Glossary

Debt-To-Income Ratio
The ratio of the borrower's total monthly obligations, including housing expenses and recurring debts, to monthly income. It is used to determine the borrower's capacity to repay the mortgage and all other debts.

Deed
A formal written instrument 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 purchaser at closing day. There are two parties to a deed: the grantor and the grantee. (See also deed of trust, general warranty deed, quitclaim deed, and special warranty deed.)

Deed of Trust
Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument: the borrower, the trustee, and the lender, (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, he defaults in the payment of the debt, the trustee may sell the property at a public sale, under the terms of the deed of trust. In most jurisdictions where the deed of trust is in force, the borrower is subject to having his property sold without benefit of legal proceedings. A few States have begun in recent years to treat the deed of trust like a mortgage.

DeMinimus PUD
A PUD in which the common property has less than a 2% influence upon the value of the premises. The 2% rule of thumb is calculated by dividing the dollar amount of amenities by the total number of units. Also see PUD.

Default
Failure to make mortgage payments as agreed to in a commitment based on the terms and at the designated time set forth in the mortgage or deed of trust. It is the mortgagor's responsibility to remember the due date and send the payment prior to the due date, not after. Generally, thirty days after the due date if payment is not received, the mortgage is in default. In the event of default, the mortgage may give the lender the right to accelerate payments, take possession and receive rents, and start foreclosure. Defaults may also come about by the failure to observe other conditions in the mortgage or deed of trust.

Deferred Interest
Occurs when your monthly payments are not large enough to pay all the interest due on the loan. This unpaid interest is added to the unpaid principal balance of the loan. Also called negative amortization. The danger of negative amortization is that the homebuyer ends up owing more than the original amount of the loan.

Delinquency
Failure to make payments on time. This can lead to foreclosure.

Deposit
A sum of money given to bind a sale of real estate. Also known as earnest money.

Depreciation
Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.

Department of Housing and Urban Development
The U.S. government agency that administers FHA, GNMA and other housing programs.

Discount
The amount by which the sales price of a note (or financial instrument) is below or less than its face value. The purpose of a discount is to adjust the yield upward either in lieu of interest or in addition to interest. Discount points are payable to the lender by the borrower or seller to increase the lender's effective yield. One point is equal to 1% of the loan.

Discounted Loan
When the note rate on a loan is less than the market rate, the lender requires additional points to raise the yield on the loan to the market rate.

Documentary Stamps
A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State.

Down Payment
The amount of money to be paid by the purchaser to the seller upon the signing of the agreement of sale. The agreement of sale will refer to the down payment amount and will acknowledge receipt of the down payment. Down payment is the difference between the sales price and maximum mortgage amount. The down payment may not be refundable if the purchaser fails to buy the property without good cause. If the purchaser wants the down payment to be refundable, he should insert a clause in the agreement of sale specifying the conditions under which the deposit will be refunded, if the agreement does not already contain such clause. If the seller cannot deliver good title, the agreement of sale usually requires the seller to return the down payment and to pay interest and expenses incurred by the purchaser.

Due-on-Sale
A clause in a mortgage or deed of trust allowing a lender to require immediate payment of the balance of the loan if the property is sold.

Earnest Money
The deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money will be forfeited or lost unless the binder or offer to purchase expressly provides that it is refundable.

Easement Rights
A right-of-way granted to a person or company authorizing access to or over the owner's land. An electric company obtaining a right-of-way across private property is a common example.

Economic obsolescence
The loss of value due to changes outside the particular property affected (e.g., high power lines, busy streets, proximity to an airport or any other structure perceived to be less than desirable); also called economic depreciation.

Encroachment
An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.

Encumbrance
A legal right or interest in land that affects a good or clear title, and diminishes the land's value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.

Environmental hazard
Natural or man-made forces that may be hazardous to the health or safety of the homeowner. Examples include: hazardous wastes, toxic substances, radon gas and materials containing asbestos. These types of hazards can adversely affect the value and marketability of the property.

