Mortgage Glossary

Deed

This document shows that an owner of a piece of real property has title to that property. Once a deed is filed and recorded by your local government, the deed becomes a public record.

Deed of Trust

A deed of trust is a document showing that a borrower conveys title to real property to a third party (trustee) to be held as security for a lender, with the provision that the trustee will return the title once the debt is paid. The trustee will sell the property and pay the debt if the borrower defaults. In other words, when you buy a house, a trustee will hold your Deed of Trust for your lender until you pay off your mortgage or default on the loan.

Department of Housing and Urban Development (HUD)

HUD is a governmental entity responsible for the implementation and administration of housing and urban development programs.

Default

Default is the failure to make payments on a timely basis or in accordance with the terms of your promissory note. Default may also result from failure to submit requests for deferment or cancellation on time. The consequences of default are severe.

Delinquency

This is the failure of a borrower to make timely payments under a loan agreement.

Discount Point

A discount point is an amount of money a borrower pays to a lender, or seller pays to a lender, to increase the lender's effective yield. One point is equal to one percent of the loan. What a discount point effectively does is pay the lender up front in exchange for a reduced interest rate.

Down Payment

A down payment is a portion of the sales price you pay to the seller to close a sale, with the understanding that the balance will be paid at settlement. It is also the difference between the sale price of real estate and the mortgage amount.

Due-on-Sale

Due-on-sale is a clause in a mortgage contract that states that if the mortgagor sells, transfers, or in any other way encumbers the property, then the mortgagee has the right to implement an acceleration clause making the balance of the mortgage due. In other words, if you sell your home, you have to pay off the mortgage immediately, and then any money that's left over you can use any way you choose.

Earnest Money

Earnest money is a deposit you pay to the seller of real property to show your good faith and intentions of getting a mortgage to buy the property. Depending on circumstances, you may or may not be able to get this money back if you decide not to complete the purchase.

Encumbrance

An encumbrance is anything that affects or limits the fee simple title to property, such as mortgages, leases, easements, or restrictions.

Equal Credit Opportunity Act (ECOA)

The ECOA is 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. It is also called "Regulation B."

Equity

Equity is net ownership. In other words, it's the difference between how much your property is worth and how much you still owe on your mortgage (Market value Ð Mortgage balance = Equity). Equity is also sometimes called owner's interest.

Escrow

Escrow is a deposit made by a borrower to their lender to pay taxes and insurance premiums when they come due. Escrow is also a deposit made by a borrower to an attorney or escrow agent to be disbursed upon the closing of a sale of real estate. In some areas, escrow accounts are called impounds or reserves.

Fannie Mae

Fannie Mae is the nation's largest mortgage investor. It is a private, stockholder owned company. The U.S. President appoints some of the members of its Board of Directors. It supports the secondary residential mortgage market.

Federal Housing Administration (FHA)

The FHA is a federal agency in the Department of Housing and Urban Development (HUD) that provides mortgage insurance for residential mortgages and sets standards for construction and underwriting. The FHA DOES NOT lend money or plan or construct housing.

FHA-Insured Loans

Home mortgage loans insured by the Federal Housing Administration are referred to as "FHA or FHA-Insured Loans."

First Mortgage

A first mortgage gives the lender a security right over all other mortgages on the mortgaged property.

Fixed Interest Rate

A fixed interest rate is one that never changes over the life of a loan. For example, if you have a fixed rate, 30-year mortgage, you will pay the same interest rate for the entire 30-year repayment schedule.

Forbearance

Forbearance is a lender's act of not taking legal action despite the fact that a loan is delinquent. It is usually granted only when a borrower makes satisfactory arrangements to pay the amount owed at a future date.

Foreclosure

A foreclosure is a legal proceeding that allows your creditor to sell your house to pay off your unpaid mortgage. Your house can be foreclosed on if you don't make your required house payments.

Freddie Mac

Freddie Mac is a stockholder-owned corporation that supports the secondary market in mortgages on residential property with mortgage purchase and securitization programs. The President of the United States appoints a portion of its board of directors. It is also known as the Federal Home Loan Mortgage Corporation (FHLMC).

Front End Debt-to-Income Ratio

Your debt-to-income ratio compares your monthly debt payments to your monthly income, and is a widely used measure of your creditworthiness. You compute your debt-to-income ratio by dividing your monthly minimum debt payments, including your rent or mortgage, by your monthly take-home pay.

FSBO

For Sale By Owner is a term used to describe a home that is being sold by the owner, without assistance from a real estate agent or a broker. The seller is attempting to save money by avoiding agent's and broker's fees, but the buyer should be careful to make sure that the terms of sale comply with all applicable federal, state, and local regulations.