Terminology: Housing Decisions Match the terms associated with housing decisions on the left with the descriptions of the terms on the right. Read each description carefully and type the letter of the description in the Answer column next to the correct term. These are not necessarily complete definitions, but there is only one possible answer for each term. Term Answer Description Loan-to-value ratio Points or interest points Escrow account Foreclosure A. A ratio, which lenders use to qualify a potential mortgage borrower, that compares the applicant's gross annual income with the loan's total annual principal, interest, taxes, and insurance (PITI) costs B. A special reserve account at a financial institution in which funds-such as for home insurance and property taxes-are held until they are paid to a third party C. The table that breaks down each monthly mortgage payment into its component principal and interest parts and reports the debt remaining after each payment is made throughout the life of the loan D. The ratio of the maximum loan that a lender is willing to make to purchase a property divided by the cost of the property E. The money a potential house buyer pledges to show his or her good faith when making an offer F. Clauses, when included in a real estate sales contract, that specify the conditions that must be satisfied before the contract becomes binding, such as the seller's return of the earest money if the buyer cannot obtain satisfactory financing within a specified period of time (for example, 30 days) G. The general name given to the fees a borrower pays when taking out a mortgage loan, where one point is equal to 1% of the amount borrowed Amortization schedule Assumable mortgage Private mortgage insurance H. Earnest money deposit Front-end ratio A mortgage that can be effectively transferred or sold to a second, subsequent borrowing home buyer after being created by an initial borrower and buyer; the second buyer makes a down payment equal to the first buyer's (seller's) equity and then continues to make the payments for the remaining term of the original mortgage loan An insurance policy that protects the mortgage lender from a default by its mortgage borrower and is typically required when the borrower uses a down payment that is less than 20% The term that describes the situation in which a homeowner is unable or unwilling to make the principal and interest payments on his or her mortgage, so the lender sues and by virtue of a court order can seize and sell the property Contingency clause J