Over the next several weeks, we will be producing a comprehensive term glossary to serve as a reference for everything you need to know about borrowing, mortgages, and the home-buying process. This post is Part 2 of 3, and it includes all terms from D to L.
This is a loan qualifying ratio used by lenders to determine if a borrower qualifies for a loan. The debt (-to-income) ratio is calculated by taking the borrower’s monthly debts, including house payments, credit cards and personal loans, and dividing it by the monthly income.
A written document by which title to real property is transferred from one owner to another. The deed should contain an accurate description of the property being conveyed, should be signed and witnessed according to the laws of the State where the property is located, and should be delivered to the buyer at closing.
A deed given by a mortgagor (homeowner) to the mortgagee (lender) to satisfy a debt and avoid foreclosure. Also called a “voluntary conveyance.” This avoids the foreclosure process, however it may still be considered a negative mark on your credit and affect your credit scores.
Deed of Trust
A security instrument (document describing the rights and duties of the lender and borrower) used in real estate transactions in many states. The parties to a deed of trust are: trustee (third party), trustor (borrower), beneficiary (lender).
A clause in a deed that limits the use of land. Example: A deed might require that a road cannot be built on the land.
Failure to meet legal obligations in a contract, such as the failure to make the monthly mortgage payment.
Any recorded instrument that would prevent a grantor/seller from giving a clear title.
Example: The seller has a contractor lien on the property that was filed when he/she failed to pay the contractor for the kitchen remodel. The seller may obtain clear title by paying the contractor and removing the lien.
Unpaid interest added to the loan balance. This is common in a negative amortized or option arm loan program. The minimum payment is less than the interest charges. The interest that is not paid is added to the balance.
Personal claim against the debtor when the sale of foreclosed property does not yield sufficient proceeds to pay off the mortgages, accrued interest, legal fees, etc.
Failure to make payments on time. A Notice of Default and foreclosure process usually takes place after you are delinquent for more than a few months.
When related to the appraisal of property, depreciation is the decrease in value from any cause. When related to taxation, “book depreciation” is a steady decrease (calculated using mathematical formulas or schedules) in the owner’s tax basis.
Department of Veterans Affairs (VA)
An independent governmental agency which guarantees long-term, low- or no-money-down mortgages to eligible veterans.
Fees paid to a lender to reduce the interest rate.
Documentary Tax Stamps
Stamps affixed to a deed showing the amount of transfer tax.
The rights of a widow or child to part of a deceased husband’s or father’s property.
The amount paid for the purchase of a property in addition to the mortgage, but not including any closing costs.
Example: John buys a house for $100,000 and obtains a loan for $80,000. His downpayment is $20,000.
A provision in a mortgage that pledges several properties as collateral. A default in the mortgage could lead to foreclosure proceedings on any of the properties in the dragnet.
Due on Sale Clause
A clause in the Deed of Trust or Mortgage that states that the entire loan is due upon the sale of the property.
A deposit made by a buyer of real estate towards the down payment to evidence good faith. This money is typically held by the real estate brokers or the escrow company.
The right to use the land of another for a specific purpose. Easements may be temporary or permanent. Example: The utility company may need an easement to run electric lines.
The right of the government or a public utility to acquire property for necessary public use by condemnation, with proper compensation to the owner.
A building, part of a building, or an obstruction (e.g., a fence or wall) that physically intrudes upon or overlaps the property of another.
Any interest or right in real property possessed by a stranger to the title, which affects the owner’s property value, but does not prevent the owner from transferring title. Encumbrances may affect title, or condition or use of the property.
VA home loan benefits are known as entitlement and/or eligibility.
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.
The market value of real property, less the amount of any liens. Equity is often expressed as a percentage of the property value.
Joint ownership of a property between the owner/occupant and the owner/investor, that results in tax advantages for both parties. Upon sale of the property the joint owners split profits based on the percentage they own.
The reversion of property to the state in the event that the owner dies without leaving a will and has no legal heirs.
