant is not obligated to purchase the property.
  • If the option is exercised, the owner is contractually bound to sell the property to the tenant.
  • Generally, the tenant is responsible for securing a mortgage loan, unless seller financing is an option.

2. Lease Purchase

  • Residential lease that provides the tenant with an exclusive right of refusal option for the purchase of property from the owner within a specified time period.
  • A contract of sale is also required which obligates both the tenant and owner to the terms of a residential purchase agreement.
  • The tenant generally pays a non-refundable option fee for the right to purchase the property at a later time.
  • Potentially, a portion of the monthly rent is held in escrow and applied towards the purchase price. 
  • The tenant may also be responsible for the upkeep and maintenance of the property.
  • The tenant is contractually obligated to purchase the property from the owner.
  • The owner is contractually obligated to sell the property to the tenant unless there is a breach of contract.
  • Generally, the tenant is responsible for securing a mortgage loan, unless seller financing is an option.

If you’re interested in this alternative:

  • Consult a real estate agent. There are numerous rent-to-own programs and an agent can help you navigate options and steer clear of potential scammers.
  • Do your due diligence. Verify the owner of the property, inspect the home, check out the neighborhood, etc.
  • Consult an attorney. Seek legal counsel and make sure you understand the pros/cons and all of the terms of the agreement before signing.

Source: Wikipedia – Lease Option | Lease Purchase

Mortgage financing provided by the seller to the buyer is known as seller financing. Instead of obtaining a traditional mortgage from a mortgage lender or financial institution, the buyer enters into a real estate agreement with the owner to pay monthly installments over a specified period of time at a stated interest rate.  

There are several types of seller-financing options:

1. All Inclusive Mortgage or All Inclusive Trust Deed (AITD) – the seller carries the promissory note and entire mortgage balance minus the down payment.

2. Junior Mortgage – buyer obtains financing for 80% and the seller carries a second mortgage for the balance of the mortgage minus the down payment.

3.  Land Contract – buyer receives equitable title or temporary shared ownership in the land during the repayment of the loan. The seller releases the deed to the buyer once the final payment is completed.

4. Lease Option – please refer to rent-to-own homes.

If you’re interested in this option:

  • Consult a real estate agent. An agent can assist you with researching comps in the area, negotiating the purchase price, and steer you away from scammers and other potential pitfalls.
  • Do your due diligence. Verify the owner of the property, inspect the home, check out the neighborhood, etc.
  • Consult a real estate attorney.  A real estate attorney can help you negotiate terms, and write or review the sales contract and promissory note.
  • Consult a tax advisor for the best way to report and pay taxes on a seller-financed property.

Source: NOLO

According to HUD’s Office of Policy Development and Research, shared equity homeownership “refers to an array of programs that create long-term, affordable homeownership opportunities by imposing restrictions on the resale of subsidized housing units. Typically, a nonprofit or government entity provides a subsidy to lower the purchase price of a housing unit, making it affordable to a low-income buyer. This subsidy can be explicit, in the form of direct financial assistance, or implicit, in the form of developer incentives for inclusionary housing. In return for the subsidy, the buyer agrees to share any home price appreciation at the time of resale with the entity providing the subsidy, which helps preserve affordability for subsequent homebuyers.”

There are three types of shared equity programs.

1. Deed-Restricted Homeownership – a subsidy is applied to reduce the purchase price and make the housing unit more affordable for low to moderate income buyers.  The sale of the housing unit is restricted to buyers who meet certain qualifications.

2. Community Land Trusts (CLTs) – non-profit organizations that own and develop land for the purpose of creating affordable housing communities.  Under this model, the CLT retains ownership of the land, which provides a significant reduction in costs to the buyer.  The buyer purchases the home only and leases the land from the CLT. The ground lease limits the resale price of the home and gives the CLT the right to repurchase if the home goes into foreclosure. There are over 220 CLTs in the United States.

3. Limited Equity Cooperatives (Co-ops) – under this model, the buyer purchases a membership share in the cooperative (typically a multi-family development), instead of an individual housing unit.  The share gives the member the right to occupy one unit, share in decision-making, and vote on common interests. Members also pay monthly fees to cover cooperative expenses. Since the mortgage is held collectively, it does reduce the need for members to qualify individually. Restrictions limit resale price and the amount of equity a member can accrue over time.

If you are interested in this alternative:

Sources: HUD’s Office of Policy Development and Research | National Housing Conference

In a mortgage loan assumption, the existing mortgage and its terms are transferred to the buyer of the property. Typically, the buyer must meet lender guidelines for approval. In addition, a substantial down payment or second loan may be required to compensate the owner for equity in the home.

Common Assumable Mortgages:

  • FHA Insured Loans

All FHA-insured mortgages are assumable. Mortgages originated before December 1, 1986 generally contained no restrictions on assumability, while those originated after that date have certain restrictions. Depending on the date of the loan origination, the lender may require a creditworthiness review of the assumptor. – HUD 4155.1

  • VA Loans

For all VA Loans committed on or after March 1, 1988, you may sell your home to someone who agrees to assume your loan if the loan holder or VA approves the creditworthiness of the purchaser(s). – VA Form 26-8978 – Rights of VA Loan Borrowers

  • USDA Loans

Section 502 loans may be assumed. The terms and conditions of the assumption depend upon the eligibility of the new purchaser. There are new rates and terms assumption and same rates and terms assumption. The later is limited to title transfers between family members and the new owner is not reviewed for eligibility. – USDA HB-1-3550

  • Adjustable-rate mortgages – most Fannie Mae and Freddie Mac ARMs are assumable. However, some plans may restrict assumability.

