D

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, Quick claim 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.

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: When the monthly payments do not cover all of the interest cost, the unpaid interest is deferred by adding it to the loan balance.

Deficiency Judgment: Personal claim against the debtor when the sale of foreclosed property does not yield sufficient proceeds to pay off the mortgages.

Depreciation: Decline in value of a house due to wear and tear, adverse changes in the neighborhood, or any other reason.
Discount: In an ARM with an initial rate discount, the lender gives up a number of percentage points in interest to give you a lower rate and lower payments for part of the mortgage term (usually for one year or less). After the discount period, the ARM rate will probably go up depending on the index rate.; 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.

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 Clause: A clause in the Deed of Trust or Mortgage that states that the entire loan is due upon the sale of the property.

E

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.

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.

Equal Credit Opportunity Act: Prohibits discrimination in any aspect of a credit transaction on the basis of race, religion, age, color, national origin, receipt of public assistance funds, sex, or marital status.

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 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.

F


Fair Housing Act: Prohibits discrimination in housing sales or loans on the basis of race, religion, color, national origin, sex, familial status, or handicap. Your Rights under the Fair Housing Act.

Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac): A stockholder-owned corporation chartered by Congress to create a continuous flow of funds to mortgage lenders in support of homeownership and rental housing. Freddie Mac purchases single-family and multifamily residential mortgages from lenders and packages them into securities that are sold to investors.

Federal Housing Administration (FHA): A part of the U.S. Department of Housing and Urban Development (HUD). FHA assists first-time home buyers and others who might not be able to meet down payment requirements for conventional loans by providing mortgage insurance to private lenders. It also insures loans for home improvements and buying manufactured (mobile) homes. These programs operate through FHA approved lending institutions which submit applications to have the property appraised and have the buyer's credit approved.

Federal National Mortgage Association (FNMA, Fannie Mae): A stockholder-owned federally chartered corporation. Fannie Mae purchases residential home loans from mortgage lending institutions, packages the mortgages into securities and sells the securities to investors. The largest source of residential mortgage funds in the United states.

FHA Loan: A loan insured by the Federal Housing Administration open to all qualified home purchasers. Interest rates on FHA loans are generally market rates, while down payment requirements are lower than for conventional loans. FHA loans cannot exceed the statutory limit.

Firm Commitment: A lender’s agreement to make a loan to a specific borrower on a specific property.

First Mortgage: A mortgage that has priority as a lien over all other mortgages.

Fixed Installment: The monthly payment due on a mortgage loan. The fixed installment includes payment of both principal and interest.

Flood Insurance: Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

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.

FSBO: For sale by owner.

G

General Warranty Deed: A deed which conveys not only all the grantor's interests in and title to the property to the grantee, but also warrants that if the title is defective or has a "cloud" on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic's liens against it) the grantee may hold the grantor liable.

Government National Mortgage Association (GNMA, Ginnie Mae): A wholly-owned government corporation within the U.S. Dept. of Housing and Urban Development helping to finance government-assisted housing programs. Ginnie Mae guarantees securities backed by pools of mortgages. The mortgages are insured by the Federal Housing Administration (FHA), or guaranteed by the Veterans Administration (VA) or by the Rural Housing Service (RHS). Ginnie Mae securities are bought and sold through financial institutions that trade government securities.

Graduated Payment Mortgage: A type of a mortgage that has lower payments initially and then payments increase each year until the loan is fully amortized.

Grantee: That party in the deed who is the buyer or recipient.

Grantor: That party in the deed who is the seller or giver.

H

Hazard Insurance: Protects against damages caused to property by fire, windstorms, and other common hazards.

Homestead Exemption: The assessed value of a owner-occupied residential property may be reduced by the amount of the exemption for the purposes of calculating property tax. Available in some states.

HUD: U.S. Department of Housing and Urban Development. Office of Housing/Federal Housing Administration within HUD insures home mortgage loans made by lenders and sets minimum standards for such homes.

