Expanding Housing Opportunities

Expanding Housing OpportunitiesA Vital Tool in Today's Economy

Participant Guide

Th is publication is designed to provide accurate information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

Published by the NATIONAL ASSOCIATION OF REALTORS®

430 N. Michigan AvenueChicago, IL 60611-40871-800-874-6500http://www.Realtor.org

To order additional copies, phone NAR at 1-800-874-6500

© 2009 NATIONAL ASSOCIATION OF REALTORS®

Revised May 2013.All rights reserved. No part of this publication may be reproduced or transmitted, in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without permission in writing from the publisher.

Item number:

Printed in the United States of America

Expanding Housing OpportunitiesA Vital Tool in Today's Economy

Contents

Module 1: Your Role in Aff ordable Housing

Module 2: You and the Client

Module 3: You and the Housing Counselor

Module 4: You and the Lender

Module 5: You and the Community

Sources and Resources Useful Forms and Worksheets

Glossary

List of Resources

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2.1

3.1

4.1

5.1

6.1

6.4

6.20

iIntroductionCommunity and Political Aff airs

Introduction

By signing up for this course, you have chosen to participate in a movement that is reshaping homeownership in America. Th e ability to purchase aff ordable housing creates a critical stumbling block for families who want to share in the American Dream. Th e NATIONAL ASSOCIATION OF REALTORS® (NAR) has recognized this problem and is training real estate professionals, through this course, to help these families fi nd solutions.

In cities across the United States, real estate professionals like you are learning how to help families fi nd homes they can aff ord. Th ey are forming partnerships with government agencies and nonprofi ts. Th ey are adapting existing programs to meet the needs of specifi c communities. And they are developing relationships to help their clients cope with personal challenges.

And in community after community, they are succeeding.

What does lack of aff ordability look like?

What does it mean?

“Aff ordable housing,” according to the U.S. Department of Housing and Urban Development (HUD), is housing that costs no more than 30 percent of a family’s annual earnings. Th e State of the Nation’s Housing 2012, published by Harvard University’s Joint Center on Housing Studies, reports that between 2007 and 2010, the number of US households paying more than 50 percent of their incomes for housing rose by an astounding 2.3 million, bringing the total to 20.2 million. In a survey conducted by the National League of Cities, 62 percent of city offi cials said that in the past year it had become increasingly diffi cult for low-income families to become homeowners in their communities.

Th e eff ects of the housing crunch ripple across society. When housing is unaff ordable, employees can’t fi nd decent housing options near their jobs, so employers lose the ability to attract and retain workers. As business revenues fall, so do municipal tax revenues.

iiIntroduction

EXPANDING HOUSING OPPORTUNITIES

NATIONAL ASSOCIATION OF REALTORS®

For most Americans, homeownership represents the single most critical step in wealth creation. Typically, when a home remains out of reach, so does a college education. Retirement security evaporates. Conversely, when housing costs are within the reach of the workforce, neighborhoods grow stronger and more marketable.

For individuals and their families, it all starts with the ability to purchase an aff ordable home. And that’s where you come in.

What can you do? What does this course off er?

If there’s one critical lesson that NAR can teach real estate professionals about creating aff ordable housing opportunities, it’s this:

You can’t do it alone.

Th is course teaches you how to build partnerships in your practice. You’ll learn how to develop relationships with housing counselors, nonprofi t organizations, lenders, and governmental agencies and offi cials. Th ese partnerships will open new avenues to aff ordability. Most important, you’ll partner with your clients more eff ectively than before as you fi nd the services and opportunities that are right for them.

Vital to your ability to establish new partnerships will be your understanding of the issues, programs, and opportunities surrounding aff ordable housing today. By the end of the course, you’ll understand what makes these partnerships work.

Th is course proceeds in fi ve modules. Each module concludes with a section called Making It Work, which suggests specifi c actions you can take.

As you will see, the course has 10 learning outcomes that structure your understanding of aff ordable housing and give you the background to delve deeper.

iiiIntroductionCommunity and Political Aff airs

Session 1

Learning Objectives

Upon completion of this course, participants will be able to:

1. Describe your role in aff ordable housing.

2. Describe and discuss aff ordable housing and housing opportunities.

3. Describe how demographic changes impact aff ordable housing and housing opportunities.

4. Describe special considerations for fi rst-time homebuyers.

5. Describe the benefi ts of working with housing counselors.

6. Describe where to locate down payment and closing cost assistance.

7. Describe qualifying guidelines for conventional and government loans.

8. Describe how housing opportunities can be increased in your community.

9. Identify opportunities for local advocacy.

10. Locate resources online and in your local community to educate yourself and assist your client regarding aff ordable housing.

Your Role in Aff ordable HousingModule 1

Expanding Housing Opportunities

1.1Community and Political Aff airs


Your Role in Aff ordable Housing

After completing Module 1, you should be able to:

1. Defi ne “aff ordable housing” and “housing opportunities.”

2. Identify the issues that aff ect aff ordable housing.

3. Describe the benefi ts of expanding housing opportunities.

4. List the team of partners to be created.

What is “Aff ordable Housing?”

What are “Housing Opportunities?”

Generally speaking, housing is considered aff ordable if no more than 30 percent of household income is spent on it. Th is measurement is the offi cial government standard and is used both for calculating eligibility for specifi c programs and for evaluating the health of a community. A family paying more than 30 percent of its income for either rent or mortgage is considered “cost burdened” and may have diffi culty aff ording other necessities such as food, clothing, transportation, and medical care.

Th is standard may strike you as similar to the measurement employed by a lender when qualifying an applicant for a mortgage loan. A maximum percentage of the applicant’s income (which varies according to the type of loan program) may be spent on housing.

“Aff ordable housing” can also describe apartment buildings or homes that have been set aside for individuals or families with incomes below certain percentages of median income for a geographic area as defi ned by HUD.

A community has aff ordable housing if it can support comfortable and safe homes for fi rst-time homebuyers, the local workforce, the elderly, and a diverse population.

1.2



As median income and median house prices or rental rates change for a given area, the defi nition of “aff ordable” changes as well. What is considered aff ordable in downtown New York City is very diff erent from aff ordable in Pascagoula, Mississippi.

American Families Feel the Lack of Aff ordable Housing

In Th e State of the Nation’s Housing 2012, it was reported that 20.2 million families spend more than 50 percent of their income on rent or mortgages. Millions more spend between 30 and 50 percent. Th e number is increasing the fastest among homeowners but the share of burdened renters remains very large.

Housing Aff ordability Index (HAI)

For many years, NAR has calculated the Housing Aff ordability Index, which measures the degree to which a typical family can aff ord the monthly mortgage payment on a typical home. Th e index is built from three data points: median home price, median family income, and average mortgage interest rate. Th e higher the index score, the greater the aff ordability. An index of 100 means that a median-income family can comfortably aff ord a median-price home.

For the past several years, the composite index has shown that most “typical families” can aff ord to purchase the typical home. Th e index has risen as high as 206 (January 2012), meaning that more lower-income families have been able to achieve homeownership. For fi rst-time homebuyers, however, the index has remained below 88, showing the relative diffi culty of purchasing a fi rst home for even a median-income homebuyer.

NAR Housing Opportunity Programs Available

To understand the value of expanding housing opportunities, you will need a working defi nition of the term. NAR defi nes housing opportunities as “business opportunities, programs, products, and resources that help to expand housing availability and ensure an adequate supply of housing options for all, in both the rental and homeownership sectors.”



As a real estate professional, you have a critical role to play in expanding housing opportunities in your community. Th is course assists you in placing yourself at the intersection of those four components: business opportunities, programs, products, and resources.

NAR has many off erings available through its Housing Opportunity Program. Details can be found in the Sources and Resources section at the end of this manual.

What are the Current Issues Aff ecting

Aff ordable Housing?

Aff ordability has two components. Th e fi rst encompasses growth, sprawl, and planning, and details how the shape and size of communities can aff ect aff ordability. Th e second component chronicles landmark events shaping the American economy and the government’s response to them.

Aff ordability, Planning, and Urban Design

Th e physical layout of your community may aff ect the aff ordability of the homes in it. Zoning restrictions, for example, may have limited the construction of smaller homes or multi-family units, driving up housing prices. Large lot sizes and subdivision restrictions may thwart eff orts to price homes aff ordably.

Developers, planners, and city offi cials looking at the future of new and existing American communities have begun to think about “smart growth.” Smart growth focuses on the existing assets of the community, the long-term implications of various development patterns, and the fi scal impacts of these patterns. Th ese developers, planners, and offi cials envision a future in which the average household will be smaller. Aff ordability is one of the problems that smart growth wrestles with.

Th e About Smart Growth page at www.Realtor.org lays out the National Association of REALTORS®’s principles for smart growth. You'll also fi nd resources to help you understand the context of your own community’s growth.

1.4



The Housing Market and the Financial Crisis

Home prices were relatively fl at throughout most of the 1990s. According to the S&P/Case-Shiller Index, home prices increased by about 8.3 percent from 1990 to 1997. Th en home prices began a rapid increase - peaking in 2006 over 132 percent higher than they had been in 1997. Since 2006, prices have fallen nearly 34 percent. Primary causes of this housing bubble included low mortgage rates and relaxed standards for mortgage loans.

Foreclosures

According to the CoreLogic® National Foreclosure Report (June 2014)approximately 648,000 homes in the U.S. were in some state of fore-closure as of June 2014. Fully 9.1 million U.S. residential properties were seriously underwater,representing 17% of all properties with a mortgage (as of March 2014) according to RealtyTrac's U.S. Home Equity & Underwater Report forthe first quarter of 2014. As home values decline, refinancing is no longeran option. Th e general decline in the housing market makes selling harder. However, the declining value of homes has provided new opportunities for purchasers. Purchasers are able to purchase properties through a foreclosure sale or "short sale" (where the lender agrees to accept less than the amount due on the mortgage note). As a percentage of total sales, distressed sales are on the decline. In 2010 and 2011, they constituted about a third of the market. Th at dropped to 25 percent in 2012. These sales accounted for just 11.4 percent of total home sales in June 2014, the lowest share since December 2007, according to a report from CoreLogic.

Impact on Aff ordability and Availability

When multiple homes go into foreclosure, the entire neighborhood feels the pain. People who cannot make their house payments often cannot aff ord upkeep and maintenance either. Neglected and, in some cases, abandoned homes begin to mar a community’s overall appearance. When foreclosed properties begin to sell at reduced prices, the overall value of the neighborhood declines.



Impact on the Rental Market

Th e housing crisis continues to impact the rental market. In many communities, foreclosures have led to a renters’ crunch as families priced out or forced out of homeownership compete with one another for rental units. In other communities, formerly owner-occupied homes have created a glut in the rental market. In some areas, larger buildings originally scheduled to be condominium units, have now been converted into rentals creating an upward trend in vacancies in these larger properties. More than one-third of rental units are still single-family homes.

Unfortunately, absentee owners account for almost one in fi ve loans entering foreclosure. Recent legislation has provided some protection for tenants who were sometimes receiving eviction notices without having any knowledge that their home had been foreclosed on. Tenants now have the right to fi nish out their lease (unless the new buyer intends to occupy the property) and must have 90 days notice of pending eviction.

In good times or lean times, you will encounter prospective buyers who would be better off waiting to buy until conditions are more secure. Familiarity with your local rental market enables you to make a prudent recommendation in the short term that may yield a grateful, responsible future buyer over the long run.

Government Programs Address the Financial Crisis

Th e long term eff ects of the fi nancial crisis are not yet clear, but many government offi cials have clamored to include aid to individual homeowners as part of overall relief eff orts in addition to legislation that helps homeowners and provides more resources. Module 4 includes a more in-depth look at some of these relief eff orts.

Remember: By doing this work, you are helping individuals and communities make it through a harrowing chapter in our country’s history.

1.6



Other Resources for Aff ordable Housing Information

Th e more you know about aff ordable housing issues and the local opportunities, the stronger your ability to provide exceptional service to your clients. Th e Sources and Resources section at the end of this course includes many resources to help you stay informed about aff ordable housing. For additional resources, check out the NAR Field Guide on Aff ordable Housing on www.Realtor.org.

What are the Benefi ts of Expanding Housing

Opportunities?

Planning and zoning. Financial crisis. Aff ordability. Availability. You’re already looking at a lot of new material, and when we get to partnerships you’ll be encouraged to make a lot of new contacts.

WIIFM?

It’s only reasonable to wonder: What's in it for me?

Real estate professionals who have sought out or created housing opportunities for their clients could easily provide a list of the benefi ts of doing so. Certainly the following three would appear on each of their lists:

1. An increased client base. Nothing succeeds like success. Every fi rst-time homebuyer who you work with has friends, probably in the same age and income stage of their life. Every family still struggling with becoming oriented to American ways and culture will appreciate your patience while guiding them through the homebuying process—and will be quick to recommend you to friends and family. Th e elderly couple will appreciate the time you spent helping them fi nd the right home that was both comfortable and aff ordable; that couple not only has friends but also children and grandchildren who may now look to you as their family agent. Th e fi refi ghter, the teacher, the bank teller—they all have colleagues who could benefi t from the special programs you found especially suited to them.



2. Enhanced reputation. People who know you and your work will look up to you as someone who truly believes in giving back to the community and making it a better place to live. People want to work with someone they know they can trust to act in their best interests. Your reputation as someone who honestly cares means more to potential clients than any amount of expensive advertising.

3. Self-satisfaction. Ultimately, this may be the greatest reward. It is that warm feeling you get when the four-year-old looks up and says, “Th anks for fi nding me a home where I can have a dog” or when the 15-year-old invites you to his basketball game at the high school where he has now found some stability and self-confi dence—or when the single mother with three little ones, who had been cramped into two rooms in her mother’s basement, now invites you to stop by to see how she has decorated her new home, where she can raise her children in comfort. As Albert Einstein said, “Everything that can be counted does not necessarily count; everything that counts cannot necessarily be counted.”

Partnership Leads to Success

Who Are Your Partners?

Th e old adage “two heads are better than one” is well founded. No one person can ever accomplish as much as a team of dedicated partners.

You may have always considered that you and your client are partners in the endeavor to either sell or buy a home. Let’s expand that thought a little further. Th ink of the power you could achieve by expanding that team to four: you, the client, a housing counselor, and a lender. Also consider your other real estate peers as well as other community resources. Each member of the team brings the experience or an area of expertise that works for the good of everyone. In the course modules we look in depth at the potential created by working with a full team.

1.8



Making It Work

1. Find out what resources are available at Realtor.org, your state Association website, and your local Board/Association website.

2. Make a list of potential partners for your team. Be as specifi c as possible.

3. Prepare a “favorites” list of websites that you will visit at least once a week to keep updated on issues and information related to aff ordable housing.

At the end of Module 5, you will fi nd a Final Exercise where you are to develop your own Individual Action Plan. Select one or more actions from the Making It Work sections that appear at the end of each module and include on your Action Plan.

You and the ClientModule 2




You and the Client


1. Describe demographic changes occurring throughout the country.

2. Describe how transportation costs impact aff ordability.

3. Point out special considerations for fi st-time homebuyers.

4. Discuss aff ordability/availability in the rental market.

5. Describe alternatives to traditional homeownership.

The Changing Picture of Client Needs

You are already familiar with the partnership with a client, however, you may fi nd that the face of your client is diff erent as demographic changes occur all over the country. Th e country has grown more diverse and aged at the same time. Th ese developments provide challenges as well as opportunities for real estate professionals to serve a changing client base.

Growing Minority Populations

Minorities have constituted about one-third of the U.S. population since 2006 and will account for more than two-thirds of the net increase in households over the next decade. According to recent U.S. Census Bureau reports, the United States will become “majority-minority” as early as 2040 and 54 percent minority in 2050. It is good business for agents to develop the skills to reach the increasingly multicultural market of prospective homeowners.

Working with Diverse Cultures

Th e impact of immigration no longer just aff ects port-of-entry cities such as Miami, New York, Boston, Chicago, San Francisco, and Los Angeles. Populations of many diff erent ethnic groups are growing in cities and small towns everywhere.

2.2



Th e NAR Diversity Program off ers education, grants, partnerships, and resources for real estate professionals who are interested in learning more about developing a more culturally diverse market. Many real estate professionals today are successfully developing niche markets that focus on a particular ethnic group. Additional organizations and resources can be found in the Sources and Resouces section at the end of this course.

Population Shifts by Age Groups

Th e American population is also aging. Th e Baby Boomers (those born from 1946 to 1964) are moving into middle age with a new set of housing wants and needs. Th anks to advances in medicine, seniors are living longer and more independently. Th is means our Traditionals (those born before 1946) are staying in their home or downsizing to smaller home. One in fi ve Americans will be 65 and over by 2030, the fastest growing age group in America. Not all of these people will want to move to retirement villages in the Sun Belt states. Th ey may consider moving to an over-55 community where home maintenance and security are provided or may choose to purchase a second or vacation home. But according to Harvard’s Joint Center, only 10 percent of seniors live in age-restricted communities. Fully nine in 10 people aged 70 and over live in conventional housing. Th e next group - Generation X, sometimes called the “baby bust” generation (those born from 1965 to 1979), tends to marry later (if at all) and have fewer children. Th ese deferred fi rst marriages, combined with the nation’s overall high divorce rates and low remarriage rates, have helped make the single-person household currently the fastest-growing household type. According to Harvard’s Joint Center report, single households are expected to account for 36 percent of household growth between 2010 and 2020. Th ese singles often look for smaller homes with easy access to restaurants, shopping, entertainment, and recreation centers.

Another key generation group to be aware of is Generation Y or Millenials, the “echo boomers”, the post 1980 generation born to the baby boomers. Th ey have now become the largest generation group as they enter their peak household formation years of 25 to 44, having more



than 5 million more members than the baby boomers of the 1970s. Th e echo boomers will keep the market for rentals and starter homes strong for at least the next 10 years or possibly longer. Th anks to a scarcity of entry-level (and well-paying) jobs, these echo boomers may fi nd themselves starting out at a lower price range than the baby-busters who preceded them but they will provide a strong basis for the housing market even if immigration rates should drop.

Housing and Transportation

Moderate-income households are frequently forced to make trade-off s between their housing and transportation costs. According to the the National Housing Conference and the Center for Neighborhood Technology's 2012 report Losing Ground: Th e Struggle of Moderate-Income Households to Aff ord the Rising Costs of Housing and Transportation, moderate-income households pay a disproportionate share of housing and transportation costs. Nearly 59 percent of their income goes to housing and transportation. Although the study was for moderate-income households, other income levels are also impacted. As a real estate professional, be sure your buyer considers any changes to transportation costs when searching for a home. Tools are available to help homeowners explore the housing and transportation costs in specifi c communities including http://abogo.cnt.org and http://htaindex.cnt.org. Another website, www.walkscore.com shows public transit, groceries, restaurants, and other business types within walking distance.