Source: Wikipedia – Mortgage Assumption

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Glossary of
Common Terms

Source 1: Wikipedia: Reusing Wikipedia Content. This work is released under CC BY-SA. Source 2: Farlex Financial Dictionary 

  • Addendum – an additional document not included in the main part of the contract. Wikipedia
  • Adjustable Rate Mortgage (ARM) – a mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets. Wikipedia
  • Amortization – paying off an amount owed over time by making planned, incremental payments of principal and interest. Wikipedia
  • Annual Percentage Rate (APR) – the interest rate for a whole year (annualized). It is a finance charge expressed as an annual rate. Wikipedia
  • Appraisal – the process of developing an opinion of value for real property (usually market value). Wikipedia
  • Appraiser – a person that develops an opinion of the market value or other value of a product, most notably real estate. Wikipedia
  • As is – describing the sale of an asset in which the seller gives no guarantee on the quality of the asset and makes no repairs that may be necessary. An “as is” sale transfers all risk to the buyer. Farlex Financial Dictionary
  • Assignment – a legal term used in the context of the law of contract and of property. In both instances, assignment is the process whereby a person, the assignor, transfers rights or benefits to another, the assignee. Wikipedia
  • Balloon Payment Mortgage – a mortgage which does not fully amortize over the term of the note, thus leaving a balance due at maturity. The final payment is called a balloon payment because of its large size. Wikipedia
  • Basis Points – a value equaling one one-hundredth of a percent (1/100 of 1%). One basis point is equal to 0.01%. Farlex Financial Dictionary
  • Blanket Mortgage – a type of loan used to fund the purchase of more than one piece of real property. Blanket loans are popular with builders and developers who buy large tracts of land, then subdivide them to create many individual parcels to be gradually sold one at a time. Wikipedia
  • Borrower – a person or company that has received money from another party with the agreement that the money will be repaid. Farlex Financial Dictionary
  • Break-even Ratio (BER) – estimates how vulnerable a property is to defaulting on its debt should rental income decline. Wikipedia
  • Bridge Loan – a short-term loan,usually from a bank,that “bridges”the period between the closing of a home purchase and the closing of a home sale. Farlex Financial Dictionary
  • Building Inspection – an inspection performed by a building inspector, a person who is employed by either a city, township or county and is usually certified in one or more disciplines qualifying them to make professional judgment about whether a building meets building code requirements. Wikipedia
  • Building Occupancy Classifications – refer to categorizing structures based on their usage and are primarily used for building and fire code enforcement. They are usually defined by model building codes, and vary, somewhat, among them. Often, many of them are subdivided. Wikipedia
  • Buyer Agency – the practice of real estate brokers and their agents representing a buyer in a real estate transaction. Wikipedia
  • Cancellation Clause – a clause in a contract or lease that allows one or either party to cancel it upon the happening of certain named events other than a default.  Farlax Financial Dictionary
  • Capitalization Rate (Cap Rate) – a real estate valuation measure used to compare different real estate investments. Although there are many variations, a cap rate is often calculated as the ratio between the net operating income produced by an asset and current market value. Wikipedia
  • Cash-on-Cash Return (CCR) – the ratio of annual before-tax cash flow to the total amount of cash invested, expressed as a percentage. Wikipedia
  • Certificate of Occupancy – a document issued by a local government certifying that a structure has passed all required inspections and is ready for occupancy. Farlex Financial Dictionary
  • Closing Costs – fees paid at the closing of a real estate transaction. Wikipedia
  • Co-borrower – one or more persons who have signed the note and are equally responsible for repaying the loan. Farlex Financial Dictionary
  • Commercial Real Estate – commercial property, also called commercial real estate, investment property or income property, is real estate (buildings or land) intended to generate a profit, either from capital gains or rental income. Wikipedia
  • Commercial Mortgage – a mortgage loan secured by commercial property, such as an office building, shopping center, industrial warehouse, or apartment complex. The proceeds from a commercial mortgage are typically used to acquire, refinance, or redevelop commercial property. Wikipedia
  • Commission – a form of payment to an agent for services rendered. Wikipedia
  • Common Area Maintenance – CAM for short, are one of the net charges billed to tenants in a commercial triple net (NNN) lease, and are paid by tenants to the landlord of a commercial property. A CAM charge is an additional rent, charged on top of base rent, and is mainly composed of maintenance fees for work performed on the common area of a property. Wikipedia
  • Compound interest – the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously accumulated interest. Wikipedia
  • Conforming Mortgage – a loan eligible for purchase by the two major federal agencies that buy mortgages, Fannie Mae and Freddie Mac. Farlex Financial Dictionary
  • Contingency Clause – a clause that allows cancellation of a contract without penalty if a certain described thing happens. Farlex Financial Dictionary
  • Contract – a contract between parties for the purchase and sale, exchange, or other conveyance of real estate. Wikipedia
  • Conventional Mortgage – a loan based on the credit of the borrower and on the collateral for the mortgage. Farlex Financial Dictionary
  • Credit History – a record of a borrower’s responsible repayment of debts. Wikipedia
  • Credit Report – a record of the borrower’s credit history from a number of sources, including banks, credit card companies, collection agencies, and governments. Wikipedia
  • Credit Score – a numerical expression based on a level analysis of a person’s credit files, to represent the creditworthiness of an individual. Wikipedia
  • Debt Service Coverage Ratio (DSCR) – the ratio of operating income available to debt servicing for interest, principal and lease payments. It is a popular benchmark used in the measurement of an entity’s (person or corporation) ability to produce enough cash to cover its debt (including lease) payments. Wikipedia
  • Debt Ratio – a financial ratio that indicates the percentage of a company’s assets that are provided via debt. It is the ratio of total debt (long-term liabilities) and total assets (the sum of current assets, fixed assets, and other assets such as ‘goodwill’). Wikipedia
  • Debt-to-Income Ratio (DTI) – the percentage of a consumer’s monthly gross income that goes toward paying debts. There are two main kinds of DTI: front-end ratio (indicates the percentage of income that goes toward housing costs) and back-end ratio (indicates the percentage of income that goes toward paying all recurring debt payments). Wikipedia