1. Delivery of a deed by a grantor to a third party for delivery to the grantee upon the occurrence of a conditional event.
2. Calif. Civil Code Sec.1057: “A grant may be deposited by the grantor with a third person, to be delivered on the performance of a condition, and, on delivery by the depositary, it will take effect. While in the possession of the third person, and subject to condition, it is called an escrow.”
The account in which a mortgage servicer holds the borrower’s escrow payments prior to paying property expenses.
The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.
The lawful expulsion of an occupant from real property. The legal process of eviction is different in each state.
Examination of Title
The report on the title of a property from the public records or an abstract of the title.
A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner’s right to sell the property alone without the payment of a commission.
A person named in a will to carry out its provisions for the disposition of the estate.
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 Market Value
The 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.
Fannie Mae-Backed Security rates
Fannie Mae pools large quantities of mortgages, creates securities with them, and sells them as Fannie Mae-backed securities. The rates on these securities influence mortgage rates very strongly.
Farmer’s Home Administration (FmHA)
An agency, within the U.S. Department of Agriculture, that administers assistance programs for purchasers of homes and farms in small towns and rural areas.
Federal Reserve Bank
Federal Discount Rate
The rate that the New York Fed charges for loans to member banks.
Federal Funds Rate
The Rate banks charge each other for overnight loans.
Federal Home Loan Bank Board (FHLBB)
Provides financing to farmers.
Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac)
Freddie Mac maintains a nationwide secondary market primarily for conventional loans originated by banks, thrift institutions and other HUD-approved lenders. Freddie Mac finances most of its operations through the sale of mortgage Participation Certificates.
Federal Housing Administration (FHA)
An agency within the U.S. Department of Housing and Urban Development (HUD). FHA offers mortgage insurance programs to protect the lender in the event of default. Because lenders are insured against loss, they can make affordable financing available to borrowers who would not otherwise qualify.
Federal National Mortgage Association (FNMA, Fannie Mae)
Provides a secondary market for FHA, VA and conventional loans. Fannie Mae issues mortgage-backed securities and guarantees timely payment their principal and interest to investors.
Federal Reserve System
The central federal banking system that regulates and provides services to member commercial banks. Also has the responsibility for conducting federal monetary policy.
Fee Simple (Fee Absolute or Fee Simple Absolute)
Absolute ownership of real property; owner is entitled to the entire property with unconditional power of disposition during the owner’s life and upon his death the property descends to the owner’s designated heirs.
Fair Isaac Corporation. This credit score is reported on your Experian (formerly TRW) credit report. A FICO score is a snapshot of a person’s credit risk at a particular point in time.
An assurance, generally purchased by an employer, to cover employees who are entrusted with valuable property or funds.
Example: A landlord employs a clerk who collects rents. To safeguard these funds during the collection process, the landlord purchases a fidelity bond the clerk.
A person in a position of trust or responsibility with specific duties to act in the best interest of a client. A real estate broker is a fiduciary for his/her clients.
Interest charged by a lender.
A lender’s agreement to make a loan to a specific borrower on a specific property. This is usually given as a written loan approval from a lender.
A mortgage that has priority as a lien over all other mortgages. In the case of a foreclosure the first mortgage will be satisfied before other mortgages. See also second mortgage.
Personal property attached to the land in such a way as to be considered part of the real property.
An insurance policy that covers property damage due to natural flooding. Flood insurance may be required on properties in a flood zone.
A legal process in which the right, title and interest of a mortgagor or trustor in real property are terminated by selling the property and applying the proceeds to satisfy liens of creditors.
In HTML, refers to dividing the browser display area into separate sections, each of which is really a different Web page.
Free and clear
A property that has no liens.
Freddie Mac, Federal Home Loan Mortgage Corporation (FHLMC)
A quasi-governmental agency that purchases conventional mortgage loans from insured depository institutions (savings and loans) and HUD-approved mortgage bankers.