Special Considerations for First-Time Homebuyers

Historically, fi rst-time homebuyers have been a large segment of the aff ordable housing market. As more and more young buyers enter the market and older homeowners stay put, it is likely that real estate professionals will increasingly fi nd themselves serving fi rst-time homebuyers. Lenders typically defi ne fi rst-time homebuyer as one who has not owned a home or other property in the past three years. First-time buyers also include those who have recently come to this country. Some real estate professionals specialize in working with fi rst-time buyers

2.4



because they fi nd it highly satisfying to off er someone all the benefi ts of homeownership for the fi rst time. Working with a fi rst-time buyer, however, may require more time than is usually spent with an experienced buyer. You may have to provide a fi rst-time buyer with detailed information that an experienced buyer would already know. Topics you may need to educate your fi rst-time buyer on include the following:

• Financial Literacy• Mortgage Loans• Tax Benefi ts • Insurance Coverages• Keeping Records• Credit• Home Maintenance

The Rental Market

Even when homeownership rates were at their highest, a third of American households rented their homes. According to Harvard’s Joint Center report on Th e State of the Nation’s Housing 2012, renter growth hit 1.0 million in 2010-11, the largest annual increase since the early 1980s. REALTOR® Magazine's January/February 2013 issue reports that despite U.S. population growth of roughly 1 percent per year, the number of owner households has held steady, in the range of 75 million since 2007, while the number of renter households has increased from 35 million in 2007 to nearly 40 million today. Unfortunately, rental property has become progressively harder to fi nd.

The Lack of Aff ordable Rentals

As rents continue to climb, they become unaff ordable for those with low incomes. Each year the National Low Income Housing Coalition (NLIHC) calculates the current “housing wage”—the amount it takes to aff ord a modest two-bedroom apartment at 30 percent of income. According to their report Out of Reach 2013 America's Forgotten Housing Crisis, a full-time worker must earn $18.79 per hour —two-and-



a-half times the federeal minimum wage of $7.25—to earn the housing wage. In other words, no single minimum-wage earner working 40 hours a week, 52 weeks a year, earns enough to cover the cost of a modest rental anywhere in the country. Th e National Low Income Housing Coalition website also has state and county specifi c details - www.nlihc.org.

Your Role

Although some real estate professionals do not take an active part in rental housing, others specialize in this important segment of the housing market. Real estate professionals can advocate for new aff ordable rental housing by attending city and town council meetings and pointing out the projects’ benefi ts to the community. (Th is advocacy role is discussed in Module 5: You and the Community.)

Some state and local governments that are receiving funds through the Neighborhood Stabilization Program, are now purchasing and conveying properties to local nonprofi t agencies that operate them as aff ordable rental housing. Th e Neighborhood Stabilization Program may be phasing out.

Real estate professionals can also help their clients locate rental-assistance programs, either on their own or with the help of a housing counselor (see Module 3: You and the Housing Counselor). A housing counselor’s own agency may provide rental assistance and, at the least, should have information about programs in the area. Two options available nationwide are the HUD Housing Choice Voucher Program and USDA Rural Development Housing & Community Facilities Programs (HCFP).

Three Common Alternatives to Traditional

Homeownership

Various nonprofi ts and municipalities are experimenting with alternative concepts of homeownership as a way to make homeownership available to lower- and middle-income families.

Tip for REALTORS®

Always stay current on rental

assistance programs in your area.

They can change quickly depending

on the amount of funds available

for any specifi c program. Check

with your local housing offi ce and

nonprofi ts organizations in your

community.

2.6



Shared Equity

Equity is the diff erence between what is owed on a property and its current value. If a prospective homeowner is willing to give up a portion of his or her future equity, he or she may be able to attract an investor to help with a down payment.

For example, a nonprofi t organization might agree to provide $10,000 for a down payment and closing costs for the purchase of a $100,000 home. In return, the nonprofi t organization would receive 50 percent of any future sale profi t. Th is type of arrangement can also be set up with municipalities or even private investors. (Shared-equity arrangements such as deed-restricted homes, limited-equity cooperatives, and community land trusts are described in detail in Module 5: You and the Community.)

Lease-Purchase

In a lease-purchase, the real estate professional prepares a regular sales contract along with an addendum spelling out all terms of a lease agreement. Settlement is scheduled for a future date, usually within a year. In the interim, the purchaser pays rent to the seller and has a chance to resolve credit issues, accumulate funds for down payment and closing, or receive anticipated funds from a settlement or inheritance. (Th is is distinct from a lease with an option to buy, which only indicates the right of the tenant to purchase the property—and sign a sales contract—at a future time.)

With such alternative arrangements, the role of the real estate professional becomes more complicated than with a typical home purchase. Th e buyer/tenant and seller/landlord must clearly understand all the terms of the contract. All terms in a lease-purchase contract are negotiable, but the usual components are:

1. Nonrefundable deposit

2. Accelerated rent with credit back to purchaser

3. Liability for repairs

4. Settlement date

5. Financing (usually not detailed)



Some nonprofi t organizations or municipalities are taking advantage of lease-purchase strategies for the sale of properties acquired with Neighborhood Stabilization Program (NSP) funds.

Sweat Equity

Sweat equity is a term used to describe the value added to real estate by owners who contribute their labor to build or improve a property. Th e more labor applied to the home, and the greater the resultant increase in value, the more sweat equity that is accumulated.

Making It Work

1. Check U.S. Census Bureau statistics to determine the demographic makeup of your market area and the percentage of renters versus owners.

2. Invite the top leasing agent in your offi ce to lunch to discuss rental opportunities in your market area.

3. Use an online tool to determine housing and transportation costs in your neighborhood.

4. Check with your local housing offi ce to learn about its programs on aff ordable homeownership and aff ordable rental.

At the end of Module 5 you will fi nd a Final Exercise where you will commit to at least one action from each module. Select one of the Making It Work suggestions above as your promised action for this module.

You and the Housing CounselorModule 3




You and the Housing Counselor


1. Explain the importance of housing counseling.

2. Describe the working relationship between a real estate professional and a housing counselor.

3. Locate a nonprofi t housing organization with which to form a partnership.

4. Describe where to locate down payment and closing cost assistance.

The Importance of Housing Counseling

Th e next important member of your team may be a new concept for you. Traditionally, you started your client relationship when the client is interested in either buying or selling a home. But sometimes buyers are simply not ready to purchase. What then?

As the mortgage loan market struggles to recover from fi nancial crisis, it has become obvious that better-prepared homebuyers might have avoided the risky types of loans that, in many case, led to foreclosure two or three years after purchase. Time spent in a homebuyer education class or with a certifi ed housing counselor could have helped the homeowners determine whether they were really ready to buy.

Housing counseling is the process by which a trained individual helps a family or household to make the right choices about the type of housing best suited to their needs. A housing counselor is not only trained in eff ective counseling skills but also has wide-ranging knowledge about diff erent types of housing, how to resolve credit issues and qualify for a home mortgage, and generally how to prepare the client for homeownership.

Th e housing counseling industry has grown rapidly since the early 1990s. According to HUD’s 2008 report, Th e State of the Housing Counseling

3.2



Industry, the number of people receiving one-on-one counseling from HUD-approved counseling agencies had grown from 244,000 in 1994 to 1.2 million in 2007, with another 500,000 receiving housing education through group sessions. Initially, a large part of this growth occurred among those seeking help to buy a home.

In a more recent study by HUD, those who were enrolled in counseling Fall 2009-Spring 2010, found that 35 percent of pre-purchase counseling participants became fi rst-time homebuyers within 18 months of enrolling in the program. Of all these homebuyers, only one became delinquent on the monthly mortgage payments. Th e foreclosure counseling study showed that 70 percent of distressed homeowners who received counseling were able to avoid foreclosure through mortgage remedy solutions. Fifty-six (56) percent were able to catch up on their mortgage payments, becoming current and getting out of their default statuses.

Congress’ support for housing counseling has changed over the years. Congress cut appropriations from $86 million in 2010 to zero dollars in 2011. In 2012, $45 million was approved and that amount has remainedsteady through 2014.

In 2012 the new Offi ce of Housing Counseling was created as a requirement of the Dodd-Frank Wall Street and Consumer Protection Act passed in 2010. Th is suggests that the housing counseling industry has come to represent an important component of U.S. housing policy however the commitment to fund counseling is still unclear.

National Industry Standards for Homeownership Education

and Counseling

As the link between sustainable homeownership and counseling became more evident, in 2005 the NeighborWorks® Center for Homeownership Education and Counseling (NCHEC) convened and staff ed an advisory council to develop a set of national industry standards for homeowner-ship education and counseling, including a Code of Ethics and Standards of Conduct for Homeownership Professionals. Th e National Industry Standards for Homeownership Education and Counseling are intended



to foster consistency in the industry and promote the continued professional delivery of specialized services by counselors and educators nationwide. Th e core operating standards include competence, skills, training, certifi cation, and continuing education. Performance standards include benchmarks for delivery and curricula for both pre- and post- purchase education. In 2008, the Advisory Council established National Industry Standards for Foreclosure Intervention, in response to the growth of foreclosure counseling activity.

Th e Advisory Council, which oversees the management and implementation of the Standards, includes industry partners such as real estate professionals, national lenders, Fannie Mae and Freddie Mac, HUD, mortgage insurers, and executive directors and counselors from local, regional, and national nonprofi t organizations. NAR is a member of the Advisory Council and offi cially endorsed the Standards in 2008. For more information on the Standards, visit www.homeownershipstandards.com.

Your RoleResponsible real estate professionals do not simply refer a client to a favorite lender and wait to hear what the client can aff ord. An agent should be able to help clients estimate the kind of loan they will qualify for and explain diff erent types of loan programs and products. Some agents even sit down with their clients and the lender. Adding this service for the client also gives real estate professionals an opportunity to learn. In many cases the buyer who feels ready to purchase a home may not be fi nancially ready. Th is is where an agent/housing counselor partnership can be most eff ective. Th e agent can refer the potential homebuyer to a housing counselor who has the tools and expertise to help the client resolve fi nancial problems, determine actual household needs, and draw up a budget and spending plan that begins to prepare the new homeowner to meet the fi nancial requirements of his or her new home. After working with a housing counselor, the client can return to the agent and begin looking in earnest.

Many real estate professionals have already formed partnerships with local nonprofi t housing organizations or state or local housing agencies.

Tip for REALTORS®

Invite some counselors from your

area to come to your offi ce to do a

session to educate yourself and your

real estate professional counterparts

on counselors and what they do.

3.4



Th ey attend homebuyer education seminars and contribute their expertise on how to shop for a home. Nonprofi t organizations and housing agencies may maintain an approved list of agents who have demonstrated both their knowledge and commitment to working with fi rst-time and low- to moderate-income buyers who may have the highest needs for counseling.

The Role of the Housing Counselor

Housing counselors take on many roles as they help individuals or families fi nd the appropriate home for meeting both personal needs and fi nancial capabilities. For example, the young couple looking for an aff ordable one-bedroom apartment has very diff erent needs from the family of fi ve—plus a mother-in-law, two dogs, and a cat—that needs a house of the right size and proximity to schools, recreation, transportation, and shopping.

Housing counselors educate homebuyers and families about how to fi nd the type of housing and fi nancing that best suit personal desires, needs, and capabilities. Working one-on-one with clients throughout the entire homebuying experience, they share information on resolving credit issues, qualifying for home mortgages, and other homeownership topics.

Th e housing counselor should:

Explain the process

• Determine the client’s wants and needs in a new home

• Describe the role of each of the real estate professionals involved

• Discuss settlement procedures and important documents (Good Faith Estimate, Truth-in-Lending, HUD-1)

Help the client prepare fi nancially

• Assess the household’s fi nancial capability for making payments

• Identify obstacles to obtaining fi nancing

• Recommend actions to correct credit problems or issues



Begin the selection process

• Research available, aff ordable properties in the area

• Help the client evaluate the pros and cons of selected homes

Protect the client

• Explain the homebuyer’s legal rights in the process

• Provide objective information and impartial advice

A housing counselor must be fully up to date on sources of available housing in the area, aware of state and local regulations aff ecting housing, and knowledgeable about aff ordable fi nancing options.

Seminar and workshop settings may cover general interest topics, but one-on-one counseling is the most eff ective way to assist buyers. For example, basic concepts of fi nancing can be learned in a group, but ultimately the particular fi nancing needs for any borrower should be discussed privately. Assessing a given household’s wants and needs requires individual time and thought.

Individual housing counselors may obtain professional certifi cation through organizations such as the Association for Financial Counseling and Planning Education (AFCPE), the National Association of Housing Counselors and Agencies (NAHCA), and NeighborWorks® America. Buyers working with a certifi ed housing counselor can be confi dent that that counselor has been trained and tested. Not all housing counselors that your clients may encounter have been certifi ed.

A homebuyer working with a counselor from an organization that has adopted the National Industry Standards we discussed earlier can expect that the counselor and organization are dedicated to following core operating standards.

Where to Find a Housing Counselor

For years, nonprofi t housing organizations have off ered homebuyer education classes and individual counseling. In many cases, this education was targeted at low- to moderate-income families but it is certainly not restricted to these households.

Tip for REALTORS®

Suggest your local association

sponsor a program on how real

estate professionals and nonprofi t

housing organizations can work

together.

3.6



Th ere are several excellent resources for locating a housing counselor in your market area. Th e Department of Housing and Urban Development (HUD) maintains a directory of HUD-approved counseling agencies at www.hud.gov/offi ces/hsg/sfh/hcc/hcs.cfm or call 1-800-569-4287. Only agencies that meet HUD criteria appear in the directory. Many of the counselors at these HUD-approved counseling agencies receive their training through the NeighborWorks® Training Institutes (NTIs). NTI courses are also open to those in the real estate fi eld. For more information on course off erings, schedules, and locations, visit the NeighborWorks® website at www.nw.org.

Many housing counseling agencies off er their services for free; others charge a small fee. In some cases, the agency refunds the fee if the participant completes the course. Agencies that also off er post-purchase counseling services may off er a refund of the initial fee to homebuyers who attend a post-purchase program. In most cases, the participant is asked, at a minimum, to cover the cost of obtaining his or her credit report.

Some counseling agencies are a part of a specifi c community development program and limit attendance to participants in that program.

In addition to the HUD website, other channels to fi nding a housing counseling agency that you may wish to explore include:

1. Lender partners, who are often familiar with local housing agencies. You ultimately want to build a four-way partnership that joins you and your client with a housing counselor and a lender.

2. Local government websites. You will usually fi nd housing counseling agencies listed under housing and community development or housing fi nance agencies.

3. Local offi ces or affi liates of national housing organizations.

• Th e NeighborWorks® America website lists homebuyer education and counseling organizations throughout thecountry; www.nw.org.



• HomeFree-USA provides pre- and post-purchase counseling, default/foreclosure counseling, public awareness, and education through its homeownership centers and network of affi liates; www.homefreeusa.org.

• Neighborhood Assistance Corporation of America (NACA) provides pre- and post-purchase counseling, property renovation assistance, advocacy, and foreclosure prevention through its more than 30 offi ces across the country; www.naca.com.

• Th e National Foundation for Credit Counseling provides credit counseling through its network of more than 100 member agencies with offi ces in 900 communities across the country; www.nfcc.org.

Working with a Nonprofi t Housing Agency

Once you have located several housing counseling agencies in your market area, contact the executive director of each one. Identify yourself, explain what you want to do, and ask to attend some of their homebuyer education programs. When you fi nd a program you like and an organization you are comfortable with, volunteer to help. You may be invited to speak at one of the general homebuyer seminars to explain how a real estate agent or broker works with clients. Here are some ways you could contribute:

• Show sample listings and pictures of properties for sale within specifi c price ranges.

• Explain a sample sales contract and the required disclosure forms.

• Teach how Buyer Agency can protect clients’ interests.

Be sure to show courtesy when invited to speak to a counseling seminar. Always make your remarks concise, stay within the scheduled window of time, and off er to stay after the session to answer individual questions.

3.8



Consider your presentation a community service, not a prospecting opportunity—ask to leave your cards rather than simply handing them out before you begin your remarks. Th e director of the program is also checking you out: A good partnership works favorably for both sides.

Components of Homebuyer Education Programs

Although the exact components and the manner of presentation of either a pre-purchase or post-purchase homeownership education program will vary from one organization or agency to another, all should address several key topics. As illustrated by this sample agenda for a pre-purchase program, those topics range from readiness to buy to maintenance of the property once bought. Pre-purchase topics are often covered in a group presentation, with corresponding topics addressed as needed in one-on-one counseling sessions.

Sample Pre-Purchase Homebuyer Education Class

Group Presentation Topic Individual Counseling Approach

Readiness to Buy a Home Use a quiz or decision tree to help

client determine whether ready

to buy or rent

Preparing a Budget and

Spending Plan

Assist client to write out actual

budget for this household

Understanding Credit Review individual credit report;

work out solutions for credit issues

Obtaining a Mortgage Discuss loan products available to this

borrower, calculating payment and all

other costs

Shopping for a Home Discuss actual needs and wants for

this household

Protecting Your Investment Do a checklist of maintenance issues

for actual property being bought



Topics for a post-purchase program are not as sharply defi ned but typically include the following:

Sample Post-Purchase Homeowner Education Program

Session 1: Home Maintenance and Repair

Session 2: Community Involvement

Session 3: Avoiding Predatory Lenders

Session 4: Foreclosure Prevention

Session 5: Refi nancing Options

Session 6: Reverse Mortgages

Foreclosure Prevention

Some agencies have counselors who specialize in foreclosure intervention and loss mitigation. Th is type of counseling requires knowledge of the entire mortgage lending process and an innate ability to work with people experiencing a great deal of stress. Homeowners fi nd themselves in danger of foreclosure for many reasons; starting with a bad loan is only one. Th e most common reasons for mortgage delinquency are beyond the homeowner’s control: divorce, death of a family member, job loss, underemployment, major medical bills, and disability. Some reasons can be brought under control, such as excessive spending or poor money management skills.

Regardless of the cause, some homeowners fi nd themselves in trouble and may turn to you for advice. If a client facing foreclosure contacts you, refer him or her to a certifi ed housing counselor.

Your client may also want to contact the HOPE NOW Alliance at 1-888-995-HOPE. Th e HOPE NOW Alliance off ers free counseling to those in danger of foreclosure and has been able to help many people work out a solution with the lender. Th e options open to the borrower in trouble may include:

3.10



Work-out Options

• Forbearance. Th e lender agrees to waive payments for several months after approving a specifi ed repayment plan for the missed payments.

• Modifi cation. Th e loan is restructured at a lower rate or extended term.

See www.hopenow.com for a full description of various Homeowner Options along with Key Benefi ts of each option.

Disposition/Sale Options

• Short sale. Th e lender agrees to allow property to be sold for a price that does not net enough proceeds for the lender to receive the full amount of the balance due.

• Deed in lieu of foreclosure. Th e lender accepts deed (title) to property to discharge the debt. (Th is has become exceedingly rare, and it still adversely aff ects the borrower’s credit.)

Th e sooner the client makes contact with the lender, the better. A borrower who falls behind on more than three mortgage payments has little hope of catching up.