  • Deed – any legal instrument in writing which passes, affirms or confirms an interest, right, or property and that is signed, attested, delivered, and in some jurisdictions, sealed. It is commonly associated with transferring (conveyancing) title to property.  Wikipedia
  • Deed Restriction – A provision placed in a deed restricting or limiting the use of the property in some manner. Farlex Financial Dictionary
  • Discount Point – one percentage point of the principal of a mortgage loan that some lenders require borrowers to pay immediately as a condition of making the loan. Farlex Financial Dictionary
  • Down Payment – the amount, usually stated as a percentage, of the total cost of a property that you pay in cash as part of a real estate transaction. Farlex Financial Dictionary
  • Due Diligence – the investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party or an act with a certain standard of care. Wikipedia
  • Earnest money – a small amount of money that a seller requires a potential buyer to deposit before a transaction is completed. Earnest money ensures that the potential buyer is serious about the transaction and will be likely to complete it when the time comes. Farlex Financial Dictionary
  • Easement – a nonpossessory right to use and/or enter onto the real property of another without possessing it. Wikipedia
  • Escrow – a contractual arrangement in which a third party (the stakeholder or escrow agent) receives and disburses money or property for the primary transacting parties, with the disbursement dependent on conditions agreed to by the transacting parties. Wikipedia
  • Environmental Assessment – a study of land to determine if there are any factors such as would possibly give rise to concerns about hazardous materials, protected species, historic remains, or other such factors. Farlex Financial Dictionary
  • Equal Credit Opportunity Act – designed to ensure that all qualified people have access to credit. It forbids lenders from rejecting credit applicants on the basis of race, gender, marital status, age, or national origin and requires lenders to consider public assistance in the same light as other forms of income. Farlex Financial Dictionary
  • Equity – the market value of a homeowner’s unencumbered interest in their real property, that is, the difference between the home’s fair market value and the outstanding balance of all liens on the property. Wikipedia
  • Escalation clause – a clause in any of a wide variety of contractual or real property arrangements that allows one party to increase the price upon the happening of certain specified events. Farlex Financial Dictionary
  • Fannie Mae – Federal National Mortgage Association (FNMA). A publicly owned, government-sponsored corporation chartered in 1938 to purchase mortgages from lenders and resell them to investors. Farlex Financial Dictionary
  • Federal Housing Administration (FHA) – An agency of the United States federal government responsible for encouraging homeownership. It does this primarily by providing insurance to private mortgage lenders. It finances its activities by buying mortgages from the lender, repackaging them as mortgage-backed securities, and re-selling them. Farlex Financial Dictionary
  • Finance charge – any fee representing the cost of credit, or the cost of borrowing. Wikipedia
  • Fixed-Rate Mortgage – a fully amortizing mortgage loan where the interest rate on the note remains the same through the term of the loan. Wikipedia
  • Freddie Mac – Federal Home Loan Mortgage Corporation (FHLMC). A Congressionally chartered corporation that purchases residential mortgages in the secondary market from S&Ls, banks, and mortgage bankers and securities for sale in the capital markets. Farlex Financial Dictionary
  • Ginnie Mae – Government National Mortgage Association (GNMA). A United States government-owned enterprise that buys mortgages from banks and pools them, selling the pools as mortgage-backed securities. Ginnie Mae securities are backed by the full faith and credit of the United States and as such are consider risk-free investments. Farlex Financial Dictionary
  • Government-backed Loan – a loan subsidized by the government, also known as a Federal Direct Loan, which protects lenders against defaults on payments, thus making it a lot easier for lenders to offer potential borrowers lower interest rates. Its primary aim is to make home ownership affordable to lower income households and first-time buyers. Wikipedia
  • Grantee – a person or entity receiving the property. Wikipedia
  • Grantor – a person or other entity giving the property. Wikipedia
  • Gross Rent Multiplier (GRM) – the ratio of the price of a real estate investment to its annual rental income before accounting for expenses such as property taxes, insurance, and utilities; GRM is the number of years the property would take to pay for itself in gross received rent.  Wikipedia
  • Hard Money Loan – a specific type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by private investors or companies. Interest rates are typically higher than conventional commercial or residential property loans because of the higher risk and shorter duration of the loan. Wikipedia
  • Home Equity Line of Credit (HELOC) – a line of credit in which one borrows against the value of one’s home. That is, the collateral on a home equity line of credit is one’s house. Farlex Financial Dictionary
  • Home Equity Loan – a loan in which the one borrows against the value of one’s home. That is, the collateral of a home-equity loan is one’s house. Farlex Financial Dictionary
  • Home Inspection – a limited, non-invasive examination of the condition of a home, often in connection with the sale of that home. Home inspections are usually conducted by a home inspector who has the training and certifications to perform such inspections. Wikipedia
  • Homeowner Association (HOA) – a private association often formed by a real estate developer for the purpose of marketing, managing, and selling homes and lots in a residential subdivision. Wikipedia
  • Homeowner’s Insurance – An insurance policy protecting a homeowner against damage or loss to property. Farlex Financial Dictionary
  • Income Property – Property intended to produce income for its owners, especially from rent. Farlex Financial Dictionary
  • Interest Only Loan – a loan in which the borrower pays only the interest for some or all of the term, with the principal balance unchanged during the interest-only period. At the end of the interest-only term the borrower must renegotiate another interest-only mortgage, pay the principal, or, if previously agreed, convert the loan to a principal-and-interest payment (amortized) loan at the borrower’s option. Wikipedia
  • Interest Rate – the proportion of an amount loaned which a lender charges as interest to the borrower, normally expressed as an annual percentage. Wikipedia
  • Joint Tenants in Common – a way for two or more persons to own property together. Joint tenants in common may own equal or unequal shares of the property (but shares are usually equal), and there are no rights of survivorship. That is, when one of the co-owners dies, his/her share of the property becomes part of his/her estate and passes on to heirs. Farlex Financial Dictionary
  • Jumbo Loan – . A mortgage loan that exceeds the limits for securitization by U.S. government mortgage banks. As such, a jumbo loan cannot be guaranteed or securitized by Freddie Mac or Fannie Mae. Farlex Financial Dictionary