HUD-1 Settlement statement: A standard form that shows all charges imposed on borrowers and sellers in connection with the settlement. RESPA allows the borrower to request to see the HUD-1 Settlement statement one day before the actual settlement.

I


Impound: 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.

Index: A published measure of economic conditions usually relative to other financial instruments such as Treasury notes or Treasury bills. The lender uses a particular index to calculate the interest rate on an adjustable rate mortgage (ARM) by adding a fixed margin to the index. The most common indexes are:

Constant Maturity Treasury (CMT)

Treasury Bill (T-Bill)

12-Month Treasury Average (MTA)

11th District Cost of Funds Index (COFI)

London Inter Bank Offering Rates (LIBOR)

Certificates of Deposit (CD) Indexes

Prime Rate

Interest: A charge paid for borrowing money. See Mortgage Note

J

Joint Tenancy: Joint tenancy is one of the methods available for two or more people to hold title to real estate or personal property. It includes a right of survivorship, meaning that on the death of one joint tenant, his/her interests transfer to the remaining joint tenants.

Jumbo Loan: A loan that is larger than the conforming loan limit established by Fannie Mae or Freddie Mac. It often has interest rates a little higher than conforming loan.

L

Lien: A claim by one person on the property of another as security for money owed. Such claims may include obligations not met or satisfied, judgments, unpaid taxes, materials, or labor.
Loan-to-Value Ratio (LTV): The relationship between the amount of the mortgage loan and the value of the real property expressed as a percentage. For purchase loans the value of the property is the appraised value or the purchase price, whichever is less. For refinance loans the value is the appraised value.; A LTV of 90% means that you can borrow a maximum of 90% of the property value. If a LTV exceeds 80%, a Private Mortgage Insurance (PMI) -- that insures the lender in the event a borrower defaults -- is generally required.; Down payment is the difference between the purchase price and the mortgage amount.

Lock: A lender's promise to hold a certain interest rate and points for you, for a given number of days, while your loan application is processed. The interest rates quoted to you may stay the same, decrease, or increase from the day you apply for your mortgage. Lock-ins on rates and points might offer you a way to ensure that what you shop for is what you get.; However, a locked-in rate could also prevent you from taking advantage of rate decreases. If you think that rates will remain level or even go down, you may choose to bet on interest rates decreasing by electing to float until you go to closing.
: Lock-ins of 30-60 days are common. If your lock-in period expires before you go to closing, you might lose the interest rate and the number of points you had locked-in. You may ask lender for a longer lock-in period. But bear in mind that lenders may charge you a fee for a longer lock-in period. Request information from the lender regarding lock procedures.

M

Marketable Title: A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will accept without objection.

Margin: The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment.

Mortgage: A lien or claim against real property given by the buyer to the lender as security for money borrowed. Under government-insured or loan-guarantee provisions, the payments may include escrow amounts covering taxes, hazard insurance, water charges, and special assessments. Mortgages generally run from 10 to 30 years, during which the loan is to be paid off.

Mortgage Broker: A person (not an employee of a lender) who brings a borrower and a lender together to obtain a federally-related mortgage loan. A mortgage broker has access to a variety of lenders and often offers the most choice in loan programs. Mortgage brokers are paid a fee by the borrower or the lender when a loan closes.

Mortgage Commitment: A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.

Mortgage Insurance Premium: The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages this represents an annual rate of one-half of one percent paid by the mortgagor on a monthly basis.

Mortgage Note: A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of an indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.

Mortgage (Open-End): A mortgage with a provision that permits borrowing additional money in the future without refinancing the loan or paying additional financing charges. Open-end provisions often limit such borrowing to no more than would raise the balance to the original loan figure.

Mortgagee: The lender in a mortgage agreement.

Mortgagor: The borrower in a mortgage agreement.

Multiple Listing Service (MLS): A service offered to participating real estate brokers that lists available homes for sale. The listings are published and distributed among the member brokers to assist in sales efforts.

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