Th e Treasury's Administrative website for Servicers of the Home Aff ordable Modifi cation Program includes webinars, presentations, and industry resources for Trusted Advisors like real estate professionals - https://www.hmpadmin.com. Two additional websites that provide helpful information for clients are www.makinghomeaff ordable.gov and www.fi nancialstability.gov. Both of these sites describe new programs that are being developed to assist distressed homeowners throughout the country.

NAR's Short Sale and Foreclosure Resource course provides additional information and resources to help homeowners in these situations. Course details can be found in the Sources and Resources section of this manual.

Tip for REALTORS®

Keep up with all the latest news

by signing up at

www.Realtor.org/RealtorMag.



Finding Down Payment and Closing Cost Assistance

Municipalities and nonprofi t organizations throughout the country off er assistance with down payment and closing costs. Th e types of assistance include grants, forgivable loans, shared appreciation, matched savings funds, in-kind contributions, and subsidies for purchase within a certain area or for employees of a particular company. Some assistance programs are based on a set amount of contributed funds, which are depleted within a fi scal year.Given the variety of programs and the diff erent terms and conditions placed on individual borrowers, you need to stay in touch with both your state and local housing agencies plus the nonprofi t organizations in your community. To obtain updates on the assistance available:

1. Talk to your lender partner. Lenders are often familiar with programs available in the community.

2. Talk to your housing counselor partner. Many housing counseling agencies off er down payment assistance. Each agency will set the criteria for approval and the terms under which the assistance is to be repaid or forgiven.

3. Visit your local government website. Your local housing agency may off er down payment or other forms of homebuyer’s assistance.

4. Check federal and state government resources. Th ese include:

• U.S. Department of Housing and Urban Development (HUD) at www.hud.gov. Th rough the American Dream Down-Payment Initiative, HUD allows state and local government to use HOME funds for eligible low- and moderate-income families.

• HUD Housing Choice Voucher Program (Section 8). Most of us know Section 8 as income-based rental assistance, but HUD also off ers Section 8 as mortgage assistance through its Homeownership Voucher Program. To qualify, participants must demonstrate credit-readiness by undergoing housing counseling. Not all public housing authorities (PHAs) off er homeownership vouchers; for a list of those that do, visit www.hud.gov/offi ces/pih/programs/hcv/homeownership/index.cfm.

3.12



Families with Section 8 rental vouchers may also be able to save for a down payment using HUD’s Family Self-Suffi ciency Program (FSS). Not all PHAs participate in the program. Check with yours to fi nd out if it does.

• State and Local Housing Finance Agencies. Check the National Council of State Housing Agencies (NCSHA) website at www.ncsha.org for information on state programs. Local governments may also off er assistance through their housing fi nance agency.

• Federal Reserve Board. Some of the 12 Federal Reserve Banks operate down payment assistance programs. Locate the link to the Federal Reserve Bank for your region at www.federalreserve.gov.

• Federal Home Loan Banks. Th e 12 Federal Home Loan Banks provide loans to banks, which then extend long-term fi nancing for housing and economic development. A number of the Home Loan Banks have down payment assistance programs. Visit www.fhlbanks.com to see what may be available in your region.

5. Check with your local and state REALTOR® Board or Association.



MAKING IT WORK

1. Contact at least one nonprofi t housing agency in your market area; make an appointment with a housing counselor to discuss the programs the agency off ers.

2. Contact two or three housing counselors at an offi ce convenient for you. Take them to lunch individually for an informal “interview” to see if they share your enthusiasm for helping clients fi nd suitable housing and would make a good partner.

3. Contact your local public housing agency to discuss how the HUD Housing Choice Voucher program is administered in your local area.

4. Contact your state Housing Finance Agency to fi nd out which of its programs might be helpful to your clients.

Select one of the Making It Work suggestions above and include it on your Final Exercise Action Plan at the end of Module 5.

You and the LenderModule 4




You and the Lender


1. Describe qualifying guidelines for conventional, Federal Housing Administration, Veterans Administration, and U.S. Department of Agriculture Rural Housing Service loans.

2. Compare conventional and government loans.

3. Help buyer clients determine the loan amount they may obtain.

4. Explain the basics of credit scoring.

Your Role in Mortgage Lending

Your next important partner is the lender. You may already have this type of partnership with one or more lenders that you know and trust. Both you and the lender can expand the scope of your partnership by participating in homebuyer seminars at the nonprofi t organization where the housing counselor works. Th e lender can also keep both you and the housing counselor up to date on loan products. (Loan product guidelines and processes continue to change.)

Buying rather than renting aff ordable housing depends on the ability to obtain an aff ordable loan. Although some buyers like to seek fi nancing on their own, many look to their real estate professional or housing counselor for a recommended lender. You need to be able to describe the mortgage lending process and help borrowers understand their price range for purchasing a home. You also need to encourage buyer clients to meet with lenders, shop rates, and choose a lender so that thebuyer client may become preapproved. If your client has attended a homebuyer education class, he or she should have a basic idea of how the mortgage loan process works. It remains the responsibility of the licensee, however, to guide the client through the entire homebuying process. Th is requires you to stay current on interest rates and available fi nancing programs and be able to explain the steps in the loan process: application, processing, underwriting, and closing.

Slide 1

Slide 2

Slide 3

4.2



To do that, you need to form relationships with several lenders that have

date on rates and loan products, and you can bring the lender clients who nal

selection of a lender, you should prepare him or her to ask the right

client to avoid even the appearance of steering, which violates RESPA, the Real Estate Settlement Procedures Act.)

made by unscrupulous or predatory lenders. You can help the client see what's too good to be true and better understand the scale of the responsibilities of homeownership.

As a real estate professional, you can take these steps toward helping a

1. Determine how much a lender allows the prospective purchaser to borrow using standard guidelines.

2. Help the client determine whether personal circumstances allow him or her to make payments on a mortgage at the high end of the determined price range. What the lender says your client is preapproved for may be too high for your client.

3. If your client is considering an ARM (adjustable-rate mortgage), have the lender prepare a "worst case" scenario showing the maximum the payment may increase over at least

ve years.

4.

5. Review documents such as Good Faith Estimate, Truth-in-Lending Form, and HUD-1 Settlement Statement.

Unfortunately, the changes in the entire mortgage lending industry have come so fast and frequent that it is impossible to keep the printed class materials current.

Check with local lenders prior to the class and make use of the NAR website for the latest information.

Obviously, the lender is the ultimate authority on both qualifying and applying for a specifi c loan but the more informed the real estate professional is, the better the service

ered to the client.

Check to see if the loan carries a prepayment penalty. If so,be sure that the client understands the consequences of paying o� the mortgage ahead of schedule. Also encourage the client to check with the lender onother loans available that do not have such apenalty. �is information appears on the Truth in Lending Act(TILA) disclosure a�rmation form.



What is Credit and How Does It Aff ect Aff ordability?

A lender has four distinct areas of concern:

• Capital: How much money does the borrower have for down payment and closing costs?

• Capacity: How much income does the borrower have to make mortgage payments?

• Credit: Does the borrower have a history of making timely pay-ments on debts?

• Collateral: Is the value of the property adequate to support the amount of the mortgage loan?

Capital and capacity are both easily determined. Th e borrower shows bank statements or other proof of assets to establish capital, and pay stubs and income tax returns refl ect employment and other sources of income. A licensed appraiser can establish the collateral value of the property. But these three areas become almost insignifi cant if the borrower’s credit history shows a pattern of missing payments. Lenders do not want to become property owners—they just want their loans repaid.

Loan approval usually requires a credit profi le from all three of the major credit reporting agencies:

Equifax: www.equifax.com, 1-800-685-1111

Trans Union: www.transunion.com, 1-800-888-4213

Experian: www.experian.com, 1-800-682-7654

Clients need to know the condition of their credit before they start shopping for a home. Th ey may need to repair their credit before they can even qualify for a loan, or they may want to repair their credit to qualify for a loan with a lower interest rate.

Slide 4

It usually comes as a surprise that

the most important area of concern

is credit. High income doctors are

often found to be the worst about

paying their bills on time. Living in a

million-dollar property is also no

guarantee that the loan will be

repaid.

Some participants may mention a 5th

C, Character. You may get comments

from the group that lenders also

consider a borrower’s Character

when making loan decisions.

4.4



What Goes Into a Credit Score?

Credit scores are based on the statistical probability of a borrower defaulting on a loan. A higher score means a better chance of being approved for a loan and results in a lower interest rate.

A credit score is based on fi ve factors: payment history, current total debt, length of credit history, types of credit in use, and requests for new credit.

Additional details about what goes into a credit score can be found in the Sources and Resources section at the end of this course including www.myfi co.com.

How to Obtain a Credit Report

Everyone is entitled to one free credit report a year from each of the three credit reporting agencies. Congress has established an outlet for consumers to obtain their credit reports from all three credit reporting agencies at www.annualcreditreport.com; 1-877-322-8228; or by mail at:

Annual Credit Report Request Service P.O. Box 105281 Atlanta, GA 30348-5281

Although the report is free, there is a nominal charge to receive a credit score. One credit report and FICO score can be also be ordered from www.myfi co.com for a small fee; all three FICO scores and credit reports may be purchased for slightly more.

Anyone denied credit is entitled to a free copy of his or her credit report upon request.

How to Improve a Credit Score

Obviously, paying all bills on time is the best way to improve one’s credit rating. Your lender or housing counselor can provide additional suggestions specifi c to your client's situation. Some of those suggestions are at websites in the Source and Resource section of this course.

Slide 6

Ask for who has obtained their own

credit report recently.

• Were there any surprises? Errors? Needed corrections?

Multiple inquiries made within a

30-60 day period for applicants for

a mortgage or car loan should only

count as 1 inquiry.

Slide 5

FICO has been designated as the

offi cial name of the Fair Isaac Co.



Be sure to warn clients who are trying to improve their credit histories about certain scams that off er to “clean up credit.” Th e scammer challenges all the adverse items on a person’s credit report, leading the credit reporting agencies to remove them from their fi les temporarily. Th en the scammer prints a new report showing all the negative items deleted and charge the consumer several hundred dollars. Unfortunately, the items reappear after the 30-day response period concludes, if the debt still exists.

Apart from these steps, only time can improve a person’s credit score. Here’s how long items remain on a credit record:

General negative information 7 yearsBankruptcy 7 to 10 yearsJudgment 7 years Unpaid tax liens ForeverStudent loan 7 yearsInquiries 2 years Foreclosure 7 to 10 yearsShort Sale 2 to 3 years

Deed-in-Lieu 7 to 10 years

Th e timing starts from the date of the last activity on the account, not necessarily from the date of the original reported debt.

How to Establish Nontraditional Credit History

Not all potential borrowers have established a credit rating. New immigrants, for example, are not likely to have the usual credit track record in this country. Lenders are encouraged to accept other records that track responsible payment, including:

• Rent payments• Utility payments (gas, electric, water)• Insurance fees (car, house, life, medical)• Telephone, Internet, or wireless charges• Child care or support payments• Secured credit cards

These numbers are based on

information obtained from FICO.

See page 4.18 for lender guidelines

regarding waiting periods for

foreclosure and bankruptcy.

This may be a new area for many in

the class. With the more stringent

qualifying guidelines currently in

place, this is probably more diffi cult

than ever to establish.

4.6



their own Non-Traditional Mortgage Credit Report (NTMCR) or use a credit reporting agency to document the borrower’s payment history.

e

available.

Because clients in the underserved market (minorities, low- to moderate-

real estate professional needs to work closely with a local lender who is aware of the ways to establish a credit history. In some cases, these potential purchasers need more extensive credit counseling.

What are Prequalifying and Preapproval?

Prequalifying—With a credit score in hand and access to online mortgage calculators, a real estate professional can help a client determine the size of the loan a lender is likely to approve.

Stress that prequalifying is primarily to establish a guideline for the right price range for the buyer to consider. Consideration of actual household income and needs will still take priority over what the “prequalifi ed” fi gure comes out to be.

In a time when lender standards have become so tight, it is even more important to submit a preapproval letter from a lender along with a

er.

Slide 7

Preapproval—A �rm commitment from a lender to issue a mortgage fora certain amount—is even more helpful and strongly encouraged. Sellers often accept a slightly lower o�er if they feel con�dent that the buyer is able to obtain �nancing. �e lender provides a preapproval letter only after thoroughly reviewing the borrower’s credit history and verifying all existing conditions such as income, assets, and liabilities.

�e letter from the lender states the amount the borrower is quali�ed toborrow under a speci�c program as of a certain date. It is usuallylimited to a short period. Assuming the borrower has no signi�cant creditissues, the lender follows standard guidelines to determine the amount tolend. Having a good grasp of the following terms helps you explain themto your buyer clients.

Gross monthly income (GMI) is the total monthly income, beforetaxes, of all household members who are responsible for the loan.

“front end” or housing ratio is the percentage of GMI allowedfor total housing expenses, including principal, interest, property taxes,hazard insurance, mortgage insurance, a second mortgage payment (ifapplicable), and condominium or homeowner association fees. To

4.7 airs


nancial

amount needed for taxes and insurance (TI) is then divided by the gross monthly income to calculate the housing ratio. For example:

PITI payment $1,200GMI $4,000 = 30%

above, a housing ratio of 30 percent would be acceptable to Fannie Mae and Freddie Mac (which require a housing ratio of no more than 33 percent) or the FHA (31 percent).

e debt-to-income or “back end” ratio is the percentage of GMI allowed for total monthly debt, including all housing expenses. (Debts that will be resolved in less than 10 months may or may not be counted.) For example:

PITI payment ($1,200) plus other debt ($800) $2,000GMI $4,000 = 50%

erent lenders also have their own debt-to-income ratio guidelines. A debt-to-income ratio of 50 percent would not be acceptable to Fannie Mae and Freddie Mac (which require a debt-to-income ratio of no more than 38 percent), or the FHA (43 percent).

When the amount of debt seriously lowers the dollars available for a house payment, the borrower needs to work with a housing counselor to

Small group exercise:

Have each small group use a calculator and the Calculating Price Range Worksheet to determine the

ordable price range for Margaret and Andy. Compare the results when the small groups are fi nished.

The form on the following page, or something similar, has been used for years by many real estateprofessionals. If each step is followed carefully, the right answer will result.

In Step 7, the 25% is used here as an average; in some areas more (or possibly less) should be allowed.

In the western states, where settlement is done “in escrow,” the funds collected to pay taxes and insurance premiums are referred to as an “impound account.”

Slide 8

Slides 9-12

Calculating Price Range Worksheet with answers.

determines the amount that he or she can spend on housing and other debt using a case scenario.

4.8



EXERCISE

Calculating Price Range Worksheet for Prospective Buyers

1. Divide annual income by 12 for Gross Monthly Income (GMI) 1. ________

2. Multiply the GMI (Line 1) by housing ratio of _______ 2. ________

3. Multiply the GMI (Line 1) by total debt ratio of _______ 3. ________

4. Add all long-term debts 4. ________ within 10 months are not always counted.)

5. Subtract Line 4 from Line 3 5. ________

6. Enter the lesser of Line 2 or Line 5 6. ________ LINE 6 IS THE ALLOWABLE AMOUNT FOR TOTAL MONTHLY PITI (principal, interest, tax and insurance, plus any mortgage insurance, condo and/or homeowner association fees)

7. Multiply Line 6 by 25% (average; may vary by area) for taxes and insurance escrow account 7. ________

8. Subtract Line 7 from Line 6 8. ________ LINE 8 IS THE AMOUNT AVAILABLE FOR PI (principal & interest) PAYMENT

9. Calculate the loan amount using Line 8. 9. ________ (Use your fi nancial calculator or a website mortgage calculator)

10. Enter the cash available for the down payment 10. ________ (not including additional funds for closing)

11. Add Line 9 to Line 10 11. ________ LINE 11 IS THE APPROXIMATE AFFORDABLE PRICE RANGE

See Sources and Resources section at the end of this course for a Calculating Price Range Worksheet to copy and use with your clients.

Margaret and Andy make $48,000 a year. They have a monthly car payment of $325, credit card payment of $150, and student loan payment of $75. Using Fannie/Freddie’s housing ratio of 33 percent and debt-to-income ratio of 38 percent, and an interest rate of 4.5 percent for a 30-year loan,

ord. They have $5,000 to use for a down payment. They have an additional $3,000 available to pay closing costs.



What Problems Do Self-Employed Borrowers Face?

Self-employed borrowers face a specifi c problem in qualifying for loans. It is very diffi cult to verify their income. Tax returns provide the only evidence of income. Because many self-employed people have income that fl uctuates from year to year, the lender may want to see several years of returns to establish a pattern of income. Th is is especially true for those with commission income such as real estate professionals or stockbrokers.

Lenders may also require audited profi t and loss statements for at least the past two years and an income and expense balance sheet for at least the current year.

Where Can Clients Find an Aff ordable Loan?

Mortgage loans are available from either a mortgage banker or mortgage broker. Mortgage bankers originate loans from their own funds and continue to service the loan. A mortgage broker originates the loan on behalf of any one of several lenders and is paid for bringing in the borrower. Th e lender fees may vary in either case.

Th e primary market lenders are commercial banks, savings associations, credit unions, housing fi nancing agencies, and private nonprofi t organizations.

Some aff ordable loan products now require the borrower to complete a homeownership education program. Check with your lender partners for a sample of the loan products currently available or visit www.fanniemae.com or www.freddiemac.com. Loan products are subject to frequent changes in response to market conditions.

You may also want to check out Fannie Mae’s free Home Counselor Online at www.efanniemae.com. Th is tool helps counselors and other housing professionals prepare consumers to apply for home loans. CounselorMax, originally a Freddie Mac Web-based counseling tool, is now administered by NeighborWorks® America. For more information, see www.counselormax.com or www.nw.org.

Most of this information is familiar

to the participants and can be

covered very quickly.

Slide 13

For self-employed borrowers, lenders

typically start with the tax return's

adjusted gross income and work

from there (i.e. what deductions

were taken that can be "added"

back into the adjusted gross income

amount, like perhaps depreciation?)

The lender will usually do that

calculation for 2 years of tax returns

then divide to come up with a

monthly income amount to use.

4.10



Types of Mortgage Loans

Although the 30-year, fi xed-rate loan is probably the safest and most secure loan for homebuyers, you should be familiar with other loan products. Much of the fi nancial crisis that started in 2005 has been blamed on the prevalence of overly liberal qualifying standards for interest-only programs, along with high-risk hybrid and pay-option adjustable-rate mortgages (ARMs). Other loan types include step- or graduated-rate payments and buydowns. Details on these loan types can be found in the Glossary in the Sources and Resources section of this course.

Lenders that originate loans may also have an "overlay". Th is means that a lender may have additional or stricter underwriting guidelines. If your buyer is not approved through one lender, determine the specifi c reason for denying the loan, then contact another lender.

Conventional Loan Products

If a mortgage loan is neither insured nor guaranteed by the government, it is classifi ed as "conventional." Conventional loans are either "conforming" or "nonconforming." Conforming means that the loan meets Fannie Mae/Freddie Mac qualifying guidelines and may be purchased by them on the secondary market. All other loans are nonconforming.

What Government-Subsidized Loans Are Available?