No terms to share.

  • Land Lease (Ground Lease) – a long-term lease of land in which the tenant will erect improvements at its own expense. Farlex Financial Dictionary
  • Listing Agent – the real estate agent who obtained a listing contract from a property owner, authorizing the broker for whom the agent works to market and solicit offers to buy the owner’s property on specified terms and conditions. Farlex Financial Dictionary
  • Low Income Housing Tax Credits (LIHTC) – a dollar-for-dollar reduction in one’s tax liability due to an investment in a housing complex for low and moderate income persons. Farlex Financial Dictionary
  • Mortgage Insurance – an insurance policy that provides coverage to a lender in the event that a borrower defaults on a mortgage. This ensures that the lender does not incur a loss if the borrower is unable to repay the loan. While the lender pays the premium, it generally passes on payment to the borrower (and may roll it into the monthly mortgage payment). Farlex Financial Dictionary
  • Mortgage Note – a written promise to repay a specified sum of money plus interest at a specified rate and length of time to fulfill the promise. Wikipedia
  • Mortgage Protection Insurance (MPI) – an insurance policy that makes mortgage payments on behalf of the policyholder in the event of financial hardship. Farlex Financial Dictionary
  • Mortgage Servicer – a company to which some borrowers pay their mortgage loan payments and which performs other services in connection with mortgages and mortgage-backed securities. The mortgage servicer may be the entity that originated the mortgage, or it may have purchased the mortgage servicing rights from the original mortgage lender. Wikipedia
  • Mortgage Underwriting – the process a lender uses to determine if the risk of offering a mortgage loan to a particular borrower under certain parameters is acceptable. Wikipedia
  • Multi-family Residential – a classification of housing where multiple separate housing units for residential inhabitants are contained within one building or several buildings within one complex. Units can be next to each other (side-by-side units), or stacked on top of each other (top and bottom units). Wikipedia
  • Negative Amortization –  a loan repayment schedule in which the outstanding principal balance of the loan increases, rather than amortizing, because the scheduled monthly payments do not cover the full amount required to amortize the loan. The unpaid interest is added to the outstanding principal, to be repaid later. Farlex Financial Dictionary
  • Non-conforming Loan – a mortgage loan that fails to meet standards set by Fannie Mae or Freddie Mac
  • Occupancy Cost – costs related to occupying a space including; rent, real estate taxes, personal property taxes, insurance on building and contents, depreciation, and amortization expenses. Wikipedia
  • Opportunity Zone – a designation and investment program created by the Tax Cuts and Jobs Act of 2017 allowing for certain investments in lower income areas to have tax advantages. Wikipedia
  • Option Period – in Texas, a short period of time during which a seller of real estate may not to sell to anyone other than the person or entity who placed a bid. This gives the potential buyer time to perform inspections without placing his/her earnest money at risk. The potential buyer pays a non-refundable option fee, which is distinct from earnest money, in order to take advantage of an option period. Farlex Financial Dictionary
  • Origination Fee -an upfront fee charged by some lenders, expressed as a percent of the loan amount. Farlex Financial Dictionary
  • Owner Financing (Seller Financing) – loan provided by the seller of a property or business to the purchaser. Wikipedia
  • Passive Income – income that requires minimal labor to earn and maintain. Wikipedia
  • Piggyback Second Mortgage – piggyback second mortgages are originated concurrently with the first mortgage to finance the purchase of a home in a single closing process. In a conventional mortgage arrangement, homebuyers are permitted to borrow 80 percent of the property’s value whilst placing a down payment of 20 percent. Wikipedia
  • PITI – an acronym for a mortgage payment that is the sum of monthly principal, interest, taxes, and insurance. Wikipedia
  • Preapproval – a commitment by a mortgage lender to provide a loan with a certain monthly payment to a borrower. Farlex Financial Dictionary
  • Prequalification – the act or process of determining the approximate amount a borrower will be able to borrow before he/she actually applies for a loan. Farlex Financial Dictionary
  • Prepaid interest – Interest on a loan that is paid before it is billed to the borrower. Farlex Financial Dictionary
  • Prepayment Penalty – a fee that a lender may assess if a borrower repays a loan before the scheduled maturity. Farlex Financial Dictionary
  • Principal – amount of money originally invested or loaned, on which basis interest and returns are calculated. Wikipedia
  • Promissory Note – a legal instrument (more particularly, a financing instrument and a debt instrument), in which one party (the maker or issuer) promises in writing to pay a determinate sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms. Wikipedia 
  • Property Tax – an ad valorem tax on the value of a property. Wikipedia
  • Purchase Price – the contractually agreed upon price for a property, before credits, adjustments, or concessions. Farlex Financial Dictionary
  • Purchase and Sale Agreement – an agreement between a buyer and a seller of real estate property, company stock, or other assets. Wikipedia
  • Quitclaim Deed – a legal instrument that is used to transfer interest in real property. The entity transferring its interest is called the grantor, and when the quitclaim deed is properly completed and executed, it transfers any interest the grantor has in the property to a recipient, called the grantee.[1] The owner/grantor terminates (“quits”) any right and claim to the property, thereby allowing the right or claim to transfer to the recipient/grantee. Wikipedia
  • Qualifying Ratio – the maximum debt-to-income ratio for a mortgage. Farlex Financial Dictionary
  • Rate Lock – an agreement between a mortgage bank and a potential borrower promising that that the bank will not change the proposed interest rate on a loan that has not been concluded for a certain period of time. Farlex Financial Dictionary
  • Real Estate Agent – a person who facilitates the sale of real estate. Farlex Financial Dictionary
  • Real Estate Investment Trust (REIT) – a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and commercial forests. Some REITs engage in financing real estate. Wikipedia
  • Real Estate Owned (REO) – a term used in the United States to describe a class of property owned by a lender—typically a bank, government agency, or government loan insurer—after an unsuccessful sale at a foreclosure auction. Wikipedia
  • Real Property – Land and the improvements on it. Farlex Financial Dictionary
  • Realtor – a designation reserved for members of the National Association of Realtors, and encompasses both real-estate agents and real-estate brokers. Farlex Financial Dictionary
  • Residential Mortgage – A loan that one or more persons receive in order to buy a house or other residential property in which they will live. Farlex Financial Dictionary
  • Residential Property – any property that a municipality has designated for single family homes, apartments, co-operatives, townhouses, and any other place where people live. Farlex Financial Dictionary
  • Return on Investment (ROI) – the money that a person or company earns as a percentage of the total value of his/her/its assets that are invested (ROI = (Income – Cost) / Cost). Farlex Financial Dictionary
  • Reverse Mortgage – a loan borrowed against the value of one’s home. In this situation, the lender gives the borrower the amount of the loan and the borrower makes no payments and retains title to his/her home. Farlex Financial Dictionary
  • Right of First Refusal – the right of a person or organization to take advantage of a transaction before it is open to other parties. Farlex Financial Dictionary
  • Right of Rescission – the right to void a contract without any penalty within three days as provided in the Consumer Credit Protection Act of 1968. Farlex Financial Dictionary
  • Second Mortgage – a property lien that is subordinate to another mortgage on the same property. Farlex Financial Dictionary
  • Survey – The process by which land is located with reference to commonly agreed upon landmarks or other points of reference, and then measured out for all of its boundaries, including distances and direction-and-degree of turns. Farlex Financial Dictionary
  • Title Insurance – a form of indemnity insurance predominantly found in the United States and Canada which insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage loans. Wikipedia
  • Title Search – in real estate, research done to trace a title back to its original owner or back to some date dictated by statute. A title search is done before the sale of property to ensure that there are no competing claims for the same property. A title search protects the mortgage lender from the possibility that that a competing claim will be honored in court, resulting in a loss. Farlex Financial Dictionary
  • Truth in Lending Act -Title I of the Consumer Credit Protection Act. It is a federal law that requires lenders to make certain disclosures to potential borrowers within 3 days after receipt of a written loan application. A final disclosure statement is provided at the time of loan closing. Farlex Financial Dictionary 
  • U.S. Department of Agriculture (USDA) – the federal executive department responsible for developing and executing federal laws related to farming, forestry, rural economic development, and food. Wikipedia
  • U.S. Department of Housing & Urban Development (HUD) – a Cabinet department in the executive branch of the U.S. federal government that was founded to develop and execute policies on housing and metropolises. Wikipedia
  • U.S. Department of Veterans Affairs (VA) – a Cabinet-level executive branch department of the federal government charged with integrating life-long healthcare services to eligible military veterans at the 1700 VA medical centers and outpatient clinics located throughout the country. Non-healthcare benefits include disability compensation, vocational rehabilitation, education assistance, home loans, and life insurance; and provides burial and memorial benefits to eligible veterans and family members at 135 national cemeteries. Wikipedia
  • Valuation – the appraisal of land or buildings. Wikipedia
  • Waiver – a statement of the voluntary surrender of a right. Farlex Financial Dictionary

