D

Debt-to-Income Ratio

The ratio of a borrower's monthly payment obligation, divided by his/her monthly income. The ratio is expressed as a percentage and is used by lenders as a measure of eligibility for a loan. A front-end ratio compares all monthly housing expenses to their gross income. A back-end ratio also figures in all other debts such as auto loans, credit cards, child support, etc.

 

Deed

The legal document conveying title to a property.

 

Deed of Trust

A document given by the borrower to a third party (trustee) vesting title to the property in the trustee as security for the borrower's repayment of the mortgage loan.

 

Default

The failure of a borrower to comply with the terms of a promissory note or the provisions of a mortgage.

 

Delinquency

A mortgage loan on which a payment has not been made by the due date.

 

Discount Point

A type of point paid to the lender that reduces the interest rate of the loan.

 

Down Payment

The lump sum paid to the seller when the property is purchased. This is usually 5 to 20 percent of the sales price, although some loans will allow for a lesser down payment.

E

Earnest Money

A cash deposit paid by the buyer during negotiations to demonstrate serious interest in purchasing the property.

 

Equity

The difference between the fair market value of the property and the homeowner's mortgage debt. Equity increases as the mortgage is paid and/or the property appreciates.

 

Escrow

Usually refers to an account set up by the lender in which money is held to pay taxes and insurance.

 

Escrow Payment

The portion of the homeowner's monthly payment held in trust by the lender to pay for taxes and insurance. Also known as "impounds" in some states.

F

Fannie Mae

Nickname for the Federal National Mortgage Association (FNMA). FNMA is the largest of the secondary market investors that purchase loans from mortgage companies. The company is a private corporation and is listed on the New York Stock Exchange.

 

Federal Housing Administration (FHA)

An agency of the U.S. Department of Housing and Urban Development (HUD) that insures first mortgages and can enable lenders to lend a very high percentage of the purchase price. The FHA does not actually lend money.

 

Federal Reserve Bank

The regulatory agency that sets monetary policy for the country and provides liquidity for supervised financial institutions.

 

FHA Loan

A government-backed mortgage loan supported by the U.S. FHA and the Department of Housing and Urban Development (HUD).

 

Fiduciary

An entity, such as a real estate broker or mortgage broker, designated to act in the best interest of a client.

 

Finance Charge

The total dollar amount your loan will cost you. It includes all interest payments for the life of the loan, any interest paid at closing, your origination fee and any other charges paid to the lender and/or broker. Appraisal, credit report and title search fees are not included in the finance charge calculation.

 

Fixed Rate Mortgage

A mortgage where the interest rate does not change for the life of the loan.

 

First Mortgage

A mortgage that is the primary lien against a property. Not necessarily the first mortgage obtained chronologically.

 

Float

Between the time of application and closing, a borrower may choose to bet on interest rates decreasing by electing to float. Floating is essentially choosing not to lock the interest rate. Since it is the borrower's responsibility to lock his/her rate before closing, choosing to float is considered risky and may result in a higher interest rate. Request information from your lender regarding lock procedures.

 

Forbearance

The lender's postponement of legal action when a borrower is delinquent. It is usually granted when a borrower makes satisfactory arrangements to bring the overdue mortgage payments up to date.

 

Foreclosure

A legal process in which a homeowner in default on a mortgage is deprived of interest in the property, so that it may be sold to satisfy the debt.

 

Freddie Mac

Nickname for the Federal Home Loan Mortgage Corporation (FHLMC). Another major secondary market purchaser of loans. FHLMC is a government-sponsored agency that is publicly traded on the New York Stock Exchange.

 

Front-End Ratio

Current or Proposed total monthly housing expenses for the borrower's primary residence divided by the gross monthly income.