Loans that are insured, guaranteed, or funded by federal government agencies include those from the FHA, the Veterans Administration (VA), and the U.S. Department of Agriculture (USDA). Individual states also have insured housing fi nancing programs.

Federal Housing Administration (FHA) Loans

Th e original FHA loans were the fi rst truly aff ordable product off ered to the public. FHA loans required a lower down payment, off ered more liberal qualifying guidelines, and established standards for the appraised value of the property. Complete information on all aspects of FHA fi nancing is available at www.hud.gov.

Slide 14

Slide 15

Slide 16

FHA loans have been a very small

percentage of mortgage loans for

many years but are now one of the

most popular loan product in use.

Many real estate professionals have

never had any experience with FHA

loans or need to be brought up to

speed on current FHA programs and

guidelines (which are probably

diff erent from what they may

remember).



Th e FHA 203(b) Mortgage LoanTh is mortgage loan for one- to four-unit, owner-occupied properties is the most popular FHA program. Only one such loan may be held at a time. Th e borrower must plan to occupy the property. Permanent resident aliens with an established employment history are eligible. Other guidelines are as follows:

Maximum LoanTh e FHA sets the maximum loan amount allowed based on median house prices by county or for a given Metropolitan Statistical Area (MSA). (Maximum loan limits for an area may be found at https://entp.hud.gov/idapp/html/hicostlook.cfm.)

Minimum Down PaymentTh e purchaser must provide 3.5 percent of the sales price, to be used toward either the down payment or the closing costs. Th e 3.5 percent may be the purchaser’s own funds, a gift from a family member, or a grant from a down-payment assistance program.

Qualifying RatiosTh e qualifying ratios are 31/43. Th e allowable housing ratio for an FHA loan is 31 percent of GMI; the allowable debt-to-income ratio is 43 percent. Th is relatively high allowable debt-to-income ratio makes FHA loans a good choice for fi rst-time homebuyers with reasonable income but a heavier debt load.

Compensating FactorsBoth FHA and VA mortgage lenders take into consideration “compensating factors.” Borrowers may receive loans that push them above a housing ratio of 31 percent if they have one or more of the following:

• A low amount of long-term debt• A large amount saved for a down payment• Minimal credit card debt and other debts• A favorable, long-term employment history• A proposed PITI payment equal to or only minimally higher

than current housing expenses

• A potential for future increase in income

Check maximum loan limits for the

area where the class is being taught.

The 3.5% down payment for all loans

may come as a surprise.

Remind students that even with an

FHA loan program a lender will have

its own parameters for debt to income

ratios, which may be more strict.

4.12



Seller Contribution Th e FHA allows a seller to pay up to 6 percent of the sales price toward the purchaser’s closing costs.

Mortgage Insurance Premium (MIP)As with conventional loans, the FHA requires the borrower to purchase mortgage insurance. As of April 9, 2012, an upfront premium of 1.75 percent is charged on all loans with a loan-to-value (LTV) ratio greater than 95 percent. Th e upfront MIP is usually fi nanced as part of the loan. No upfront MIP is charged on condominium mortgage loans.

In addition to the upfront MIP, the FHA requires the borrower to pay an annual mortgage insurance renewal premium. As of April 1, 2013, the monthly MIP is 1.35 percent of the loan amount per year, divided by 12.

Rehabilitation Mortgage Insurance/Section 203(k)When buying a house in need of repair or modernization, homebuyers usually have to follow a complicated and costly process. First, they obtain fi nancing to purchase the property, then they get additional fi nancing for the rehabilitation work. Finally, after completing rehabilitation, they fi nd a permanent mortgage to pay off the interim loans. Th e interim acquisition and improvement loans often have relatively high interest rates and short repayment terms.

Section 203(k) insurance enables homebuyers and homeowners to either fi nance the purchase or refi nancing of a house, including the cost of its rehabilitation, through a single mortgage or to fi nance the rehabilitation of their existing home. Th e FHA insures a single, long-term, fi xed or adjustable-rate loan that covers both the acquisition and rehabilitation of the home. A portion of the loan proceeds is used to pay the seller (or, in the case of a refi nance, to pay off the existing mortgage). Th e remaining funds are placed in an escrow account and released as rehabilitation is completed.

Both the upfront and monthly

percentages are subject to change

and should be verifi ed prior to class.

Tip for REALTORS®

Have a special program on working

with both the regular FHA 203(k)

and the Streamline (k) programs.

Be sure to have an experienced loan

offi cer do the presentation.



Th e house in question must be at least a year old. Th e cost of the rehabilitation must be at least $5,000, but the total value of the property must still fall within the FHA mortgage limit for the area. Many of the rules and restrictions that apply to Section 203(b) mortgages also apply here, but lenders may charge additional fees, such as a supplemental origination fee, fees to cover the preparation of architectural documents and review of the rehabilitation plan, and a higher appraisal fee. Section 203(k) borrowers do not pay an upfront MIP.

Th e FHA Streamline 203(k) Limited Repair Program allows homebuyers to fi nance an additional $35,000 along with their mortgage to improve or upgrade a home prior to moving in. Th is can be a very useful way for borrowers to obtain funds for needed repairs and/or improvements when purchasing a foreclosure property. Th e 203(k) can also be combined with an Energy Effi cient Mortgage (EEM).

Th e FHA Energy Effi cient Mortgage (EEM) allows lenders to add 100 percent of the cost of energy effi cient improvements to a mortgage loan up to a maximum of $8,000 (or 5 percent of the value of the home). Th e Veteran’s Administration (VA) EEM caps improvements at $3,000-$6,000. An EEM may also be available with a conventional lender that sells loans to Fannie Mae or Freddie Mac. EEMs typically require an Energy Savings Value rating. For more information see www.energystar.gov. (Th e Energy Savings Value rating is diff erent from a HERS rating which is an analysis tool.)

U.S. Department of Veterans Aff airs (VA) Loans

Th e VA off ers veterans the opportunity to purchase homes with no money down. Its loans off er liberal qualifying standards, including no limit on the amount the seller can contribute to the purchaser’s closing costs.

4.14



Eligibility Borrowers can qualify for a loan from the VA if they plan to occupy the property and can show one of the following:

• 181 days of active service prior to 1980 (90 days in wartime)

• Two years of active service between 1980 (1981 for offi cers) and August 2, 1990

• 90 days of active duty after August 2, 1990

• Six years of service in the Reserves or the National Guard

Th ose currently on active duty are eligible, depending on how long they have been in service. If they have not remarried, certain spouses of deceased service members are also eligible. To gain eligibility for a second loan, the fi rst VA loan must be paid off and the property disposed of. (Th ere is a one-time exemption of the requirement to dispose.)

EntitlementTh e VA guarantees a portion of the loan in case of default by the borrower. Th is is called the entitlement, and it is set at 25 percent of the current conforming loan limit. In 2008 the standard conforming loan was $417,000, meaning that the VA entitlement is $104,250.

Lenders consider this entitlement guarantee the equivalent of a 25 percent down payment and, therefore, issues loans of up to four times the entitlement amount with no money down. Under the VA Super Max program, qualifi ed veterans can borrow up to $1 million if they provide a down payment of 25 percent of the amount over $417,000.

Qualifying RatiosInstead of using both a housing ratio and a debt-to-income ratio, the VA considers only a debt-to-income ratio of 41 percent. In addition, the lender is required to calculate residual income (the amount left after all housing expenses plus debts are paid). Compensating factors similar to those used by the FHA may be taken into consideration.



Funding Fee Th e VA does not require mortgage insurance but does charge a funding fee. Th e fee for fi rst-time use with no money down is 2.15 percent of the loan amount. Th e funding fee is higher for a veteran using the entitlement for a second time. Reservists and National Guard applicants also pay a higher fee. Th e funding fee is waived for any veteran receiving payment for a service-related disability. Th e mortgage loan amount plus the funding fee must not exceed the maximum loan limit.

Seller ContributionIn contrast to conventional and FHA loans, a seller can pay all of a VA purchaser’s normal closing costs plus discount points and prepaid items. In addition, a seller may pay up to 4 percent of the sales price toward the funding fee or to reduce the buyer’s debt.

VA Direct Home Loans for Native AmericansCertain Native American veterans can borrow directly from the VA to purchase or construct a home on tribal trust lands. Th ese loans are generally limited to the cost of the home or $80,000, whichever is less.

For more information on these and other VA programs visit www.homeloans.va.gov.

USDA Rural Lending Products

Th e USDA Rural Housing Service (RHS) off ers various programs to aid in the development of rural America. To determine if a specifi c address is eligible, go to USDA's eligibility webpage athttp://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do.Some of those available for single-family housing are:

Section 502 Guaranteed Rural Housing Loan ProgramTh is program guarantees low- or no-down-payment loans for people wishing to purchase a home in an RHS-defi ned rural area (towns of 10,000 or fewer or communities of 20,000 or fewer). Th e program is targeted to those earning less than 115 percent of the area median income (AMI).

If there are members of the class

from rural areas, they may have some

experience with these loans.

4.16



Approved lenders under this program are:

• State housing agencies• Lenders approved by HUD, VA, Fannie Mae, and Freddie Mac

• Th e Farm Credit System

• Participants in other USDA Rural Development and/or Farm Service Agency programs

Loans are for 30 years, with no required down payment. Houses must be modest in size, design, and cost. New manufactured housing that is permanently installed may be eligible.

Rural Housing Section 502 Direct LoansDirectly funded by the government, these loans are intended for people with very low incomes (below 50 percent of AMI) who are unable to obtain credit elsewhere but have reasonable credit histories. Applicants may obtain no-money-down loans with 33-year terms to purchase or construct a dwelling. Mortgage payments are based on household adjusted income. Families must be without adequate housing but able to aff ord monthly mortgage payments up to a 29 percent housing ratio. For more details on RHS lending, visit www.rurdev.usda.gov/rhs.

State and Local Aff ordable Lending Programs

Almost all states have housing fi nance programs designed to encourage homeownership. Contact your state housing agency for information on the programs available. A complete list of state Housing Finance Agencies can be found at the National Council of State Housing Agencies’ (NCSHA) website at www.ncsha.org. Both civic and private nonprofi t housing agencies often partner with local lenders to develop special programs that meet the needs of the members of their community.

Short Sales and REO Properties

With the many REO (bank owned) properties and sellers "upside-down", your client may buy a short sale or REO property. Th is course does not address the details of working with Short Sales and REO properties. Refer to the NAR SFR (Short Sales and Foreclosure Resources) course to learn how to help sellers maneuver the complexities of the short sales as well as help buyers pursue short sale and foreclosure opportunities.



Th e chart below provides an easy reference guide to compare conforming (Fannie/Freddie) and government (FHA/VA/RHS) loans. Verify information with your lender as data may change.

Conventional(Fannie/Freddie) FHA VA USDA / RHS

Maximum loan amount

Standard: $417,000

High cost: $729,750

Varies by area up to:

Standard: $271,050

High-cost: $729,750

Four times current

entitlement of

$104,250 = $417,000

Varies according to

program

Minimum down payment

Ranges from 3–10%

depending on

program

3.5% 0% up to $417,000 Section 502: no

down payment

required

Qualifying Ratios(% of Gross Monthly Income)

Housing: 33%

Debt/Income: 38%

Housing: 31%

Debt/Income: 43%

One Ratio of 41% Section 502 Direct:

Housing: 29%

Debt/Income: 41%

Mortgage Insurance

PMI: averages .08%

of loan amount, paid

monthly

MIP: 1.75% upfront,

usually fi nanced plus

1.25% annual paid

monthly

Guaranteed by VA

Funding Fee: 2.15% of

loan amount for fi rst

time use

Guaranteed by

USDA/RHS

SellerContribution

3% with 5% down

6% with 10% down

Up to 6% for qualifi ed

closing costs

4% plus direct

discount points

Education Requirement

Required for some

programs

Required for some

programs

None

Assumability Limited With qualifying With qualifying

Both FHA and conforming loans also have set limits for two-, three-, or four-family units. Th e loan limits in Alaska, Hawaii, Guam, and the Virgin Islands are calculated at 150 percent higher. See www.hud.gov, FHA Mortgage Limits, www.fanniemae.com or www.freddiemac.com.

LOAN COMPARISON CHART(Information as of 4/1/2013)

The Loan Comparison Chart is in

the Guide.

WPenn

Text Box

Varies by area: Floor: $271,050 High cost: $625,500

WPenn

Text Box

Varies by area: Floor: $417,000 High cost: $1,094,625

WPenn

Text Box

0% depending on entitlement amount and area loan limit

WPenn

Text Box

Debt/Income: 41%

WPenn

Text Box

0%

WPenn

Text Box

Housing: 29% Debt/Income: 41%

WPenn

Text Box

MIP: 1.75% upfront, usually financed plus 1.35% annual paid monthly

WPenn

Text Box

Guaranteed by VA Funding Fee: 2.15% of loan amount for first time use of loan benefit

WPenn

Text Box

Does not restrict amount of seller concessions

WPenn

Text Box

Required for some programs

WPenn

Text Box

With qualified borrower

WPenn

Text Box


WPenn

Text Box


WPenn

Text Box

Floor: $417,000 High cost: $625,500

WPenn

Text Box

5%

WPenn

Text Box

Debt/Income: up to 45% depending on credit score

WPenn

Text Box

PMI: Varies depending on loan, paid monthly

WPenn

Text Box

3-9% depending on loan-to-value

WPenn

Text Box

(Information as of 9/2014)

4.18



Waiting Periods for Foreclosure and Bankruptcy

Prospective buyers who've experienced a foreclosure or bankruptcy can expect the following waiting periods before they can seek loan approval as reported in REALTOR® Magazine's March/April 2013 issue.

MAKING IT WORK

1. Set up a resource fi le for a local nonprofi t housing organization, including types of programs, dates for homeownership classes, and a contact person. Update the fi le at least once a month.

2. Establish your team of agent/housing counselor/lender. (Consider forming more than one team so you can recommend at least three lenders to your client.)

3. Treat the team to lunch to discuss ways to best serve your mutual clients.

4. Fill out a Worksheet using yourself as an example.

(Does not appear in the Participant Guide)Recap of Module 4

Slide 17

Slide 18

Remember to have students select

an action to include on the Action

Plan located at the end of Module 5.

Fannie Mae and Freddie Mac

Dept. of Veterans Aff airs Federal Housing Administration

Foreclosure 7 years, but the lender

will make exceptions at

3 years if extenuating

circumstances are met

such as job loss or death of

a wage earner.

Generally, not less than 2 years with

foreclosures and bankruptcies fi led

under straight liquidation and discharge

provisions. If the foreclosure was on a VA

loan, the buyer must have paid the VA for

its loss before qualifying for a new VA loan.

3 years, but the FHA may grant an

exception if the foreclosure was a

result of serious illness or death of

a wage earner and the borrower

has reestablished good credit.

Chapter

7 or 11

Bankruptcy

4 years (2 years

with extenuating

circumstances).

Same as above. Under a Chapter 7, 2 years after

the discharge with reestablished

good credit or no incurred new

credit obligations.

Chapter 13

Bankruptcy

2 years from discharge

date; 4 years from

dismissal date.

After making12 months of payments to a

court-appointed trustee and the trustee or

the bankruptcy judge approves new credit.

One (1) year current on required

payments to be considered.

You and the CommunityModule 5




You and the Community


1. Describe how workforce housing impacts local communities.

2. List ways communities can develop affordable housing.

3. Explain how land-use policy affects affordable housing.

4. Discuss the impact of “greenness” in planning communities and designing buildings.

5. Describe how transportation affects the community.

Partnerships in the Community

In addition to the four-way partnership of you, client, housing counselor, and lender, you should now expand your partnership concept to a much larger world. You create a partnership with a housing counselor and lender to provide the best service possible for a client. The partnership you form with your community has a broader reach; it requires you to look beyond one individual client, to become a small part of a much larger process to strengthen and grow your community.

As we have discussed, housing issues are local and affordability concerns vary by community. The f rst step in addressing affordable housing issues in your community is to understand the needs, challenges, and opportunities that exist. This means you need to f nd out the facts about your community.

Local governments are an excellent source of data and research. Depending on how they are organized, you may wish to contact the local planning agency, the community development department, environmental engineering off ce, or the local housing and redevelopment department or authority. Another source of information are local university and college planning, urban studies, public policy, public administration or community development departments.

5.2



Other stakeholders in the homebuying process make great partners for developing affordable housing programs and for advocating on key housing issues. Reach out to groups like the homebuilders, appraisers, home inspectors, title companies, etc. Local nonprof ts involved in housing and community development can be a good source of information and serve as excellent research and advocacy partners on local housing issues.

To promote a wide range of housing opportunities, real estate professionals need to be involved in policy decisions made by their local governments. If you live in a city your possible partners include the mayor, city council members, and the local Chamber of Commerce. In a larger municipality like a county, partners include the County Manager and members of the Board of Supervisors (or other titles for the administrative body for the county). All cities, counties and states have some type of Housing Off ce or Department.

Check your state and local government websites to identify departments/agencies you may want to work with. Off ces/agencies to consider include transportation boards, workforce development or economic development councils, housing commissions, and zoning and planning boards.

Your state and local REALTOR® Board or Association may have additional suggestions.



Strengthening Communities Through

Workforce Housing

Increasingly, communities across the country have recognized the importance of affordable housing to their economic and social well-being—enlarged tax base, increased population, improved neighborhoods, and encouragement for new business. Many workers cannot afford to live where they work and must commute long distances. In high-priced communities, many of the people who provide vital services—teachers, f ref ghters, police off cers, and laundry and restaurant workers—often cannot themselves afford to live there.

The term workforce housing is housing that is affordable to workers and close to their jobs. It is homeownership, as well as rental housing, that can be reasonably afforded by a moderate to middle income workforce and located in acceptable proximity to workforce centers. In the interactive database Paycheck to Paycheck, the Center for Housing Policy presents wage information for more than 70 occupations and home prices and rents for more than 200 metropolitan areas. See www.nhc.org/chp/p2p.

Creating housing for the workforce plays a major role in addressing the shortage of affordable housing. By forming partnerships that include employers, you, the real estate professional, can help solve the problems related to workforce housing.

How Communities Can Address Workforce Housing

Here are some examples of how communities have worked with employers to address the workforce housing shortage.

• In Florida, a state that has experienced record growth along with rapidly escalating costs of housing, the Florida Work-force Housing Network was formed as an independent, all-volunteer service. It promotes workforce housing through a wide range of resource links and open discussion.See www.f oridaworkforcehousing.net.

5.4



• The Workforce Housing Coalition of the Greater Seacoast Region of New Hampshire and Maine became one of the f rst communities to actively address this problem. The mission of this organization is to increase and diversify the supply of housing so that employers view the area as an attractive place to live and work. For more information visit www.seacoastwhc.org.

• Enterprise Community Investment, Inc., through its Workforce Housing Family of Funds, addresses the need for quality workforce housing for families earning between 80 to 120 percent of median income. See www.enterprisecommunity.com.