The loss of money, property, rights, or privileges due to a breach of legal obligation.
Monthly mortgage payments (PITI, principal, interest, taxes and insurance) divided by your gross monthly income. This comes out to a percentage, and a lender uses this percentage to get an idea of how much of your income will be going towards paying your loan. Most programs require a maximum ratio of 28-33%. A low ratio is better.
For sale by owner. A property for sale that is not listed with a real estate broker.
Fully indexed rate
A fully indexed rate is the value of an index plus a margin. See adjustable loans.
General Warranty Deed
A deed in which the grantor (seller) agrees to the protect the grantee (buyer) against any other claim to title of the property. See also warranty deed.
Good Faith Estimate (GFE)
The form that lists the settlement charges the borrower must pay at closing. The lender is obligated to provide the borrower this form within three business days of receiving the loan application.
Government National Mortgage Association (GNMA, Ginnie Mae)
A government corporation which guarantees mortgage-backed securities issued by approved lenders. GNMA mortgage-backed securities are considered by many to be as safe as Treasury securities.
That party in the deed who is the buyer or recipient.
Graduated Payment Mortgage (GPM)
A trust deed or mortgage requiring increasingly higher payments during the life of the loan. Negative amortization may occur under some circumstances.
The clause in a law permitting the continuation of a use, business, etc., which was permissible but because of a change in the law is now no longer permissible.
That party who is the seller or the giver.
Hazard Insurance (Fire Insurance, Homeowners insurance)
A type of real estate insurance providing protection against loss due to fire and other risks.
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 specific financial 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. This is commonly known as a reverse mortgage.
Home Equity Line of Credit
A mortgage loan, which is usually in a subordinate position, that allows the borrower to obtain multiple advances of the loan proceeds at his or her own discretion, up to an amount that represents a specified percentage of the borrower’s equity in a property.
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.
Fannie Mae’s adjustable-rate conventional reverse mortgage, which allows older homeowners to borrow against the value of their homes and receive the proceeds according to the payment option they select. The amount available is based on the number of borrowers and their ages and the adjusted property value. Anyone 62 years or older who either owns his or her own home free and clear or has very low mortgage debt is eligible.
The main page of a web site. This is usually the first page that comes up on the computer screen. Typically, the home page serves as an index or table of contents to other documents available at the site. It is also referred to as the Index page.
Home Warranty Plan
Insurance that covers appliances, heating systems, etc. Typically purchased at the time of closing.
An association of homeowners in a particular subdivision, planned unit development (PUD), or condominium organized to manage the common area of the development and to enforce the association rules and regulations.
Status provided to a homeowner’s principal residence that protects the home against certain types of judgments.
A statutory exemption shielding real homestead property against the rights of certain creditors. Regarding taxation: an exemption reducing the assessed value of a principal residence for the purposes of calculating property tax. E.g., John’s principal residence is assessed at $100,000 and the homestead exemption is $7,000. His property taxes will be based on $93,000.
Housing and Urban Development
A U.S. government agency established to implement certain federal housing and community development programs.
A local government ordinance that sets minimum standards of safety and sanitation for existing residential buildings.
Short for Hyper Text Markup Language, the authoring language used to create documents on the World Wide Web
A closing document required by HUD that outlines the settlement cost of a loan. The closing agent prepares this document and sends it to the buyer upon closing.
To pledge a property as security without having to give up possession of it.
That portion of a borrower’s monthly payments held by the lender or servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due. Also known as reserves.
Additions to raw land such as buildings, streets, etc. that add value to the land.
Income (Capitalization) Approach
An appraisal method used for the valuation of income-producing property in which net income is capitalized.
Real estate that generates rental income. Examples: apartment buildings, office buildings and shopping centers.
A statistic that indicates some current economic of financial condition. Indexes are used to make adjustments in variable rate loans.
In economics, inflation is an increase in the general level of prices of a given kind. General inflation is a fall in the market value or purchasing power of money within an economy, and is referred to as a rise in the general level of prices.