No terms to share.

No terms to share.

  • Zoning – method of urban planning in which a municipality or other tier of government divides land into areas called zones, each of which has a set of regulations for new development that differs from other zones. Wikipedia
  • Addendum – an additional document not included in the main part of the contract. Wikipedia
  • Adjustable Rate Mortgage (ARM) – a mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets. Wikipedia
  • Amortization – paying off an amount owed over time by making planned, incremental payments of principal and interest. Wikipedia
  • Annual Percentage Rate (APR) – the interest rate for a whole year (annualized). It is a finance charge expressed as an annual rate. Wikipedia
  • Appraisal – the process of developing an opinion of value for real property (usually market value). Wikipedia
  • Appraiser – a person that develops an opinion of the market value or other value of a product, most notably real estate. Wikipedia
  • As is – describing the sale of an asset in which the seller gives no guarantee on the quality of the asset and makes no repairs that may be necessary. An “as is” sale transfers all risk to the buyer. Farlex Financial Dictionary
  • Assignment – a legal term used in the context of the law of contract and of property. In both instances, assignment is the process whereby a person, the assignor, transfers rights or benefits to another, the assignee. Wikipedia
  • Balloon Payment Mortgage – a mortgage which does not fully amortize over the term of the note, thus leaving a balance due at maturity. The final payment is called a balloon payment because of its large size. Wikipedia
  • Basis Points – a value equaling one one-hundredth of a percent (1/100 of 1%). One basis point is equal to 0.01%. Farlex Financial Dictionary
  • Blanket Mortgage – a type of loan used to fund the purchase of more than one piece of real property. Blanket loans are popular with builders and developers who buy large tracts of land, then subdivide them to create many individual parcels to be gradually sold one at a time. Wikipedia
  • Borrower – a person or company that has received money from another party with the agreement that the money will be repaid. Farlex Financial Dictionary
  • Break-even Ratio (BER) – estimates how vulnerable a property is to defaulting on its debt should rental income decline. Wikipedia
  • Bridge Loan – a short-term loan,usually from a bank,that “bridges”the period between the closing of a home purchase and the closing of a home sale. Farlex Financial Dictionary
  • Building Inspection – an inspection performed by a building inspector, a person who is employed by either a city, township or county and is usually certified in one or more disciplines qualifying them to make professional judgment about whether a building meets building code requirements. Wikipedia
  • Building Occupancy Classifications – refer to categorizing structures based on their usage and are primarily used for building and fire code enforcement. They are usually defined by model building codes, and vary, somewhat, among them. Often, many of them are subdivided. Wikipedia
  • Buyer Agency – the practice of real estate brokers and their agents representing a buyer in a real estate transaction. Wikipedia
  • Cancellation Clause – a clause in a contract or lease that allows one or either party to cancel it upon the happening of certain named events other than a default.  Farlax Financial Dictionary
  • Capitalization Rate (Cap Rate) – a real estate valuation measure used to compare different real estate investments. Although there are many variations, a cap rate is often calculated as the ratio between the net operating income produced by an asset and current market value. Wikipedia
  • Cash-on-Cash Return (CCR) – the ratio of annual before-tax cash flow to the total amount of cash invested, expressed as a percentage. Wikipedia
  • Certificate of Occupancy – a document issued by a local government certifying that a structure has passed all required inspections and is ready for occupancy. Farlex Financial Dictionary
  • Closing Costs – fees paid at the closing of a real estate transaction. Wikipedia
  • Co-borrower – one or more persons who have signed the note and are equally responsible for repaying the loan. Farlex Financial Dictionary
  • Commercial Real Estate – commercial property, also called commercial real estate, investment property or income property, is real estate (buildings or land) intended to generate a profit, either from capital gains or rental income. Wikipedia
  • Commercial Mortgage – a mortgage loan secured by commercial property, such as an office building, shopping center, industrial warehouse, or apartment complex. The proceeds from a commercial mortgage are typically used to acquire, refinance, or redevelop commercial property. Wikipedia
  • Commission – a form of payment to an agent for services rendered. Wikipedia
  • Common Area Maintenance – CAM for short, are one of the net charges billed to tenants in a commercial triple net (NNN) lease, and are paid by tenants to the landlord of a commercial property. A CAM charge is an additional rent, charged on top of base rent, and is mainly composed of maintenance fees for work performed on the common area of a property. Wikipedia
  • Compound interest – the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously accumulated interest. Wikipedia
  • Conforming Mortgage – a loan eligible for purchase by the two major federal agencies that buy mortgages, Fannie Mae and Freddie Mac. Farlex Financial Dictionary
  • Contingency Clause – a clause that allows cancellation of a contract without penalty if a certain described thing happens. Farlex Financial Dictionary
  • Contract – a contract between parties for the purchase and sale, exchange, or other conveyance of real estate. Wikipedia
  • Conventional Mortgage – a loan based on the credit of the borrower and on the collateral for the mortgage. Farlex Financial Dictionary
  • Credit History – a record of a borrower’s responsible repayment of debts. Wikipedia
  • Credit Report – a record of the borrower’s credit history from a number of sources, including banks, credit card companies, collection agencies, and governments. Wikipedia
  • Credit Score – a numerical expression based on a level analysis of a person’s credit files, to represent the creditworthiness of an individual. Wikipedia
  • Debt Service Coverage Ratio (DSCR) – the ratio of operating income available to debt servicing for interest, principal and lease payments. It is a popular benchmark used in the measurement of an entity’s (person or corporation) ability to produce enough cash to cover its debt (including lease) payments. Wikipedia
  • Debt Ratio – a financial ratio that indicates the percentage of a company’s assets that are provided via debt. It is the ratio of total debt (long-term liabilities) and total assets (the sum of current assets, fixed assets, and other assets such as ‘goodwill’). Wikipedia
  • Debt-to-Income Ratio (DTI) – the percentage of a consumer’s monthly gross income that goes toward paying debts. There are two main kinds of DTI: front-end ratio (indicates the percentage of income that goes toward housing costs) and back-end ratio (indicates the percentage of income that goes toward paying all recurring debt payments). Wikipedia