Business Has a Stake

The businesses that emerged during America’s industrial revolution realized that they needed to supply housing for all the workers migrating from farms into the towns and cities where factories were located. This concept of the “company town” enabled factory owners to provide shelter for employees while exerting control at the same time. Today, the urgent need for more affordable housing has involved employers once again in the provision of housing, but in a more benign fashion. Companies offer homeownership benef ts for their employees as a means of increasing recruitment and retaining skilled workers. Real estate professionals can partner with companies to offer those homeownership benef ts.

Employer-Assisted Housing (EAH) as a Solution

Employer-Assisted Housing (EAH) is def ned as an employer-provided benef t that helps employees become local residents (homeowners or renters) and provides value to the employer. Employees at all levels often f nd they can not afford to live close to their jobs or transit options. Employers need a way to provide a tangible benef t for their employees while at the same time ensuring that well-qualif ed and trained employees remain loyal to the company. Formal EAH programs have emerged as a solution.



Employer-assisted housing can come in many different forms or combination of forms, such as:

• Homebuyer and homeownership education

• One-on-one counseling

• Financial assistance

Many f rms found that the expense of helping an employee purchase a home could be partially offset by an increased rate of retention, leading to higher productivity and lower training expenses. An EAH f nancial assistance benef t from an employer to an employee may have tax implications for the employee. Employees should consult a tax advisor about their specif c situation.

EAH and the HUD HOME Program

The Department of Housing and Urban Development’s (HUD) website offers guides for implementing Employer-Assisted Housing programs using HOME funds, the largest federal block grant for affordable housing. Each guide contains a description and analysis of the program as it applies to employers, nonprof t organizations, and HOME-participating jurisdictions. Case studies discuss HOME program rules and other federal requirements that apply when HOME funds are used for EAH initiatives.Visit https://www.hudexchange.info/manage-a-program/ NAR Resources for Workforce Housing

Realtor.org has resources and information on Employer-Assisted Housing (EAH) including the NAR Field Guide to Employer-Assisted Housing, the Employer-Assisted Housing Initiative Guide, and a course that teaches real estate professionals how to effectively promote workforce housing initiatives and how to work with employers to establish employer-assisted housing benef t programs.

Visit www.Realtor.org/housingopportunity for additional resources and information on Workforce Housing including the Workforce Housing Forum Guide. Details on NAR resources can be found in the Sources and Resources section at the end of this manual.

5.6



Be an Advocate

Can you make a difference? Of course you can. Your voice can, and should, be heard. The National Association of REALTORS® is one of the strongest associations in the country. Local, state, and federal governments all recognize the inf uence that real estate professionals bring to bear when political issues are at stake. One agent/broker does not just represent one voice—every licensee has a sphere of inf uence that includes past and present clients.

As an individual real estate professional, you can advocate most effectively at the local government level. Familiarize yourself with how policy and regulation impact (and hopefully improve) affordable housing. There’s no housing issue that local governments have more authority over than land use. Funding sources are typically federal in origin, but the texture of a community is written into its general plan. Land use decisions can make a community affordable—or prevent it from being affordable.

Building Aff ordable CommunitiesCommunities, municipalities and nonprof t housing organizations throughout the country are constantly seeking new ways to increase the amount of housing available for low- and moderate income households. Shared-Equity Agreements and Community Land Trusts are two concepts that are proving to be successful.

Shared-Equity Agreements

A municipality or housing organization that can retain some of the equity which builds up over time as property values increase can then offer the same home to the next buyer at a more affordable price. New homeowners must understand that, in exchange for accelerating the jump into homeownership, they give up part of their future equity.

The following example is an easy way for agents to explain the shared-equity concept to their clients:



Your rich uncle wants to help you buy a house without making an outright gift of funds. He makes a down payment large enough to keep the loan amount low enough for you to afford the monthly payments. Then, when you sell the home, your uncle expects to share in the equity (prof t) that you have accumulated.

In this example of shared-equity homeownership, the “rich uncle” is a responsible nonprof t organization or municipality that acts as a steward to keep the home affordable even after you no longer live there. By sharing in the equity the nonprof t keeps the future price of the home low, maintains the supply of affordable housing, and discourages the driving up of home prices through land speculation.

Each type of shared-equity homeownership has a slightly different way of maintaining affordability over the long term. In every case, however, the homebuyer receives the benef ts of affordability now and an opportunity to earn some prof t if the home increases in value by the time it is sold. Shared-equity should always be considered a long-term investment. Market prices rise and fall over the years but home values generally show an appreciable increase after 8 to 10 years.

In all models of shared-equity homeownership, a legal agreement explains and protects the long-term interests of the buyer and the nonprof t or municipality. Certain restrictions are placed on the resale of the home to make sure that the equity is shared and that the home remains affordable.

The real estate professional and the housing counselor have to spend extra time explaining the concept of shared-equity homeownership along with all of the details of the particular program being made available to the client. In addition to introducing your client to the organizations that sponsor shared-equity arrangements, you may want them to meet homeowners who have purchased under similar arrangements and who can tell your client how they made the decision to participate in a shared-equity agreement.

5.8



Community Land Trusts (CLTs)

With a CLT, the trust owns the land under each home, thereby lowering costs for homebuyers. The home carries resale restrictions designed to give present homeowners a fair return on their investment while keeping housing affordable for future homebuyers. The terms and condition of CLTs vary greatly, but they all share a common goal: to preserve affordable housing for local families.

CLTs include condominium projects, townhouses, and single-family dwellings. In some cases, the CLT extends beyond housing to incorporate recreational and commercial areas. The United States currently has about 200 community land trusts.

For more information on CLTs and a state-by-state directory of current projects, see the National Community Land Trust Network website at www.cltnetwork.org.

Expanding Opportunities Through Rental Housing

In forming your community partnership, be mindful of opportunities to increase the supply of rental housing. In addition to meeting the needs of individuals like the young professional seeking easy mobility, the college graduate who wishes to remain in the area, and the senior couple looking for more comfortable living, an increase in affordable rental units also benef ts the community.

Affordable rental housing encourages population density, increases diversity, and attracts businesses to the area, all advantages for a community. Many government initiatives, particularly the Low-Income Housing Tax Credit program, encourage the construction of affordable rental housing. Real estate professionals that focus on property management may work directly with owners of affordable housing. Other real estate professionals benef t by listing or working with tenants of affordable housing, meeting their immediate need. This can frequently result in referrals and future sales.



Low-Income Housing Tax Credits (LIHTC)

This federal program—jointly administered by the Internal Revenue Service (IRS) and State Housing Finance Agencies (SHAs)—awards tax credits for the acquisition, rehabilitation, or new construction of affordable rental housing.

Most LIHTC properties rent the majority of their units to low-income tenants, with rent limited to 30 percent of the tenant’s qualifying in-come. To learn more about specif c projects, see “A Historic Approach” by Heidi Johnson-Wright in the Winter 2008 issue of On Common Ground, available at www.Realtor.org.

Aff ordable Housing and Land Usage

Land is important to affordable housing in terms of how its use is regulated, smart growth in communities, going green, and sustainability. How land is developed for transportation is another important part of a communities affordable housing.

Land Regulations and Usage

The NAR “Field Guide to Effects of Low Income Housing on Property Values” (www.Realtor.org/f eld-guides) shows that affordable housing has no long-term negative impact on the value of surrounding homes. Unfortunately, the NIMBY (Not in My Backyard) attitude still prevails in many areas.

Surveys show that NIMBY issues usually revolve around the same key factors:

1. Anxiety of present owners about what might happen to their home values.

2. Homeowners’ beliefs and misconceptions about living near people of another race or income level, with a disability, and so forth.

3. Concerns about crime.

4. Linking new housing projects to mental pictures of old subsidized housing.

5.10



The loudest voices at planning meetings are often those of residents who oppose new developments. Those in the real estate industry have the opportunity to solidify community partnerships by turning out in support of new developments that address affordable and workforce housing needs.

Principles of Smart Growth

Policies that limit the number of units that can be built per acre can adversely impact affordable housing strategies. Laws that limit the density of units per acre may limit opportunities for rental housing and condominium buildings, which are often the best sources of affordable housing. Likewise, a mandated design or size per unit can make housing purchase or rental costs higher than the largest number of prospective homeowners or tenants can afford.

On the other hand, smart planning can make communities healthier—both economically and environmentally—and more affordable. (For examples and ideas, see www.Realtor.org/smartgrowth) Each community def nes smart growth for itself, but in general the National Association of REALTORS® hopes to see all such efforts guided by f ve principles:

1. Make a commitment to housing opportunity and choice, providing a wide range of urban, suburban, and rural homes at all price levels for a diverse population.

2. Build better communities with good schools, low crime, qual-ity public services, eff cient transportation systems, ample recreation areas, open space, a strong employment base, and a viable commercial sector.

3. Protect the environment by controlling pollution and encouraging preservation of natural resources and properties of historic signif cance.

4. At the same time, respect our Constitutional rights to freely own, use, and transfer real property.

5. Implement fair and reasonable public sector f scal measures to ensure that the cost of new infrastructure is shared proportionally among those served.



Going Green

There is enormous confusion about what the term "green" means and how it applies to homeownership. Green is def ned as a way of living that involves a holistic approach to preservation and conservation of natural resources. It aims to provide a better understanding of the balance between human action and natural environmental resources and improve health and well-being. It also entails creating a better understanding of social responsibility and what effect choices made by people and business have on the environment. Buyers are demanding features that benef t their health, their budgets, and the environment and seek credible information about such features in a home.

In November 2008, NAR launched the Green designation, offered through the Green Resource Council. Green provides real estate professionals with knowledge and awareness of the green building principles applied in residences, commercial properties, developments, and communities so that they can list, market, and manage properties with green features as well as guide clients in purchasing such homes and buildings.

Two other organizations can provide comprehensive information on the green building movement. One is the U.S. Green Building Council (USGBC) at www.usgbc.org, an early advocate for sustainable practices and continues to develop programs that help builders and planners create green homes. The other is The National Association of Home Builders (NAHB) at www.nahbgreen.org which also offers helpful resources, including a Green Professional certif cation program—a two-day class aimed at all types of real estate professionals, not just builders and remodeling contractors.

The Triple Bottom Line: Sustainability Meets Aff ordability

Today’s innovations in design and building products make possible green housing that is also affordable. Just as important, the sustainability movement has gone beyond thinking about individual buildings to looking at entire communities. No matter how high a building has been rated for its design or innovation, a house in a

5.12



community where working people cannot afford to live cannot be called sustainable.

Sustainability now requires consideration of the triple bottom line: economic, environmental, and human concerns. For example, design choices can reduce the necessity to burn fossil fuels, lowering utility bills. Building materials can be sustainably harvested or manufactured, protecting the environment. Airf ow choices can benef t the health of building occupants.

The Department of Energy Weatherization Assistance Program enables low-income households to reduce their energy bills by making their homes more energy eff cient. Check with your local government and nonprof t organizations to see what energy eff ciency assistance may be available. For more information see www.eere.energy.gov.

One signif cant design change is the promotion of smaller, more eff cient homes that demonstrate creative use of living and storage space while reducing the total amount of commissioned space; this downsizing reduces the costs of both materials and energy. Another approach uses more recycled and natural materials as building components.

Greenness even affects f nancing. Energy-eff cient mortgages (EEM) and energy improvement mortgages (EIM) allow for the f nancing of energy-eff cient furnaces and other appliances. The reduction in utility bills can affect the total debt-to-income ratio. More information on home-energy rating systems and energy-eff cient mortgages is available from RESNAT (Residential Energy Services Network) at www.natresnet.org and the Alliance to Save Energy at www.ase.org/consumers.

Finally, planning considerations affect sustainability. A home located at a walkable distance from a transit stop can enable your clients to use a car less frequently. This green feature has the ability to shape a neighborhood and produce sustainable and affordable homes.



Housing and Transportation

Housing and transportation costs rose faster than income during the 2000s, increasing the burden that these costs placed on already stretched budgets. A study done by the National Housing Conference and Center for Neighborhood Technology in 2012 reports that a growing number of localities and states are considering the combined costs in their planning decisions. Also, the U.S. Department of Housing and Urban Development is preparing its own version of a housing and transportation cost index to encourage its widespread use. Many policymakers and practitioners have recognized that placing lower-cost housing in areas located far from job centers and public transit may not provide a truly "affordable' housing solution.

Getting Involved and Staying Involved

Beyond the issues we've discussed, become involved in your local community. Become an advocate for affordable housing opportunities. It's a win-win situation for you and your clients.

5.14



Making It Work

1. Find out if your local or state association has a committee that focuses on affordable housing and join.

2. Find out if your local government has an affordable housing taskforce or council and volunteer to serve on that body.

3. Request a schedule of your city or town council or planning commission meetings; mark your calendar with dates when housing issues will be discussed.

4. Determine what energy eff cient programs are available to your clients.

5. Start attending your own homeowner or condominium association meetings.

6. Complete NAR’s Green Designation or NAR's Employer-Assisted Housing (EAH) course.

7. Choose two websites listed in this module, search for informa tion use ful to a current client.

Select at least one of the above to include on your Individual Action Plan at the end of this module.

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Useful Forms and Worksheets

1. Additional FHA Loan Programs 2. National Association of REALTORS® Resources 3. Calculating Price Range Worksheet

Glossary

Resources

Sources and Resources

6.4

6.20

6.16.26.3



FHA 203(h) – DISASTER VICTIMS

This program helps victims in presidential-designated areas to reconstruct or replace damaged homes. Patterned after the 203(b) program, the 203(h) off ers a no down payment feature.

FHA/ARM 251 - ONE YEAR ARM

The FHA ARM (adjustable-rate mortgage) is attractive because it has an adjustment cap of only 1% per year and a lifetime cap of 5%. (Conventional ARMs generally have 2/6 caps.)

FHA 203(K) – REHABILITATION HOME LOAN

The FHA 203(k) Rehabilitation Loan provides funds for both the purchase of the property and the costs of its rehabilitation. The maximum loan must stay within the limits for the geographic area. The “Streamline (K)” Limited Repair Program allows homebuyers to fi nance an additional $35,000 into their mortgage to improve or upgrade before move-in.

FHA SECTION 248

Available for both new construction and purchase of an existing home, the borrower can receive 97% fi nancing. Down payment and closing costs may be covered by gift, grant or secondary fi nancing. Used to promote home ownership for Native Americans living on tribal trust or restricted lands.

ENERGY-EFFICIENT MORTGAGE (EEM)

Under this program, the borrower can include the cost of energy-effi cient improvements up to 5% of the property’s value or $4,000. The lender places the money in an escrow account to be used after closing.

GOOD NEIGHBOR NEXT DOOR PROGRAM

Expanded from the Offi ce Next Door Program, law enforcement offi cers, teachers, fi refi ghters and emergency medical technicians can purchase HUD-owned properties in revitalization areas at a 50% discount. The borrower must occupy the house for at least three years, and is encouraged to purchase in the area served. HUD requires that a “silent second” mortgage be signed to cover the discount amount. No repayment is required as long as the 3-year residency is fulfi lled.

For more information on these and other programs see www.hud.gov.

1. Additional FHA Loan Programs


NATIONAL ASSOCIATION OF REALTORS®6.2

2. National Association of REALTOR® (NAR) Resources

At Home With Diversity Course - At Home With Diversity (AHWD) is a NAR course addressing issues of diversity, fair housing, and cultural diff erences for the real estate professional. Through the AHWD course, you will learn to improve your business by adjusting to cultural diff erences among your customers and clients. See www.Realtor.org/AHWD for more information.

Diversity Initiative Grants - Diversity Initiative Grants are off ered to state and local associations for fi nacial support for programs and activites that position REALTORS® as leaders in diverse communities. These programs should support the strategies outlined in NAR's Fair Housing and Cultural Diversity Strategic Plan. See www.Realtor.org/diversity for more information and applications. The reviewplanel gives preference to activites that boost the diversity of an association's leadership.

Employer-Assisted Housing - NAR has a fi eld guide and an Employer Assisted Housing (EAH) course. The fi eld guide off ers links to articles, books, and other resources on the subject. With the EAH course, you will learn how to eff ectively promote workforce housing initiatives at the grass roots level and how to work with public and private sector employers to establish employer-assisted housing benefi t programs. See www.realtoractioncenter.org/eahguide or www.Realtor.org/fi eld-guides/fi eld-guide-to-employer-assisted-housing for more information.

Employer-Assisted Housing Initiatives Guide - This guide provides a roadmap to plan and implement an employer-assisted housing (EAH) initiative which can help working families in your community move beyond the most common homeownership hurdles enabling them to purchase, or rent, a home, often within neighborhoods located near the workplace. The guide includes examples of EAHinitiatives some associations have already implemented as well as a set of tools and resources to help you implement your initiative. See www.realtoractioncenter.com/for-associations/housing-opportunity/workforce-housing/eah-guide.html.

Field Guides - NAR has fi eld guides for many topics. See www.REALTOR.org/fi eld-guides for a list of topics.

GREEN Designation - GREEN is a NAR designation course addressing green real estate concepts, principles, practices and benefi ts from the ground up in a way that makes sense to you and your clients. See www.GREENResourceCouncil.org for more information.

Housing Opportunity Program - The NAR Housing Opportunity Program off ers information, programs, and resources to help REALTORS® and their associations to make homeownership a reality for more people. With its Housing Opportunity Program Grants, NAR awards funding to local and state REALTOR® associations that have the best ideas for making housing more aff ordable and accessible. See www.Realtor.org/housingopportunity for more information and applications.

Housing Opportunity Toolkit - Making Aff ordable Housing Work is a toolkit designed to be a reference and working companion of information on short sales, homebuyer assistance programs, preventing foreclosures, and more. Guidance on developing partnerships, organizing housing fairs, conducting consumer education events, and other initiatives. See www.realtoractioncenter.org/hoptoolkit for more information.

Housing Pulse Survey - The NAR Housing Opportunity Program conducts an annual survey to assess consumers' attitudes on aff ordable housing. For past survey and a historical analysis of nine years of trending, go to the HOP Resources section at www.REALTORactioncenter.org.

Short Sales and Foreclosure Resource Certifi cation - Short Sales and Foreclosure Resource (SFR) is a NAR course and certifi cation provides a framework to understand short sales and foreclosures. Through the SFR course, you will learn to improve your business with your customers and clients. See www.REALTORsfr.org for more information.

Smart Growth Program - NAR's Smart Growth Program helps REALTOR® associations build healthy communities that are attractive, livable, and sustainable. On Common Ground is NAR's semiannual magazine that focuses on how REALTORS® can improve their communities. The magazine, available online at www.Realtor.org/smartgrowth, serves as a comprehensive resource for anyone in the aff ordable housing fi elds.

Smart Growth Action Grants - Smart Growth Action Grants are off ered to state and local associations to support their eff orts to implement programs and activities that position REALTORS® as leaders in improving their communities by advancing smart growth development strategies through eff orts aimed at changes to local land use policies. See www.Realtor.org/smartgrowth for more information and applications.

Workforce Housing Forum Guide - The Workforce Housing Forum Guide provides a strategy for outreach and advocacy on workforce housing issues. It includes an outline of how to plan and conduct a workforce housing forum to identify and address a community's workforce housing needs. See www.realtoractioncenter.org/housingforumguide.