Equal Credit Opportunity Act
A federal law prohibiting lenders and other creditors from discriminating based on race, color, sex, religion, national origin, age, martial status, receipt of public assistance or because an applicant has exercised his or her rights under the Consumer Credit Protection Act.

Equity
The value of a homeowner's unencumbered interest in real estate. Equity is computed by subtracting from the property's fair market value the total of the unpaid mortgage balance and any outstanding liens or other debts against the property. A homeowner's equity increases as he pays off his mortgage or as the property appreciates in value. When the mortgage and all other debts against the property are paid in full the homeowner has 100% equity in his property.

Escrow Funds
Funds paid by one party to another (the escrow agent) to hold until the occurrence of a specified event, after which the funds are released to a designated individual. In FHA mortgage transactions an escrow account usually refers to the funds a mortgagor pays the lender at the time of the periodic mortgage payments. The money is held in a trust fund, provided by the lender for the buyer. Such funds should be adequate to cover yearly-anticipated expenditures for mortgage insurance premiums, taxes, hazard insurance premiums, and special assessments.

Escrow closing
In certain regions, an escrow agent holds in escrow funds as well as documents to be signed by both buyer and seller. Once all conditions of the closing have been satisfied, the documents and the funds are distributed by the escrow agent to the interested parties.

Fair Credit Reporting Act (FCRA)
A federal law which requires a lender who is rejecting a loan request because of adverse credit information to inform the borrower of the source of such information. This law also requires consumer-reporting agencies to exercise fairness, confidentiality and accuracy in preparing and disclosing credit information.

Fair market value
The price established in a free market between a buyer and seller in an arms-length transaction where neither one is compelled to buy or sell. In an appraisal, this is the final value derived after examining the Sales Comparison, Cost, and if applicable, Income approaches; sometimes referred to as "Market Value."

Fannie Mae
Nickname for Federal National Mortgage Association (FNMA).

Farmer's Home Administration
The government agency that guarantees mortgages secured by residential properties located in rural areas, concentrating on borrowers with income less than HUD's local median income for the area in which they reside. FmHa is now known as Rural Economic and Community Development.

Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac)
A quasi-governmental, federally sponsored organization that acts as a secondary market investor to buy and sell mortgage loans. FHLMC sets many of the guidelines for conventional mortgage loans, as does FNMA.

Federal Housing Administration (FHA)
An agency within the Department of Housing and Urban Development that sets standards for underwriting and insures residential mortgage loans made by private lenders. One of FHA's objectives is to ensure affordable mortgages to those with low or moderate income. FHA loans may be high loan-to-value, and they are limited by loan amount. FHA mortgage insurance requires a fee of up to 3.8 percent of the loan amount to be paid either at closing or added to each monthly payment, as well as an annual fee of 0.5 percent of the loan amount added to each monthly payment.

Federal National Mortgage Association (FNMA or Fannie Mae)
A private corporation that acts as a secondary market investor to buy and sell mortgage loans. FNMA sets many of the guidelines for conventional mortgage loans, as does FHLMC. The major purpose of this organization is to make mortgage money more affordable and more available.

Fee simple
The maximum form of ownership, with the right to occupy a property and sell it to a buyer at any time. Upon the death of the owner, the property goes to the owner's designed heirs. Also known as fee simple absolute.

FHA
See: Federal Housing Administration.

FHLMC
See: Federal Home Loan Mortgage Corporation.

First Mortgage
A real estate loan that has priority over any subsequently recorded mortgages.

Fixed Rate Mortgage
The mortgage interest rate will remain the same on these mortgages through out the term of the mortgage for the original borrower. See also: Adjustable Rate Mortgage

FmHA
See: Farmer's Home Administration.

FNMA
See: Federal National Mortgage Association.

Foreclosure
A legal term applied to any of the various methods of enforcing payment of the debt secured by a mortgage, or deed of trust, by taking and selling the mortgaged property, and depriving the mortgagor of possession. Sometimes referred to in the mortgage industry as "The 'F' Word".

Freddie Mac
Nickname for Federal Home Loan Mortgage Corporation.