  • Deed – any legal instrument in writing which passes, affirms or confirms an interest, right, or property and that is signed, attested, delivered, and in some jurisdictions, sealed. It is commonly associated with transferring (conveyancing) title to property.  Wikipedia
  • Deed Restriction – A provision placed in a deed restricting or limiting the use of the property in some manner. Farlex Financial Dictionary
  • Discount Point – one percentage point of the principal of a mortgage loan that some lenders require borrowers to pay immediately as a condition of making the loan. Farlex Financial Dictionary
  • Down Payment – the amount, usually stated as a percentage, of the total cost of a property that you pay in cash as part of a real estate transaction. Farlex Financial Dictionary
  • Due Diligence – the investigation or exercise of care that a reasonable business or person is normally expected to take before entering into an agreement or contract with another party or an act with a certain standard of care. Wikipedia
  • Earnest money – a small amount of money that a seller requires a potential buyer to deposit before a transaction is completed. Earnest money ensures that the potential buyer is serious about the transaction and will be likely to complete it when the time comes. Farlex Financial Dictionary
  • Easement – a nonpossessory right to use and/or enter onto the real property of another without possessing it. Wikipedia
  • Escrow – a contractual arrangement in which a third party (the stakeholder or escrow agent) receives and disburses money or property for the primary transacting parties, with the disbursement dependent on conditions agreed to by the transacting parties. Wikipedia
  • Environmental Assessment – a study of land to determine if there are any factors such as would possibly give rise to concerns about hazardous materials, protected species, historic remains, or other such factors. Farlex Financial Dictionary
  • Equal Credit Opportunity Act – designed to ensure that all qualified people have access to credit. It forbids lenders from rejecting credit applicants on the basis of race, gender, marital status, age, or national origin and requires lenders to consider public assistance in the same light as other forms of income. Farlex Financial Dictionary
  • Equity – the market value of a homeowner’s unencumbered interest in their real property, that is, the difference between the home’s fair market value and the outstanding balance of all liens on the property. Wikipedia
  • Escalation clause – a clause in any of a wide variety of contractual or real property arrangements that allows one party to increase the price upon the happening of certain specified events. Farlex Financial Dictionary
  • Fannie Mae – Federal National Mortgage Association (FNMA). A publicly owned, government-sponsored corporation chartered in 1938 to purchase mortgages from lenders and resell them to investors. Farlex Financial Dictionary
  • Federal Housing Administration (FHA) – An agency of the United States federal government responsible for encouraging homeownership. It does this primarily by providing insurance to private mortgage lenders. It finances its activities by buying mortgages from the lender, repackaging them as mortgage-backed securities, and re-selling them. Farlex Financial Dictionary
  • Finance charge – any fee representing the cost of credit, or the cost of borrowing. Wikipedia
  • Fixed-Rate Mortgage – a fully amortizing mortgage loan where the interest rate on the note remains the same through the term of the loan. Wikipedia
  • Freddie Mac – Federal Home Loan Mortgage Corporation (FHLMC). A Congressionally chartered corporation that purchases residential mortgages in the secondary market from S&Ls, banks, and mortgage bankers and securities for sale in the capital markets. Farlex Financial Dictionary
  • Ginnie Mae – Government National Mortgage Association (GNMA). A United States government-owned enterprise that buys mortgages from banks and pools them, selling the pools as mortgage-backed securities. Ginnie Mae securities are backed by the full faith and credit of the United States and as such are consider risk-free investments. Farlex Financial Dictionary
  • Government-backed Loan – a loan subsidized by the government, also known as a Federal Direct Loan, which protects lenders against defaults on payments, thus making it a lot easier for lenders to offer potential borrowers lower interest rates. Its primary aim is to make home ownership affordable to lower income households and first-time buyers. Wikipedia
  • Grantee – a person or entity receiving the property. Wikipedia
  • Grantor – a person or other entity giving the property. Wikipedia
  • Gross Rent Multiplier (GRM) – the ratio of the price of a real estate investment to its annual rental income before accounting for expenses such as property taxes, insurance, and utilities; GRM is the number of years the property would take to pay for itself in gross received rent.  Wikipedia
  • Hard Money Loan – a specific type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by private investors or companies. Interest rates are typically higher than conventional commercial or residential property loans because of the higher risk and shorter duration of the loan. Wikipedia
  • Home Equity Line of Credit (HELOC) – a line of credit in which one borrows against the value of one’s home. That is, the collateral on a home equity line of credit is one’s house. Farlex Financial Dictionary
  • Home Equity Loan – a loan in which the one borrows against the value of one’s home. That is, the collateral of a home-equity loan is one’s house. Farlex Financial Dictionary
  • Home Inspection – a limited, non-invasive examination of the condition of a home, often in connection with the sale of that home. Home inspections are usually conducted by a home inspector who has the training and certifications to perform such inspections. Wikipedia
  • Homeowner Association (HOA) – a private association often formed by a real estate developer for the purpose of marketing, managing, and selling homes and lots in a residential subdivision. Wikipedia
  • Homeowner’s Insurance – An insurance policy protecting a homeowner against damage or loss to property. Farlex Financial Dictionary
  • Income Property – Property intended to produce income for its owners, especially from rent. Farlex Financial Dictionary
  • Interest Only Loan – a loan in which the borrower pays only the interest for some or all of the term, with the principal balance unchanged during the interest-only period. At the end of the interest-only term the borrower must renegotiate another interest-only mortgage, pay the principal, or, if previously agreed, convert the loan to a principal-and-interest payment (amortized) loan at the borrower’s option. Wikipedia
  • Interest Rate – the proportion of an amount loaned which a lender charges as interest to the borrower, normally expressed as an annual percentage. Wikipedia
  • Joint Tenants in Common – a way for two or more persons to own property together. Joint tenants in common may own equal or unequal shares of the property (but shares are usually equal), and there are no rights of survivorship. That is, when one of the co-owners dies, his/her share of the property becomes part of his/her estate and passes on to heirs. Farlex Financial Dictionary
  • Jumbo Loan – . A mortgage loan that exceeds the limits for securitization by U.S. government mortgage banks. As such, a jumbo loan cannot be guaranteed or securitized by Freddie Mac or Fannie Mae. Farlex Financial Dictionary