3. Calculating Price Range Worksheet

1. Divide annual income by 12 for Gross Monthly Income (GMI)

2. Multiply the GMI (Line 1) by housing ratio of _______

3. Multiply the GMI (Line 1) by total debt ratio of _______

4. Add all long-term debts (ones to be paid off within 10 months are not always counted)

5. Subtract Line 4 from Line 3

6. Enter the lesser of Line 2 or Line 5 LINE 6 IS THE ALLOWABLE AMOUNT FOR TOTAL MONTHLY PITI (principal, interest, tax and insurance, plus any mortgage insurance, condo and/or homeowner association fees)

7. Multiply Line 6 by 25% (average; may vary by area) to allow for taxes and insurance escrow account

8. Subtract Line 7 from Line 6 LINE 8 IS THE AMOUNT AVAILABLE FOR PI (principal & interest) PAYMENT

9. Calculate the loan amount using Line 8 (Use your fi nancial calculator or a website mortgage calculator to calculate the principal and interest payment)

10. Enter the cash available for the down payment (not including additional funds for closing costs)

11. Add Line 10 to Line 9 LINE 11 IS THE APPROXIMATE AFFORDABLE PRICE RANGE

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Glossary

Th e following glossary is a compilation of information from a broad range of public sources, with modifi cations.

A

acceleration clause: A provision in a mortgage that gives the lender the right to demand payment of the entire principal balance if a monthly payment is missed.

acceptance: An off eree's consent to enter into a contract and be bound by the terms of the off er. additional principal payment: A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.

adjustable-rate mortgage (ARM): A mortgage that permits the lender to adjust the mortgage's interest rate periodically on the basis of changes in a specifi ed index. Interest rates may move up or down, as market conditions change.

adjusted basis: Th e original cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken.

adjustment date: Th e date on which the interest rate changes for an adjustable-rate mortgage (ARM).

adjustment period: Th e period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).

administrator: A person appointed by a probate court to administer the estate of a person who died intestate.

aff ordable housing: Housing for those meeting a certain percentage of median income for a given area.

aff ordability analysis: A detailed analysis of your ability to aff ord the purchase of a home. An aff ordability analysis takes into consideration your income, liabilities and available funds, along with the type of mortgage you plan to use, the area where you want to purchase a home and the closing costs that you might expect to pay.

amenity: A feature of real property that enhances its attractiveness and increases the occupant's or user's satisfaction although the feature is not essential to the property's use. Natural amenities include a pleasant or desirable location near water, scenic views of the surrounding area, etc. Human-made amenities include swimming pools, tennis courts, community buildings and other recreational facilities.

amortization: Th e gradual repayment of a mortgage loan by installments.

amortization schedule: A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.

amortization term: Th e amount of time required to amortize the mortgage loan. Th e amortization term is expressed as a number of months. For example, for a 30-year fi xed-rate mortgage, the amortization term is 360 months.

amortize: To repay a mortgage with regular payments that cover both principal and interest.

annual mortgagor statement: A report sent to the mortgagor (the borrower) each year. Th e report shows how much was paid in taxes and interest during the year, as well as the remaining mortgage loan balance at the end of the year.

annual percentage rate (APR): Th e cost of a mortgage stated as a yearly rate; includes such items as interest, mortgage insurance and loan origination fee (points).

annuity: An amount paid yearly or at other regular intervals, often on a guaranteed dollar basis.

application: A form used to apply for a mortgage loan and to record pertinent information concerning a prospective mortgagor and the proposed security. Lenders use the information on the loan application to evaluate whether or not they can give the loan, and if so, the amount of money they can lend.

appraisal: A written analysis of the estimated value of a property prepared by a qualifi ed appraiser. Contrast with home inspection.

appraised value: An opinion of a property's fair market value, based on an appraiser's knowledge, experience and analysis of the property.

appraiser: A person qualifi ed by education, training and experience to estimate the value of real property and personal property.

appreciation: An increase in the value of a property due to changes in market conditions or other causes. Th e opposite of depreciation.

assessed value: Th e valuation placed on property by a public tax assessor for purposes of taxation.

assessment: Th e process of placing a value on property for the strict purpose of taxation. May also refer to a levy against property for a special purpose, such as a sewer assessment.

assessment rolls: Th e public record of taxable property.

assessor: A public offi cial who establishes the value of a property for taxation purposes.

asset: Anything of monetary value that is owned by a person. Assets include real property, personal property and enforceable claims against others (including bank accounts, stocks, mutual funds and so on).

assignment: Th e transfer of a mortgage from one person to another.

assumable mortgage: A mortgage that can be taken over ("assumed") by the buyer when a home is sold.



assumption: Th e transfer of the seller's existing mortgage to the buyer. See assumable mortgage.

assumption clause: A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. Th e loan does not need to be paid in full by the original borrower upon sale or transfer of the property.

assumption fee: Th e fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.

attorney-in-fact: One who holds a power of attorney from another to execute documents on behalf of the grantor of the power.

B

balance sheet: A fi nancial statement that shows assets, liabilities and net worth as of a specifi c date.

balloon mortgage: A mortgage that has level monthly payments that will amortize it over a stated term but that provides for a lump sum payment to be due at the end of an earlier specifi ed term. Th e principal and interest on the loan are amortized over a longer period than the actual term of the mortgage.

balloon payment: Th e fi nal lump sum payment that is made at the maturity date of a balloon mortgage.

bankrupt: A person, fi rm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.

bankruptcy: A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.

before-tax income: Income before taxes are deducted.

benefi ciary: Th e person designated to receive the income from a trust, estate or a deed of trust.

bequeath: To transfer personal property through a will.

betterment: An improvement that increases property value as distinguished from repairs or replacements that simply maintain value.

bill of sale: A written document that transfers title to personal property.

binder: A preliminary agreement, secured by the payment of an ear-nest money deposit, under which a buyer off ers to purchase real estate.

biweekly payment mortgage: A mortgage that requires payments to reduce the debt every two weeks (instead of the standard monthly payment schedule). Th e 26 (or possibly 27) biweekly payments are each equal to one-half of the monthly payment that would be required if the loan were a standard 30-year fi xed-rate mortgage, and they are usually drafted from the borrower's bank account. Th e result for the borrower is a substantial savings in interest.

blanket insurance policy: A single policy that covers more than one piece of property (or more than one person).

blanket mortgage: Th e mortgage that is secured by a cooperative project, as opposed to the share loans on individual units within the project.

bona fi de: In good faith, without fraud.

bond: An interest-bearing certifi cate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust.

breach: A violation of any legal obligation.

bridge loan: A form of second trust that is collateralized by the borrower's present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold. Also known as "swing loan."

broker: A person who, for a commission or a fee, brings parties together and assists in negotiating contracts between them.

budget: A detailed plan of income and expenses expected over a certain period of time. A budget can provide guidelines for managing future investments and expenses.

budget category: A category of income or expense data that you can use in a budget. You can also defi ne your own budget categories and add them to some or all of the budgets you create. "Rent" is an example of an expense category. "Salary" is a typical income category.

building code: Local regulations that control design, construction and materials used in construction. Building codes are based on safety and health standards.

buydown account: An account in which funds are held so that they can be applied as part of the monthly mortgage payment as each payment comes due during the period that an interest rate buydown plan is in eff ect.

buydown mortgage: A temporary buydown is a mortgage on which an initial lump sum payment is made by any party to reduce a borrower's monthly payments during the fi rst few years of a mortgage. A permanent buydown reduces the interest rate over the entire life of a mortgage.



C

call option: A provision in the mortgage that gives the mortgagee (the lender) the right to call the mortgage due and payable at the end of a specifi ed period for whatever reason.

cap: A provision of an adjustable-rate mortgage (ARM) that limits how much the interest rate or mortgage payments may increase or decrease. See lifetime payment cap, lifetime rate cap, periodic payment cap and periodic rate cap.

capital: (1) Money used to create income, either as an investment in a business or an income property. (2) Th e money or property comprising the wealth owned or used by a person or business enterprise. (3) Th e accumulated wealth of a person or business. (4) Th e net worth of a business represented by the amount by which its assets exceed liabilities.

capital expenditure: Th e cost of an improvement made to extend the useful life of a property or to add to its value.

capital gains tax: Tax charged on profi t made from sale of investments.

capital improvement: Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

cash-out refi nance: A refi nance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing fi rst mortgage, closing costs, points and the amount required to satisfy any outstanding subordinate mortgage liens. In other words, a refi nance transaction in which the borrower receives additional cash that can be used for any purpose.

CDBG (Community Development Block Grants): Community Development Block Grants are provided to communities from the U.S. Dept. Of Housing and Urban Development (HUD) for a range of eligible activities, setting their own priorities as long as they meet basic program requirements. Larger cities and counties receive formula funding; small communities compete for funding which is adminis-tered by states.

certifi cate of deposit: A document written by a bank or other fi nancial institution that is evidence of a deposit, with the issuer's promise to return the deposit plus earnings at a specifi ed interest rate within a specifi ed time period. See adjustable rate mortgage (ARM).

certifi cate of deposit index: An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weekly average of secondary market interest rates on six-month negotiable certifi cates of deposit. See adjustable-rate mortgage.

Certifi cate of Eligibility: A document issued by the federal government certifying a veteran's eligibility for a Department of Veter-ans Aff airs (VA) mortgage.

Certifi cate of Reasonable Value (CRV): A document issued by the Department of Veterans Aff airs (VA) that establishes the maximum value and loan amount for a VA mortgage.

certifi cate of title: A statement provided by an abstract company, title company, or attorney stating that the title to real estate is legally held by the current owner.

chain of title: Th e history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

change frequency: Th e frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

chattel: Another name for personal property.

clear title: A title that is free of liens or legal questions as to ownership of the property.

closing: A meeting at which a sale of a property is fi nalized by the buyer signing the mortgage documents and paying closing costs. Also called "settlement." At this meeting, ownership of the property is transferred from the seller to the buyer.

closing cost item: A fee or amount that a home buyer must pay at closing for a single service, tax, or product. Closing costs are made up of individual closing cost items such as origination fees and attorney's fees. Many closing cost items are included as numbered items on the HUD-1 statement.

closing costs: Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Closing costs normally include an origination fee, an attorney's fee, taxes, an amount placed in escrow and charges for obtaining title insurance and a survey. Closing costs percentage will vary according to the area of the country; lenders or REALTORS® often provide estimates of closing costs to prospective homebuyers.

closing statement: See HUD-1 statement.

cloud on title: Any conditions revealed by a title search that adversely aff ect the title to real estate. Usually clouds on title cannot be removed except by a quitclaim deed, release, or court action.

coinsurance: A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specifi ed percentage of the actual value of the property insured at the time of the loss.



coinsurance clause: A provision in a hazard insurance policy that states the amount of coverage that must be maintained -- as a percentage of the total value of the property -- for the insured to collect the full amount of a loss.

collateral: An asset (such as a car or a home) that guarantees the repayment of a loan. Th e borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

collection: Th e eff orts used to bring a delinquent mortgage current and to fi le the necessary notices to proceed with foreclosure when necessary.

co-maker: A person who signs a promissory note along with the borrower. A co-maker's signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment. See endorser.

commission: Th e fee charged by a broker or agent for negotiating a real estate or loan transaction. A commission is generally a percentage of the price of the property or loan.

commitment letter: A formal off er by a lender stating the terms under which it agrees to lend money to a home buyer. Also known as a "loan commitment."

common area assessments: Levies against individual unit owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowners' association costs and expenses and to repair, replace, maintain, improve or operate the common areas of the project.

common areas: Th ose portions of a building, land and amenities owned (or managed) by a planned unit development (PUD) or condominium project's homeowners' association (or a cooperative project's cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

common law: An unwritten body of law based on general custom in England and used to an extent in the United States.

community land trust mortgage: An alternative fi nancing option that enables low- and moderate-income home buyers to purchase housing that has been improved by a nonprofi t community land trust and to lease the land on which the property stands.

community lending program: A variety of community lending models, often income-based, under which a lender, mortgage insurer, or investor off ers fl exible underwriting guidelines to increase a low- or moderate-income family's buying power and to decrease the total amount of cash needed to purchase a home. Sponsors who participate in these programs often are required to attend pre¬purchase home-buyer education sessions.

community property: In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.

Community Reinvestment Act: Enacted by Congress in 1977 requiring lenders to provide full credit service in the communities serviced by bank. It states that commercial banks and thrifts have a continuing and affi rmative obligation to help meet the credit needs of the local communities which they serve. It requires regulatory agencies to evaluate these institutions' record of meeting the credit needs of their designated communities, consistent with the safe and sound operation of the institution.

comparables: An abbreviation for "comparable properties"; used for comparative purposes in the appraisal process. Comparables are properties like the property under consideration; they have reasonably the same size, location and amenities and have recently been sold. Comparables help the appraiser determine the approximate fair market value of the subject property.

compensating factors: Positive features that may off set negatives, in-creasing possibility that the borrower’s application for loan be approved.

compound interest: Interest paid on the original principal balance and on the accrued and unpaid interest.

condemnation: Th e determination that a building is not fi t for use or is dangerous and must be destroyed; the taking of private property for a public purpose through an exercise of the right of eminent domain.

condominium: A real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project and sometimes the exclusive use of certain limited common areas.

condominium conversion: Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

condominium fee: Fee charged by the condominium association to cover costs of operation of the condominium, maintenance of the common areas, and fi nancial reserves.

condominium hotel: A condominium project that has rental or registration desks, short-term occupancy, food and telephone services and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned.

conforming loan: Mortgage loan meeting the Fannie Mae/Freddie Mac guidelines.

construction loan: A short-term, interim loan for fi nancing the cost of construction. Th e lender makes payments to the builder at periodic intervals as the work progresses.



Consumer Credit Counseling Service: credit counseling service available in most cities at minimal cost.

contingency: A condition that must be met before a contract is legally binding. For example, home purchasers often include a contingency that specifi es that the contract is not binding until the purchaser obtains a satisfactory home inspection report from a qualifi ed home inspector.

contract: An oral or written agreement to do or not to do a certain thing.

conventional mortgage: A mortgage that is not insured or guaranteed by the federal government. Contrast with government mortgage.

convertibility clause: A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fi xed-rate mortgage at specifi ed timeframes after loan origination.

convertible ARM: An adjustable-rate mortgage (ARM) that can be converted to a fi xed-rate mortgage under specifi ed conditions.

cooperative (co-op): A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specifi c apartment or unit.

cooperative corporation: A business trust entity that holds title to a cooperative project and grants occupancy rights to particular apartments or units to shareholders through proprietary leases or similar arrangements.

cooperative mortgages: Mortgages related to a cooperative project. Th is usually refers to the multifamily mortgage covering the entire project but occasionally describes the share loans on the individual units.

cooperative project: A residential or mixed-use building wherein a corporation or trust holds title to the property and sells shares of stock representing the value of a single apartment unit to individuals who, in turn, receive a proprietary lease as evidence of title.

corporate relocation: Arrangements under which an employer moves an employee to another area as part of the employer's normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its offi ce capacity.

cost of funds index (COFI): An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings and advances of the 11th District members of the Federal Home Loan Bank of San Francisco. See adjustable-rate mortgage (ARM).

covenant: A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

credit: An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.

credit history: A record of an individual's open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

credit life insurance: A type of insurance often bought by mortgagors because it will pay off the mortgage debt if the mortgagor dies while the policy is in force,

creditor: A person to whom money is owed.

credit report: A report of an individual's credit history prepared by a credit bureau and used by a lender in determining a loan applicant's creditworthiness.

credit reporting agency (or bureau): An organization that prepares reports that are used by lenders to determine a potential borrower's credit history. Th e agency obtains data for these reports from a credit repository as well as from other sources.

credit repository: An organization that gathers, records, updates and stores fi nancial and public records information about the payment records of individuals who are being considered for credit.

credit score: Numerical score showing risk of default on loan

D

debt: An amount owed to another. See installment loan and revolving liability.

deed: Th e legal document conveying title to a property.

deed-in-lieu: A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a voluntary conveyance.

deed of trust: Th e document used in some states instead of a mortgage; title is conveyed to a trustee.

default: Failure to make mortgage payments on a timely basis or to comply with other requirements of a mortgage.

delinquency: Failure to make mortgage payments when mortgage payments are due.

deposit: A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan. See earnest money deposit.

depreciation: A decline in the value of property; the opposite of appreciation.

Desktop Underwriter®: Fannie Mae’s automated underwriting program.

discount points: See point.

dower: Th e rights of a widow in the property of her husband at his death.



down payment: Th e part of the purchase price of a property that the buyer pays in cash and does not fi nance with a mortgage.

due-on-sale provision: A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage.

due-on-transfer provision: Th is terminology is usually used for second mortgages. See due-on-sale provision.

E

earnest money deposit: A deposit made by the potential home buyer to show that he or she is serious about buying the house.

easement: A right of way giving persons other than the owner access to or over a property.

ECOA: Equal Credit Opportunity Act; prohibits discrimination in lending.

eff ective age: An appraiser's estimate of the physical condition of a building. Th e actual age of a building may be shorter or longer than its eff ective age.

eff ective gross income: Normal annual income including overtime that is regular or guaranteed. Th e income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is signifi cant and stable.

eminent domain: Th e right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.

employer-assisted housing: A special housing initiative that off ers several diff erent ways for employers to work with local lenders to develop plans to assist their employees in purchasing homes.

encroachment: An improvement that intrudes illegally on another's property.

encumbrance: Anything that aff ects or limits the fee simple title to a property, such as mortgages, leases, easements or restrictions.

endorser: A person who signs ownership interest over to another party. Contrast with co-maker.

Entitlement: Amount guaranteed on a VA loan.

Equal Credit Opportunity Act (ECOA): A federal law that requires lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

equity: A homeowner's fi nancial interest in a property. Equity is the diff erence between the fair market value of the property and the amount still owed on its mortgage.

escrow: An item of value, money, or documents deposited with a third party to be delivered upon the fulfi llment of a condition. For example, the deposit by a borrower with the lender of funds to pay taxes and insurance premiums when they become due, or the deposit of funds or documents with an attorney or escrow agent to be disbursed upon the closing of a sale of real estate.

escrow account: Th e account in which a mortgage servicer holds the borrower's escrow payments prior to paying property expenses.

escrow analysis: Th e periodic examination of escrow accounts to determine if current monthly deposits will provide suffi cient funds to pay taxes, insurance and other bills when due.

escrow collections: Funds collected by the servicer and set aside in an escrow account to pay the borrower's property taxes, mortgage insurance and hazard insurance.: escrow disbursements: Th e use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance and other property expenses as they become due.

escrow payment: Th e portion of a mortgagor's monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments and other items as they become due. Known as "impounds" or "reserves" in some states.

estate: Th e ownership interest of an individual in real property. Th e sum total of all the real property and personal property owned by an individual at time of death.

eviction: Th e lawful expulsion of an occupant from real property.

examination of title: Th e report on the title of a property from the public records or an abstract of the title.

exclusive listing: A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specifi ed time, but reserving the owner's right to sell the property alone without the payment of a commission.

executor: A person named in a will to administer an estate. Th e court will appoint an administrator if no executor is named. "Executrix" is the feminine form.