Ingress and Egress
The right to pass through a piece of property. See Easements.
1. Re. Taxation: When selling real property and receiving one or more payments in subsequent years, the taxpayer may report the sale as an installment sale. This allows the taxpayer to defer the recognition of gain over many years and save taxes.
2. Installment sale land contract. See Conditional Sales Contract.
An interest-only loan program is a loan program that has an interest-only payment option. The loan can be a fixed rate or variable rate program. The interest only monthly payment is the amount of the interest rate times the original loan amount divided by twelve. No principal is paid, and the loan balance does not decrease. You may pay the interest only payment amount or pay the fully amortized payment amount. The interest only payment option is only available in the initial years of the loan term. Conforming loan programs have the interest only term for ten to fifteen years. Jumbo programs vary from three years up to ten years.
Internet Service Provider, a company that provides access to the Internet. For a monthly fee, the service provider gives you a software package, username, password and access phone number. You can then log on to the Internet and browse the World Wide Web, and send and receive e-mail.
Joint and Several Liability
A creditor can demand full repayment from any and all of those who have borrowed. Each borrower is liable for the full debt, not just the prorated share.
Ownership of a property by two or more people, each of whom has an undivided interest with the right of survivorship.
Example: John and Mary own a house in joint tenancy. Each owns half of the entire (undivided) property. If John dies, Mary will own the entire property and vice versa.
The decision of a court of law stating that one individual is indebted to another and fixing the amount of indebtedness. Judgments, when recorded, become a lien on real property owned by the defendant.
The claim on the property of a debtor resulting from a judgment.
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.
Loan size that is larger than the conforming loan limit established by the Fannie Mae or Freddie Mac.
A mortgage subordinate to another mortgage. In the case of a foreclosure a senior mortgage will be paid prior to a junior mortgage.
A payment required by a mortgage in addition to normal principal and interest. Sometimes known as a participation loan.
See Conditional Sales Contract
The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.
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 specified period of time and rent.
Tenant’s right of possession for a specific period of time under a lease agreement.
Lease with Option to Purchase
A lease under which the lessee has the right to purchase the property. The option may run for a portion or for the full length of the lease
Legally acceptable identification of real estate by one of the following:
- the government rectangular survey
- metes and bounds
- recorded plat (lot and block number)
A person to whom property is rented under a lease. (Tenant)
A person who rents property to another under a lease. (Landlord)
London Interbank Offered Rates. Average London Eurodollar rates. The Libor Index rate is used in many variable loan programs.
An estate in real property for the life of a living person. The estate then reverts back to the grantor or to a third party.
A claim against the property for the payment of a debt, judgment, mortgage or taxes.
Example : Unpaid contractors may file a mechanic’s lien.
Line of Credit
An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower. See home equity line of credit.
Latin for “lawsuit pending.” Recorded notice that litigation is pending on a property. Most lenders will require the clearance of the Lis Pendens prior to closing.
Real Estate properties for sale are usually considered listed when a real estate agent is contracted to sell the property, using a listing agreement, and the property is posted in the multiple listing service, MLS, for that local region. It can also be in an Internet listing service online, which can be done directly by the homeowner.
A cash asset or an asset that is easily converted into cash.
A document required by a lender prior to loan approval. The application includes detailed information about the borrower and the property.
Loan Origination Fee or Points
Charge by a lender or broker connected with originating a loan. This is different from discount points which are used to buy down the rate of interest.
The act of collecting loan payments, handling property tax and insurance escrows, foreclosing on defaulted loans and remitting payments to the investors.
Loan to Value Ratio (LTV)
The loan amount divided by the value of the property.
A written agreement in which the lender guarantees a specified interest rate if a mortgage goes to closing within a set period of time. The lock-in also usually specifies the number of points to be paid at closing.
The time period during which the lender has guaranteed an interest rate to a borrower. See lock-in.