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  • Land Lease (Ground Lease) – a long-term lease of land in which the tenant will erect improvements at its own expense. Farlex Financial Dictionary
  • Listing Agent – the real estate agent who obtained a listing contract from a property owner, authorizing the broker for whom the agent works to market and solicit offers to buy the owner’s property on specified terms and conditions. Farlex Financial Dictionary
  • Low Income Housing Tax Credits (LIHTC) – a dollar-for-dollar reduction in one’s tax liability due to an investment in a housing complex for low and moderate income persons. Farlex Financial Dictionary
  • Mortgage Insurance – an insurance policy that provides coverage to a lender in the event that a borrower defaults on a mortgage. This ensures that the lender does not incur a loss if the borrower is unable to repay the loan. While the lender pays the premium, it generally passes on payment to the borrower (and may roll it into the monthly mortgage payment). Farlex Financial Dictionary
  • Mortgage Note – a written promise to repay a specified sum of money plus interest at a specified rate and length of time to fulfill the promise. Wikipedia
  • Mortgage Protection Insurance (MPI) – an insurance policy that makes mortgage payments on behalf of the policyholder in the event of financial hardship. Farlex Financial Dictionary
  • Mortgage Servicer – a company to which some borrowers pay their mortgage loan payments and which performs other services in connection with mortgages and mortgage-backed securities. The mortgage servicer may be the entity that originated the mortgage, or it may have purchased the mortgage servicing rights from the original mortgage lender. Wikipedia
  • Mortgage Underwriting – the process a lender uses to determine if the risk of offering a mortgage loan to a particular borrower under certain parameters is acceptable. Wikipedia
  • Multi-family Residential – a classification of housing where multiple separate housing units for residential inhabitants are contained within one building or several buildings within one complex. Units can be next to each other (side-by-side units), or stacked on top of each other (top and bottom units). Wikipedia
  • Negative Amortization –  a loan repayment schedule in which the outstanding principal balance of the loan increases, rather than amortizing, because the scheduled monthly payments do not cover the full amount required to amortize the loan. The unpaid interest is added to the outstanding principal, to be repaid later. Farlex Financial Dictionary
  • Non-conforming Loan – a loan that fails to meet bank criteria for funding. Wikipedia
  • Occupancy Cost – costs related to occupying a space including; rent, real estate taxes, personal property taxes, insurance on building and contents, depreciation, and amortization expenses. Wikipedia
  • Opportunity Zone – a designation and investment program created by the Tax Cuts and Jobs Act of 2017 allowing for certain investments in lower income areas to have tax advantages. Wikipedia
  • Option Period – in Texas, a short period of time during which a seller of real estate may not to sell to anyone other than the person or entity who placed a bid. This gives the potential buyer time to perform inspections without placing his/her earnest money at risk. The potential buyer pays a non-refundable option fee, which is distinct from earnest money, in order to take advantage of an option period. Farlex Financial Dictionary
  • Origination Fee -an upfront fee charged by some lenders, expressed as a percent of the loan amount. Farlex Financial Dictionary
  • Owner Financing (Seller Financing) – loan provided by the seller of a property or business to the purchaser. Wikipedia
  • Passive Income – income that requires minimal labor to earn and maintain. Wikipedia
  • Piggyback Second Mortgage – piggyback second mortgages are originated concurrently with the first mortgage to finance the purchase of a home in a single closing process. In a conventional mortgage arrangement, homebuyers are permitted to borrow 80 percent of the property’s value whilst placing a down payment of 20 percent. Wikipedia
  • PITI – an acronym for a mortgage payment that is the sum of monthly principal, interest, taxes, and insurance. Wikipedia
  • Preapproval – a commitment by a mortgage lender to provide a loan with a certain monthly payment to a borrower. Farlex Financial Dictionary
  • Prequalification – the act or process of determining the approximate amount a borrower will be able to borrow before he/she actually applies for a loan. Farlex Financial Dictionary
  • Prepaid interest – Interest on a loan that is paid before it is billed to the borrower. Farlex Financial Dictionary
  • Prepayment Penalty – a fee that a lender may assess if a borrower repays a loan before the scheduled maturity. Farlex Financial Dictionary
  • Principal – amount of money originally invested or loaned, on which basis interest and returns are calculated. Wikipedia
  • Promissory Note – a legal instrument (more particularly, a financing instrument and a debt instrument), in which one party (the maker or issuer) promises in writing to pay a determinate sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms. Wikipedia 
  • Property Tax – an ad valorem tax on the value of a property. Wikipedia
  • Purchase Price – the contractually agreed upon price for a property, before credits, adjustments, or concessions. Farlex Financial Dictionary
  • Purchase and Sale Agreement – an agreement between a buyer and a seller of real estate property, company stock, or other assets. Wikipedia