F

Fair Credit Reporting Act: A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on one's credit record.

Fair Housing Act: Federal law that prohibits discrimination in the sale or rental of dwellings on the basis of race, color, religion, national origin, sex, handicap, or familial status.

fair market value: Th e highest price that a buyer, willing but not compelled to buy, would pay and the lowest a seller, willing but not compelled to sell, would accept.

FAIR Plan: “last-hope” homeowner insurance provided by states where homeowner insurance no longer available.

Fannie Mae: A New York Stock Exchange company, chartered by the federal government to provide a secondary housing fi nance market and operating as a non-bank fi nancial services company. Th e company purchases mortgage loans from primary lenders; sells securities on open market

FDIC: Federal Deposit Insurance Corporation; insures accounts up to $100,000 for depositors in both commercial banks and savings associations.

“Fed”: popular name for Federal Reserve; responsible for keeping U.S. economy balanced.

Federal Home Loan Bank: FHLBanks provide secondary market for conventional loans; special programs for aff ordable housing projects.

Federal Housing Administration (FHA): An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. Th e FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.

fee simple: Unrestricted ownership interest in real property.Th e greatest possible interest a person can have in real estate.

fee simple estate: An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.

FHA coinsured mortgage: A mortgage (under FHA Section 244) for which the Federal Housing Administration (FHA) and the originating lender share the risk of loss in the event of the mortgagor's default.

FHA mortgage: A mortgage that is insured by the Federal Housing Administration (FHA). Also known as a government mortgage.

FHASecure: FHA refi nancing program even for those with mortgages currently in default. Program was sunsetted in December 2008.

FICO: Fair, Isaac Company; provider of scoring system for credit scoring.

fi nder's fee: A fee or commission paid to a mortgage broker for fi nding a mortgage loan for a prospective borrower.

fi rm commitment: A lender's agreement to make a loan to a specifi c borrower on a specifi c property.

fi rst mortgage: A mortgage that is the primary or original lien against a property.

fi xed installment: Th e monthly payment due on a mortgage loan. Th e fi xed installment includes payment of both principal and interest.

fi xed-rate mortgage (FRM): A mortgage in which the interest rate does not change during the entire term of the loan.

fi xture: Personal property that becomes real property when attached in a permanent manner to real estate.

fl ood insurance: Insurance that compensates for physical property damage resulting from fl ooding. It is required for properties located in federally designated fl ood areas.

foreclosure: Th e legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. Th is usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

forfeiture: Th e loss of money, property, rights or privileges due to a breach of legal obligation.

forgivable loan: A loan with no repayment obligation if program requirements are met for a specifi ed period of time. Usually provided by a public or other non-profi t entity.

Freddie Mac: A New York Stock Exchange company, chartered by the federal government to provide a secondary housing fi nance market and operating as a non-bank fi nancial services company. Th e company purchases mortgage loans from primary market lender; sells securities on open market.

401(k)/403(b): An employer-sponsored investment plan that al-lows individuals to set aside tax-deferred income for retirement or emergency purposes. 401(k) plans are provided by employers that are private corporations. 403(b) plans are provided by employers that are not for profi t organizations.



401(k)/403(b) loan: Some administrators of 401(k)/403(b) plans allow for loans against the monies you have accumulated in these plans -- monies must be repaid to avoid serious penalty charges.

fully amortized ARM: An adjustable-rate mortgage (ARM) with a monthly payment that is suffi cient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

funding fee: Percentage of loan amount charged on VA loans to provide a pool of funds for administrative costs; higher for subsequent use by veterans and for Reservists and National Guard.

G

Good Faith Estimate Statement: Statement required by RESPA to ensure disclosure of all closing costs; must be given to borrowers within three days of application.

government loans: Mortgages insured (FHA) or guaranteed (VA) by government; also state-sponsored mortgages.

government mortgage: A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Aff airs (VA) or the Rural Housing Service (RHS). Contrast with conventional mortgage.

Government National Mortgage Association: A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on Sept. 1, 1968, GNMA assumed responsibility for the special assistance loan program formerly administered by Fannie Mae. Popularly known as Ginnie Mae.

Government-sponsored enterprise (GSE): A federally chartered private corporation that enhances the fl ow of capital into a use favored by public policy. In mortgage fi nance, Fannie Mae and Freddie Mac are both GSE's (see defi nitions above). In return for certain preferences, they are limited working with loans below an amount (the "conforming limit") adjusted each year based on house prices.

grantee: Th e person to whom an interest in real property is conveyed.

grantor: Th e person conveying an interest in real property.

“Green”: Approach to building that is both energy-effi cient and benefi cial for the environment.

gross monthly income (GMI): Annual income before tax and other payroll deductions divided by 12.

ground rent: Th e amount of money that is paid for the use of land when title to a property is held as a leasehold estate rather than as a fee simple estate.

group home: A single-family residential structure designed or adapted for occupancy by unrelated developmentally disabled persons. Th e structure provides long-term housing and support services that are residential in nature.

growing-equity mortgage (GEM): A fi xed-rate mortgage that provides scheduled payment increases over an established period of time, with the increased amount of the monthly payment applied directly toward reducing the remaining balance of the mortgage.

guarantee mortgage: A mortgage that is guaranteed by a third party.

guaranteed loan: Also known as a government mortgage.

H

hazard insurance: Insurance coverage that compensates for physical damage to a property from fi re, wind, vandalism, or other hazards.

home equity conversion mortgage (HECM): A special type of mortgage that enables older home owners to convert the equity they have in their homes into cash, using a variety of payment options to address their specifi c fi nancial needs. Unlike traditional home equity loans, a borrower does not qualify on the basis of income but on the value of his or her home. In addition, the loan does not have to be repaid until the borrower no longer occupies the property. Sometimes called a reverse mortgage.

home equity line of credit: A mortgage loan, which is usually in a subordinate position, which allows the borrower to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that, represents a specifi ed percentage of the borrower's equity in a property.

home inspection: A thorough inspection that evaluates the structural and mechanical condition of a property. A satisfactory home inspection is often included as a contingency by the purchaser. Contrast with appraisal.

homeowners' association: A nonprofi t association that manages the common areas of a planned unit development (PUD) or condominium project. In a condominium project, it has no ownership interest in the common elements. In a PUD project, it holds title to the common elements.

Homeowners’ Association (HOA) fee: Paid monthly for maintenance and care of common facilities in a planned unit development.

homeowner's insurance: An insurance policy that combines personal liability insurance and hazard insurance coverage for a dwelling and its contents.

homeowner's warranty (HOW): A type of insurance that covers repairs to specifi ed parts of a house for a specifi c period of time. It is provided by the builder or property seller as a condition of the sale.



Housing Choice Voucher Program (formerly called Section 8): provides rental assistance for very low-income families; also has special provision for use with mortgage payment.

housing counselor: provides impartial education and advice for potential homeowners.

housing expense ratio: Th e percentage of gross monthly income that goes toward paying housing expenses.

(HUD) Department of Housing & Urban Development: Cabinet-level Federal agency responsible for Federal Housing Administration (FHA); provides assistance for housing for the development of the nation’s communities; administers housing and home fi nance program, public housing; also oversees Fannie Mae and Freddie Mac operations.

HUD median income: Median family income for a particular county or metropolitan statistical area (MSA), as estimated by the Department of Housing and Urban Development (HUD).

HUD-1 statement: A document that provides an itemized listing of the funds that are payable at closing. Items that appear on the statement include real estate commissions, loan fees, points and initial escrow amounts. Each item on the statement is represented by a separate number within a standardized numbering system. Th e totals at the bottom of the HUD-1 statement defi ne the seller's net proceeds and the buyer's net payment at closing. Th e blank form for the state-ment is published by the Department of Housing and Urban Development (HUD). Th e HUD-1 statement is also known as the "closing statement" or "settlement sheet."

hybrid ARM: ARM that adjusts after short initial period causing high escalation of payment; blamed for much of the subprime crash.

income property: Real estate developed or improved to produce income.

index: A number used to compute the interest rate for an adjustable-rate mortgage (ARM). Th e index is generally a published number or percentage, such as the average interest rate or yield on Treasury bills. A margin is added to the index to determine the interest rate that will be charged on the ARM. Th is interest rate is subject to any caps that are associated with the mortgage.

Individual Development Account: program through which an outside entity provides funds to match the borrower’s savings.

in-fi le credit report: An objective account, normally computer-generated, of credit and legal information obtained from a credit repository.

infl ation: An increase in the amount of money or credit available in relation to the amount of goods or services available, which causes an increase in the general price level of goods and services. Over time, infl ation reduces the purchasing power of a dollar, making it worth less.

initial interest rate: Th e original interest rate of the mortgage at the time of closing. Th is rate changes for an adjustable-rate mortgage (ARM). Sometimes known as "start rate" or "teaser."

installment: Th e regular periodic payment that a borrower agrees to make to a lender.

installment loan: Borrowed money that is repaid in equal payments, known as installments. A furniture loan is often paid for as an installment loan.

insurable title: A property title that a title insurance company agrees to insure against defects and disputes.

insurance: A contract that provides compensation for specifi c losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium.

insurance binder: A document that states that insurance is temporarily in eff ect. Because the coverage will expire by a specifi ed date, a permanent policy must be obtained before the expiration date.

insured mortgage: A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount.

interest: Th e fee charged for borrowing money.

interest accrual rate: Th e percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments, although it is not used for an adjustable-rate mortgage (ARM) with payment change limitations.

interest-only loan: loan in which payments are made only on the interest for a set number of years, then reset to include principal and interest.

interest rate: Th e rate of interest in eff ect for the monthly payment due.

interest rate buydown plan: An arrangement wherein the property seller (or any other party) deposits money to an account so that it can be released each month to reduce the mortgagor's monthly payments during the early years of a mortgage. During the specifi ed period, the mortgagor's eff ective interest rate is "bought down" below the actual interest rate.

interest rate ceiling: For an adjustable-rate mortgage (ARM), the maximum interest rate, as specifi ed in the mortgage note.

interest rate fl oor: For an adjustable-rate mortgage (ARM), the minimum interest rate, as specifi ed in the mortgage note.

investment property: A property that is not occupied by the owner.



IRA (Individual Retirement Account): A retirement account that allows individuals to make tax-deferred contributions to a personal retirement fund. Individuals can place IRA funds in bank accounts or in other forms of investment such as stocks, bonds or mutual funds.

J

joint tenancy: A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.

judgment: A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor's real property as collateral for the judgment's creditor.

judgment lien: A lien on the property of a debtor resulting from the decree of a court.

judicial foreclosure: A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.

jumbo loan: A loan that exceeds the GSE's (Fannie Mae and Freddie Mac) mortgage amount limits. Also called a "nonconforming loan".

L

late charge: Th e penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.

lease: A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specifi ed period of time and rent.

leasehold estate: A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.

lease-purchase mortgage loan: An alternative fi nancing option that allows low- and moderate-income home buyers to lease a home from a nonprofi t organization with an option to buy. Each month's rent payment consists of principal, interest, taxes and insurance (PITI) payments on the fi rst mortgage plus an extra amount that is earmarked for deposit to a savings account in which money for a downpayment will accumulate.

lease-purchase: Contractual purchase agreement which includes a lease agreement for a set period of time; delayed settlement with possible rent credit.

legal description: A property description, recognized by law, which is suffi cient to locate and identify the property without oral testimony.

liabilities: A person's fi nancial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.

liability insurance: Insurance coverage that off ers protection against claims alleging that a property owner's negligence or inappropriate action resulted in bodily injury or property damage to another party.

LIBOR Index: London InterBank Off ered Rates; used for ARM index.

lien: A legal claim against a property that must be paid off when the property is sold.

lifetime payment cap: For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage. See cap.

lifetime rate cap: For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease over the life of the loan. See cap, interest rate ceiling and interest rate fl oor.

Limited-Equity Cooperative: individual purchases shares in corporation; retains long-term lease on land.

line of credit: An agreement by a commercial bank or other fi nancial institution to extend credit up to a certain amount for a certain time to a specifi ed borrower. See home equity line of credit.

liquid asset: A cash asset or an asset that is easily converted into cash.

loan: A sum of borrowed money (principal) that is generally repaid with interest.

loan commitment: See commitment letter.

loan offi cer: Person who takes the borrower’s application and initiates mortgage loan.

loan origination: Th e process by which a mortgage lender brings into existence a mortgage secured by real property.

loan-to-value (LTV) percentage: Th e relationship between the principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property. For example, a $100,000 home with an $80,000 mortgage has a LTV percentage of 80 percent.

lock-in: A written agreement in which the lender guarantees a specifi ed interest rate if a mortgage goes to closing within a set period of time. Th e lock-in also usually specifi es the number of points to be paid at closing.

lock-in period: Th e time period during which the lender has guaranteed an interest rate to a borrower. See lock-in.

low/doc or no/doc loan: Mortgage loan requiring little or no documentation from borrower.



LIHTC (low income housing tax credit): A congressionally created tax credit (Internal Revenue Code Section 42) available to investors in low income housing designed to encourage investment that helps fi nance construction and rehabilitation of housing for low income renters.

M

margin: For an adjustable-rate mortgage (ARM), the amount that is added to the index to establish the interest rate on each adjustment date, subject to any limitations on the interest rate change.

manufactured housing: transportable factory-built home built on permanent chassis.

margin: Th e amount added to index to determine note rate on ARM.

master association: A homeowners' association in a large condo-minium or planned unit development (PUD) project that is made up of representatives from associations covering specifi c areas within the project. In eff ect, it is a "second-level" association that handles matters aff ecting the entire development, while the "fi rst-level" associations handle matters aff ecting their particular portions of the project.

maturity: Th e date on which the principal balance of a loan, bond or other fi nancial instrument becomes due and payable.

maximum fi nancing: A mortgage amount that is within 5 percent of the highest loan-to-value (LTV) percentage allowed for a specifi c product. Th us, maximum fi nancing on a fi xed-rate mortgage would be 90 percent or higher, because 95 percent is the maximum allowable LTV percentage for that product.

merged credit report: A credit report that contains information from three credit repositories. When the report is created, the information is compared for duplicate entries. Any duplicates are combined to provide a summary of your credit.

modifi cation: Th e act of changing any of the terms of the mortgage.

modular home: factory-built and delivered to property in sections to be placed on permanent foundation.

money market account: A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account.

money market fund: A mutual fund that allows individuals to participate in managed investments in short-term debt securities, such as certifi cates of deposit and Treasury bills.

monthly fi xed installment: Th at portion of the total monthly payment that is applied toward principal and interest. When a mortgage negatively amortizes, the monthly fi xed installment does not include any amount for principal reduction.

monthly payment mortgage: A mortgage that requires payments to reduce the debt once a month.

mortgage: A legal document that pledges a property to the lender as security for payment of a debt.

mortgage-backed securities: Income-producing securities based on mortgage loan packages.

mortgage banker: A company that originates mortgages exclusively for resale in the secondary mortgage market.

mortgage broker: An individual or company that brings Sponsors and lenders together for the purpose of loan origination. Mortgage brokers typically require a fee or a commission for their services.

mortgagee: Th e lender in a mortgage agreement.

Mortgage Forgiveness Debt Relief Act of 2007: limited income tax liability for amount written off on mortgage loan foreclosure extended through 2010.

mortgage insurance: A contract that insures the lender against loss caused by a mortgagor's default on a government mortgage or conventional mortgage. Mortgage insurance can be issued by a private company or by a government agency such as the Federal Housing Administration (FHA). Depending on the type of mortgage insurance, the insurance may cover a percentage of or virtually the entire mortgage loan. See private mortgage insurance.

mortgage insurance premium (MIP): Th e amount paid by a mortgagor for mortgage insurance, either to a government agency such as the Federal Housing Administration (FHA) or to a private mortgage insurance (MI) company.

mortgage life insurance: A type of term life insurance often bought by mortgagors. Th e amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfi ed by insurance proceeds.

mortgagor: Th e borrower in a mortgage agreement.

multidwelling units: Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

multifamily mortgage: A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex.



N

National Low Income Housing Coalition (HLIHC): policy advocacy organization working for aff ordable housing.

negative amortization: A gradual increase in mortgage debt that occurs when the monthly payment is not large enough to cover the entire principal and interest due. Th e amount of the shortfall is added to the remaining balance to create "negative" amortization.

net cash fl ow: Th e income that remains for an investment property after the monthly operating income is reduced by the monthly hous-ing expense, which includes principal, interest, taxes and insurance (PITI) for the mortgage, homeowners' association dues, leasehold payments and subordinate fi nancing payments.

net worth: Th e value of all of a person's assets, including cash, minus all liabilities.

no cash-out refi nance: A refi nance transaction in which the new mortgage amount is limited to the sum of the remaining balance of the existing fi rst mortgage, closing costs (including prepaid items), points, the amount required to satisfy any mortgage liens that are more than one year old (if the borrower chooses to satisfy them) and other funds for the borrower's use (as long as the amount does not exceed 1 percent of the principal amount of the new mortgage).

nonconforming loan: Loan that does not follow Fannie Mae/Freddie Mac conforming guidelines.

nonjudicial foreclosure: Does not require court action; used with deed of trust.

nonliquid asset: An asset that cannot easily be converted into cash.

Non-traditional credit history: Factors used to evaluate the creditworthiness of borrowers without traditional credit history and credit score; requires 12-month history from four sources.

note: A legal document that obligates a borrower to repay a mortgage loan at a stated interest rate during a specifi ed period of time.

note rate: Th e interest rate stated on a mortgage note.

notice of default: A formal written notice to a borrower that a default has occurred and that legal action may be taken.

O

original principal balance: Th e total amount of principal owed on a mortgage before any payments are made.

Option Payment ARM: adjustable rate mortgage which allows the borrower to choose from several options for payment. May lead to negative amortization.

origination fee: A fee paid to a lender for processing a loan application. Th e origination fee is stated in the form of points. One point is 1 percent of the mortgage amount.

owner fi nancing: A property purchase transaction in which the property seller provides all or part of the fi nancing.

P

partial entitlement: Remainder after veteran has used entitlement once; may be used for subsequent VA loan.

partial payment: A payment that is not suffi cient to cover the scheduled monthly payment on a mortgage loan.

payment change date: Th e date when a new monthly payment amount takes eff ect on an adjustable-rate mortgage (ARM) or a graduated-payment adjustable-rate mortgage (GPARM). Generally, the payment change date occurs in the month immediately after the adjustment date.

periodic payment cap: For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease during any one adjustment period.

periodic rate cap: For an adjustable-rate mortgage (ARM), a limit on the amount that the interest rate can increase or decrease during any one adjustment period, regardless of how high or low the index might be.

personal property: Any property that is not real property.

PITI: See principal, interest, taxes and insurance (PITI) below.

PITI reserves: A cash amount that a borrower must have on hand after making a down payment and paying all closing costs for the purchase of a home. Th e principal, interest, taxes and insurance (PITI) reserves must equal the amount that the borrower would have to pay for PITI for a predefi ned number of months.

planned unit development: See PUD below.

point: A one-time charge by the lender for originating a loan. A point is 1 percent of the amount of the mortgage.

portfolio lender: Lender that retains loan in its own portfolio rather than immediately selling it to secondary market.

power of attorney: A legal document that authorizes another person to act on one's behalf. A power of attorney can grant complete authority or can be limited to certain acts and/or certain periods of time.



pre-approval: Approval letter which commits a specifi c amount of mortgage funding to the Borrower prior to selecting a home to purchase.

prearranged refi nancing agreement: A formal or informal arrangement between a lender and a borrower wherein the lender agrees to off er special terms (such as a reduction in the costs) for a future refi nancing of a mortgage being originated as an inducement for the borrower to enter into the original mortgage transaction.

predatory lender: Lender who makes loans to borrowers that contain higher fees, interest rates, prepayment penalties or other terms that are unnecessary.

preforeclosure sale: A procedure in which the investor allows a mortgagor to avoid foreclosure by selling the property for less than the amount that is owed to the investor.

prepayment: Any amount paid to reduce the principal balance of a loan before the due date. Payment in full on a mortgage that may result from a sale of the property, the owner's decision to pay off the loan in full, or a foreclosure. In each case, prepayment means payment occurs before the loan has been fully amortized.

prepayment penalty: A fee that may be charged to a borrower who pays off a loan before it is due.

prime rate: Th e interest rate that banks charge to their preferred customers. Changes in the prime rate infl uence changes in other rates, including mortgage interest rates.

principal: Th e amount borrowed or remaining unpaid. Th e part of the monthly payment that reduces the remaining balance of a mortgage.

principal balance: Th e outstanding balance of principal on a mortgage. Th e principal balance does not include interest or any other charges. See remaining balance.

principal, interest, taxes and insurance (PITI): Th e four components of a monthly mortgage payment. Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage. Interest is the fee charged for borrowing money. Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and mortgage and hazard insurance.

private mortgage insurance (Ml): Mortgage insurance that is provided by a private mortgage insurance company to protect lenders against loss if a borrower defaults. Most lenders generally require MI for a loan with a loan-to-value (LTV) percentage in excess of 80 percent.

promissory note: A written promise to repay a specifi ed amount over a specifi ed period of time.

pro-qualifi cation: Th e process of determining how much money a prospective home buyer will be eligible to borrow before he or she applies for a loan.

public auction: A meeting in an announced public location to sell property to repay a mortgage that is in default.

PUD (planned unit development): A project or subdivision that includes common property that is owned and maintained by a homeowners' association for the benefi t and use of the individual PUD unit owners.

purchase and sale agreement: A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

purchase money transaction: Th e acquisition of property through the payment of money or its equivalent.

Q

qualifying ratios: Calculations that are used in determining whether a borrower can qualify for a mortgage. Th ey consist of two separate calculations: a housing expense as a percent of income ratio and total debt obligations as a percent of income ratio.

quitclaim deed: A deed that transfers without warranty whatever interest or title a grantor may have at the time the conveyance is made.

R

radon: A radioactive gas found in some homes that in suffi cient concentrations can cause health problems.

rate factor: Amount required to pay off $1,000 of debt on a mortgage loan. Used to calculate PI mortgage payment and to determine amount borrower is qualifi ed to borrow.

rate-improvement mortgage: A fi xed-rate mortgage that includes a provision that gives the borrower a one-time option to reduce the interest rate (without refi nancing) during the early years of the mortgage term.

rate lock: A commitment issued by a lender to a borrower or other mortgage originator guaranteeing a specifi ed interest rate for a specifi ed period of time. See lock-in.

real estate agent: A person licensed to negotiate and transact the sale of real estate on behalf of the property owner.

Real Estate Settlement Procedures Act (RESPA): A consumer protection law that requires lenders to give Sponsors advance notice of closing costs; requires provision of good faith estimate of all closing costs to borrower within three days of application; prohibits kickbacks for referrals of related services, and standardizes closing with use of HUD-1 form.



real property: Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals and the interest, benefi ts and inherent rights thereof.

REALTOR®: A real estate broker or an associate who holds active membership in a local real estate board that is affi liated with the NATIONAL ASSOCIATION of REALTORS®. REALTORS® are pledged to comply with the NAR Code of Ethics.

recission: Th e cancellation or annulment of a transaction or contract by the operation of a law or by mutual consent. Sponsors usually have the option to cancel a refi nance transaction within three business days after it has closed.

recorder: Th e public offi cial who keeps records of transactions that aff ect real property in the area. Sometimes known as a "Registrar of Deeds" or "County Clerk."

recording: Th e noting in the registrar's offi ce of the details of a properly executed legal document, such as a deed, a mortgage note, a satisfaction of mortgage or an extension of mortgage, thereby making it a part of the public record.

refi nance transaction: Th e process of paying off one loan with the proceeds from a new loan using the same property as security.

Regulation Z: Part of Truth-in-Lending Act requiring full disclosure of all aspects of credit fi nancing in advertising.

rehabilitation mortgage: A mortgage created to cover the costs of repairing, improving and sometimes acquiring an existing property.

remaining balance: Th e amount of principal that has not yet been repaid. See principal balance.

remaining term: Th e original amortization term minus the number of payments that have been applied.

rent loss insurance: Insurance that protects a landlord against loss of rent or rental value due to fi re or other casualty that renders the leased premises unavailable for use and as a result of which the tenant is excused from paying rent.

rent with option to buy: See lease-purchase mortgage loan.

repayment plan: An arrangement made to repay delinquent installments or advances. Lenders' formal repayment plans are called "relief provisions."

replacement reserve fund: A fund set aside for replacement of common property in a condominium, PUD, or cooperative project -- particularly that which has a short life expectancy, such as carpeting, furniture, etc.

reverse annuity mortgage (RAM): Mortgage that utilizes equity in real property to fund payments to borrower.

revolving liability: A credit arrangement, such as a credit card, that allows a customer to borrow against a preapproved line of credit when purchasing goods and services. Th e borrower is billed for the amount that is actually borrowed plus any interest due.

right of fi rst refusal: A provision in an agreement that requires the owner of a property to give another party the fi rst opportunity to purchase or lease the property before he or she off ers it for sale or lease to others.

right of ingress or egress: Th e right to enter or leave designated premises.

right of survivorship: In joint tenancy, the right of survivors to acquire the interest of a deceased joint tenant.

risk-based fi nancing: Determining interest rates and other terms on a loan based on borrower’s perceived risk of default.

Rural Housing Service (RHS): An agency within the Department of Agriculture, which operates principally under the Consolidated Farm and Rural Development Act of 1921 and Title V of the Housing Act of 1949. Th is agency provides fi nancing to farmers and other qualifi ed Sponsors buying property in rural areas who are unable to obtain loans elsewhere. Funds are borrowed from the U.S. Treasury.

S

sale-leaseback: A technique in which a seller deeds property to a buyer for a consideration, and the buyer simultaneously leases the property back to the seller.

second mortgage: A mortgage that has a lien position subordinate to the fi rst ortgage.

secondary mortgage market: Th e buying and selling of existing mortgages. Provides funds for the primary market.

secured loan: A loan that is backed by collateral.

security: Th e property that will be pledged as collateral for a loan.

seller take-back: An agreement in which the owner of a property provides fi nancing, often in combination with an assumable mortgage. See owner fi nancing.

servicer: An organization that collects principal and interest payments from Sponsors and manages Sponsors' escrow accounts. Th e servicer often services mortgages that have been purchased by an investor in the secondary mortgage market.

servicing: Th e collection of mortgage payments from Sponsors and related responsibilities of a loan servicer.

settlement: See closing.



settlement agent: Person or entity coordinating and conducting closing of loan and transfer of real property.

settlement sheet: See HUD-1 statement.

single-family properties: One- to four-unit properties including detached homes, town homes, condominiums and cooperatives.

special deposit account: An account that is established for rehabilitation mortgages to hold the funds needed for the ehabilitation work so they can be disbursed from time to time as particular portions of the work are completed.

standard payment calculation: Th e method used to determine the monthly payment required to repay the remaining balance of a mortgage in substantially equal installments over the remaining term of the mortgage at the current interest rate.

step-rate mortgage: A mortgage that allows for the interest rate to increase according to a specifi ed schedule (i.e., seven years), resulting in increased payments as well. At the end of the specifi ed period, the rate and payments will remain constant for the remainder of the loan.

subdivision: A housing development that is created by dividing a tract of land into individual lots for sale or lease.

subordinate fi nancing: Any mortgage or other lien that has a priority that is lower than that of the fi rst mortgage.

subprime lender: One who provides loans at a higher rate of interest to those with less than acceptable credit.

soft second mortgage: An alternative fi nancing option for low- and moderate-income households. An investor purchases a fi rst mortgage that has a second mortgage behind it that is subsidized and/or has concessionary terms or conditions. Th e second mortgage may be issued by a state,county, or local housing agency, foundation, or nonprofi t corporation. Payment on the second mortgage is often deferred and carries a very low interest rate (or no interest rate). Part of the debt may be forgiven incrementally for each year the buyer remains in the home.

survey: A drawing or map showing the precise legal boundaries of a property, the location of improvements, easements, rights of way, encroachments and other physical features.

sweat equity: Contribution to the construction or rehabilitation of a property in the form of labor or services rather than cash.

T

tenancy by the entirety: A type of joint tenancy of property that provides right of survivorship and is available only to a husband and wife. Contrast with tenancy in common.

tenancy in common: A type of joint tenancy in a property without right of survivorship. Contrast with tenancy by the entirety and with joint tenancy.

tenant-stockholder: Th e obligee for a cooperative share loan, who is both a stockholder in a cooperative corporation and a tenant of the unit under a proprietary lease or occupancy agreement.

Term: Designated period of time for loan.

Th ird-party origination: A process by which a lender uses another party to completely or partially originate, process, underwrite, close, fund or package the mortgages it plans to deliver to the secondary mortgage market. See mortgage broker.

Th rifts: Another name for savings associations; fi nancial institution established primarily for savings and providing home mortgage loans.

title: A legal document evidencing a person's right to or ownership of a property.

title company: A company that specializes in examining and insuring titles to real estate.

title insurance: Insurance that protects the lender (lender's policy) or the buyer (owner's policy) against loss arising from disputes over ownership of a property.

title search: A check of the title records to ensure that the seller is the legal owner of the property and that there are no liens or other claims outstanding. Defects are called “cloud on the title.”

total expense ratio: Total obligations as a percentage of gross monthly income. Th e total expense ratio includes monthly housing expenses plus other monthly debts.

trade equity: Equity that results from a property purchaser giving his or her existing property (or an asset other than real estate) as trade as all or part of the down payment for the property that is being purchased.



transfer of ownership: Any means by which the ownership of a property changes hands. Lenders consider all of the following situations to be a transfer of ownership: the purchase of a property "subject to" the mortgage, the assumption of the mortgage debt by the property purchaser and any exchange of possession of the property under a land sales contract or any other land trust device. In cases in which an inter vivo revocable trust is the borrower, lenders also consider any transfer of a benefi cial interest in the trust to be a transfer of ownership.

transfer tax: State or local tax payable when title passes from one owner to another.

Treasury index: An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It is based on the results of auctions that the U.S. Treasury holds for its Treasury bills and securities or is derived from the U.S. Treasury's daily yield curve, which is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. See adjustable-rate mortgage (ARM).

Trustee: One who holds property in trust to insure performance of an obligation; i.e., trustee on deed of trust holds title to property on behalf of benefi ciary (lender) in case of default.

Truth-in-Lending: a federal law that requires lenders to fully disclose, in writing, the terms and conditions of a mortgage, including the an-nual percentage rate (APR) and other charges.

two-step mortgage: An adjustable-rate mortgage (ARM) that has one interest rate for the fi rst fi ve or seven years of its mortgage term and a diff erent interest rate for the remainder of the amortization term.

two- to four-family property: A property that consists of a structure that provides living space (dwelling units) for two to four families, although ownership of the structure is evidenced by a single deed.

trustee: A fi duciary who holds or controls property for the benefi t of another.

U

underwriter: Grants approval or denial of loan; responsible for evalu-ating the risk of default by applicant.

underwriting: Th e process of evaluating a loan application to determine the risk involved for the lender. Underwriting involves an analysis of the borrower's creditworthiness and the quality of the property itself.

Uniform Settlement Statement (HUD-1): Summary statement required by RESPA at closing.

unsecured loan: A loan that is not backed by collateral.

V

VA mortgage: A mortgage that is guaranteed by the Department of Veterans Aff airs (VA). Also known as a government mortgage.

vested: Having the right to use a portion of a fund such as an indi-vidual retirement fund. For example, individuals who are 100 percent vested can withdraw all of the funds that are set aside for them in a retirement fund. However, taxes may be due on any funds that are actually withdrawn.

(VA) Department of Veterans Aff airs: An agency of the federal government that guarantees residential mortgages made to eligible vet-erans of the military services. Th e guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.

W

walk-through inspection: Final inspection of property taken by purchaser immediately prior to closing to determine that everything is in order.

what-if analysis: An aff ordability analysis that is based on a what-if scenario. A what-if analysis is useful if you do not have complete data or if you want to explore the eff ect of various changes to your income, liabilities, or available funds or to the qualifying ratios or down pay-ment expenses that are used in the analysis.

what-if scenario: A change in the amounts that is used as the basis of an aff ordability analysis. A what-if scenario can include changes to monthly income, debts, or down payment funds or to the qualifying ratios or down payment expenses that are used in the analysis. You can use a what-if scenario to explore diff erent ways to improve your ability to aff ord a house.

wraparound mortgage: A mortgage that includes the remaining bal-ance on an existing fi rst mortgage plus an additional amount requested by the mortgagor. Full payments on both mortgages are made to the wraparound mortgagee, who then forwards the payments on the fi rst mortgage to the fi rst mortgagee.



Client

www.factfi nder.census.gov – source of housing, economic, demographic, and geographic datawww.jchs.harvard.edu/research/state_nations_housing - The State of the Nation’s Housing Report, an annual report by the Harvard Joint Center for Housing Studies www.nhc.org/chp/p2p/ - Paycheck to Paycheck, wage information and housing aff ordability databasewww.nlihc.org/oor - downloadable report comparing wages and rents across the USwww.Realtor.org/research - portal for research and statistics collected by NAR’s research departmentcgi.money.cnn.com/tools/houseaff ord/houseaff ord.html - prequalify onlinehttp://abogo.cnt.org - transportation toolhttp://htaindex.cnt.org - transportation and housing toolwww.walkscore.com - walking tool

Housing Counseling & Education

www.hud.gov – fi nding housing counselorwww.nw.org – NeighborWorks® America, fi nd a housing counselorwww.counselormax.com - web-based counseling tool administered by NeighborWorks Americawww.homefreeusa.com – fi nd a housing counselorwww.naca.com – Neighborhood Assistance Corporation of America, fi nd a housing counselorwww.nfcc.org - National Foundation for Credit Counseling, fi nd a housing counselorwww.homeownershipstandards.com – information on the National Industry Standards for Homeownership Lenderwww.fanniemae.com – Fannie Mae corporate websitewww.efanniemae.com – Fannie Mae business websitewww.homepath.com - Fannie Mae site dealing with REOs, foreclosures, etc.www.freddiemac.com – Freddie Mac corporate websitewww.hud.gov – HUD website www.homeloans.va.gov – Veteran Administration home loan programs websitewww.rurdev.usda.gov/rhs - USDA Rural Development program websitewww.fhlbanks.com – Federal Home Loan Banks website www.federalreserve.gov – Federal Reserve Banks websitewww.ncsha.org – National Council of State Housing Agencies, trade association for State HFAs

Resources



Aff ordable Housing www.Realtor.org/housingopportunity - NAR’s housing opportunity program provides information and resources relating to aff ordable housing opportunities.www.hud.gov - lists information on aff ordable housing by state.www.huduser.org – information on aff ordable housingwww.makinghomeaff ordable.gov – information on the government refi nance and modifi cation programswww.knowledgeplex.org – information on development, fi nance, management and preservation of aff ordable housing.www.nhc.org – National Housing Conference, advocates for national policies and legislation that promote suitable housing in a safe, decent environmentwww.housingpolicy.org – data and information on housing policieswww.nlihc.org – National Low Income Housing Coalition, a policy advocacy organization dedicated to ending America's aff ordable housing crisisww.ncsha.org - National Council of State Housing Agencies, information on state housing programswww.hud.gov/renting - available rentalswww.rurdev.usda.gov/rhs - rental assistance, contact your Rural Development State Offi cewww.socialserve.com – available rentalswww.manufacturedhousing.org – the Manufactured Housing Institute website



Sources for Baseline Data on Average Mortgage Rates

www.bankrate.com lists national average mortgage rate daily and average mortgage rates and points in top 10 markets. www.freddiemac.com compiles a national average mortgage rate from a weekly market survey.www.mbaa.org publishes national mortgage rates weekly.www.myfi co.com provides instant online interest rate comparisons.

Community Initiatives

www.Realtor.org/programs/housing-opportunity-program - link to NAR’s Housing Opportunity Program www.Realtor.org/programs/smart-growth - link to NAR’s Smart Growth programwww.Realtor.org/realtormag - link to Realtor Magazine onlinewww.Realtor.org/publications/on-common-ground, “On Common Ground”www.Realtor.org/stateissues - link to NAR’s State Issues Tracker databasewww.Realtor.org/eahclass - link to NAR’s EAH Class Web pagewww.RealtorActionCenter.com/Realtors - link to NAR’s Realtor® Action Centerwww.cltnetwork.org – Community Land Trustswww.resnet.us – energy conservation www.greencommunitiesonline.org – green aff ordable housing www.USGBC.org - U.S. Green Building Councilwww.enterprisecommunity.org – aff ordable housing communitieswww.habitat.org - provides capital to build homes for families otherwise unable to purchase their own home.www.nhc.org - National Housing Conferencewww.cnt.org - Center for Neighborhood Technology



Consumer Protection

www.Realtors.org – fair housing informationwww.responsiblelending.org – general fi nancial informationwww.hud.gov – search for fair housing, predatory lendingwww.dontborrowtrouble.com – Freddie Mac predatory lending informationwww.ftc.gov/bcp/edu/pubs/consumer/credit/cre42.shtm – scam alertswww.occ.treas.gov/ftp/ADVISORY/2012-1html - Treasury Department information on scams and resources.portal.hud.gov/hudportal/HUD?src=/topics/avoiding_foreclosure – HUD page with information on avoiding foreclosure and fi nding foreclosure counselingwww.995hope.org – HOPE Hotline (888-995-HOPE) provides free counseling and information to borrowers concerned about their mortgage

Credit Reporting

www.equifax.com – credit reporting agencywww.transunion.com – credit reporting agency www.experian.com – credit reporting agency www.annualcreditreport.com – source of free credit reports www.myfi co.com – system for credit score; provides credit score, credit reports and other services.www.CreditBuilderAlliance.org - Organization that partners with lenders to provide verifi cation of non-traditional credit.



Documents

Expanding Housing Opportunities