  • Quitclaim Deed – a legal instrument that is used to transfer interest in real property. The entity transferring its interest is called the grantor, and when the quitclaim deed is properly completed and executed, it transfers any interest the grantor has in the property to a recipient, called the grantee.[1] The owner/grantor terminates (“quits”) any right and claim to the property, thereby allowing the right or claim to transfer to the recipient/grantee. Wikipedia
  • Qualifying Ratio – the maximum debt-to-income ratio for a mortgage. Farlex Financial Dictionary
  • Rate Lock – an agreement between a mortgage bank and a potential borrower promising that that the bank will not change the proposed interest rate on a loan that has not been concluded for a certain period of time. Farlex Financial Dictionary
  • Real Estate Agent – a person who facilitates the sale of real estate. Farlex Financial Dictionary
  • Real Estate Investment Trust (REIT) – a company that owns, and in most cases operates, income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and commercial forests. Some REITs engage in financing real estate. Wikipedia
  • Real Estate Owned (REO) – a term used in the United States to describe a class of property owned by a lender—typically a bank, government agency, or government loan insurer—after an unsuccessful sale at a foreclosure auction. Wikipedia
  • Real Property – Land and the improvements on it. Farlex Financial Dictionary
  • Realtor – a designation reserved for members of the National Association of Realtors, and encompasses both real-estate agents and real-estate brokers. Farlex Financial Dictionary
  • Residential Mortgage – A loan that one or more persons receive in order to buy a house or other residential property in which they will live. Farlex Financial Dictionary
  • Residential Property – any property that a municipality has designated for single family homes, apartments, co-operatives, townhouses, and any other place where people live. Farlex Financial Dictionary
  • Return on Investment (ROI) – the money that a person or company earns as a percentage of the total value of his/her/its assets that are invested (ROI = (Income – Cost) / Cost). Farlex Financial Dictionary
  • Reverse Mortgage – a loan borrowed against the value of one’s home. In this situation, the lender gives the borrower the amount of the loan and the borrower makes no payments and retains title to his/her home. Farlex Financial Dictionary
  • Right of First Refusal – the right of a person or organization to take advantage of a transaction before it is open to other parties. Farlex Financial Dictionary
  • Right of Rescission – the right to void a contract without any penalty within three days as provided in the Consumer Credit Protection Act of 1968. Farlex Financial Dictionary
  • Second Mortgage – a property lien that is subordinate to another mortgage on the same property. Farlex Financial Dictionary
  • Survey – The process by which land is located with reference to commonly agreed upon landmarks or other points of reference, and then measured out for all of its boundaries, including distances and direction-and-degree of turns. Farlex Financial Dictionary
  • Title Insurance – a form of indemnity insurance predominantly found in the United States and Canada which insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage loans. Wikipedia
  • Title Search – in real estate, research done to trace a title back to its original owner or back to some date dictated by statute. A title search is done before the sale of property to ensure that there are no competing claims for the same property. A title search protects the mortgage lender from the possibility that that a competing claim will be honored in court, resulting in a loss. Farlex Financial Dictionary
  • Truth in Lending Act -Title I of the Consumer Credit Protection Act. It is a federal law that requires lenders to make certain disclosures to potential borrowers within 3 days after receipt of a written loan application. A final disclosure statement is provided at the time of loan closing. Farlex Financial Dictionary 
  • U.S. Department of Agriculture (USDA) – the federal executive department responsible for developing and executing federal laws related to farming, forestry, rural economic development, and food. Wikipedia
  • U.S. Department of Housing & Urban Development (HUD) – a Cabinet department in the executive branch of the U.S. federal government that was founded to develop and execute policies on housing and metropolises. Wikipedia
  • U.S. Department of Veterans Affairs (VA) – a Cabinet-level executive branch department of the federal government charged with integrating life-long healthcare services to eligible military veterans at the 1700 VA medical centers and outpatient clinics located throughout the country. Non-healthcare benefits include disability compensation, vocational rehabilitation, education assistance, home loans, and life insurance; and provides burial and memorial benefits to eligible veterans and family members at 135 national cemeteries. Wikipedia
  • Valuation – the appraisal of land or buildings. Wikipedia
  • Waiver – a statement of the voluntary surrender of a right. Farlex Financial Dictionary

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  • Zoning – method of urban planning in which a municipality or other tier of government divides land into areas called zones, each of which has a set of regulations for new development that differs from other zones. Wikipedia

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