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HUD.GOV - Loan and finance glossary Category: Economy and Finance > Loans and finance terms Date & country: 30/05/2011, USA Words: 356

Derivative
a contract between two or more parties where the security is dependent on the price of another investment.

Depreciation
a decrease in the value or price of a property due to changes in market conditions, wear and tear on the property, or other factors.

Deposit (Earnest Money)
money put down by a potential buyer to show that they are serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal. During the contingency period the money may be returned to the buyer if the contingencies are not met to the buyer's satisfaction.

Delinquency
failure of a borrower to make timely mortgage payments under a loan agreement. Generally after fifteen days a late fee may be assessed.

Default
the inability to make timely monthly mortgage payments or otherwise comply with mortgage terms. A loan is considered in default when payment has not been paid after 60 to 90 days. Once in default the lender can exercise legal rights defined in the contract to begin foreclosure proceedings

Deed-in-Lieu
to avoid foreclosure ("in lieu" of foreclosure), a deed is given to the lender to fulfill the obligation to repay the debt; this process does not allow the borrower to remain in the house but helps avoid the costs, time, and effort associated with foreclosure.

Deed
a document that legally transfers ownership of property from one person to another. The deed is recorded on public record with the property description and the owner's signature. Also known as the title.

Deductible
the amount of cash payment that is made by the insured (the homeowner) to cover a portion of a damage or loss. Sometimes also called "out-of-pocket expenses." For example, out of a total damage claim of $1,000, the homeowner might pay a $250 deductible toward the loss, while the insurance company pays $750 toward the loss. Typically, the higher the deductible, the lower the cost of the policy.

Debt-to-Income Ratio
a comparison or ratio of gross income to housing and non-housing expenses; With the FHA, the-monthly mortgage payment should be no more than 29% of monthly gross income (before taxes) and the mortgage payment combined with non-housing debts should not exceed 41% of income.

Debtor
The person or entity that borrows money. The term debtor may be used interchangeably with the term borrower.

Debt Security
a security that represents a loan from an investor to an issuer. The issuer in turn agrees to pay interest in addition to the principal amount borrowed.

Discount Point
normally paid at closing and generally calculated to be equivalent to 1% of the total loan amount, discount points are paid to reduce the interest rate on a loan. 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, t...

Disclosures
the release of relevant information about a property that may influence the final sale, especially if it represents defects or problems. "Full disclosure" usually refers to the responsibility of the seller to voluntarily provide all known information about the property. Some disclosures may be required by law, such as the federal requirement to warn of potential lead-based paint hazards in pre-1...

Down Payment
the portion of a home's purchase price that is paid in cash and is not part of the mortgage loan. This amount varies based on the loan type, but is determined by taking the difference of the sale price and the actual mortgage loan amount. Mortgage insurance is required when a down payment less than 20 percent is made.

Document Recording
after closing on a loan, certain documents are filed and made public record. Discharges for the prior mortgage holder are filed first. Then the deed is filed with the new owner's and mortgage company's names.

Duration
the number of years it will take to receive the present value of all future payments on a security to include both principal and interest.

Due on Sale Clause
a provision of a loan allowing the lender to demand full repayment of the loan if the property is sold.

Easements
the legal rights that give someone other than the owner access to use property for a specific purpose. Easements may affect property values and are sometimes a part of the deed.

Earnings Per Share (EPS)
a corporation's profit that is divided among each share of common stock. It is determined by taking the net earnings divided by the number of outstanding common stocks held. This is a way that a company reports profitability.

Earnest Money (Deposit)
money put down by a potential buyer to show that they are serious about purchasing the home; it becomes part of the down payment if the offer is accepted, is returned if the offer is rejected, or is forfeited if the buyer pulls out of the deal. During the contingency period the money may be returned to the buyer if the contingencies are not met to the buyer's satisfaction.

EEM
Energy Efficient Mortgage; an FHA program that helps homebuyers save money on utility bills by enabling them to finance the cost of adding energy efficiency features to a new or existing home as part of the home purchase

Eminent Domain
when a government takes private property for public use. The owner receives payment for its fair market value. The property can then proceed to condemnation proceedings.

Encumbrance
anything that affects title to a property, such as loans, leases, easements, or restrictions.

Encroachments
a structure that extends over the legal property line on to another individual's property. The property surveyor will note any encroachment on the lot survey done before property transfer. The person who owns the structure will be asked to remove it to prevent future problems.

Equity
an owner's financial interest in a property; calculated by subtracting the amount still owed on the mortgage loon(s)from the fair market value of the property.

Equal Credit Opportunity Act (ECOA)
a federal law requiring lenders to make credit available equally without discrimination based on race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs.

Estate
the ownership interest of a person in real property. The sum total of all property, real and personal, owned by a person.

Escrow Account
a separate account into which the lender puts a portion of each monthly mortgage payment; an escrow account provides the funds needed for such expenses as property taxes, homeowners insurance, mortgage insurance, etc.

Escrow
funds held in an account to be used by the lender to pay for home insurance and property taxes. The funds may also be held by a third party until contractual conditions are met and then paid out.

Escape Clause
a provision in a purchase contract that allows either party to cancel part or the entire contract if the other does not respond to changes to the sale within a set period. The most common use of the escape clause is if the buyer makes the purchase offer contingent on the sale of another house.

Exclusive Listing
a written contract giving a real estate agent the exclusive right to sell a property for a specific timeframe.

Fannie Mae
Federal National Mortgage Association (FNMA); a federally-chartered enterprise owned by private stockholders that purchases residential mortgages and converts them into securities for sale to investors; by purchasing mortgages, Fannie Mae supplies funds that lenders may loan to potential homebuyers. Also known as a Government Sponsored Enterprise (GSE).

Familial Status
HUD uses this term to describe a single person, a pregnant woman or a household with children under 18 living with parents or legal custodians who might experience housing discrimination.

Fair Housing Act
a law that prohibits discrimination in all facets of the home buying process on the basis of race, color, national origin, religion, sex, familial status, or disability.

Fair Credit Reporting Act
federal act to ensure that credit bureaus are fair and accurate protecting the individual's privacy rights enacted in 1971 and revised in October 1997.

Fixture
personal property permanently attached to real estate or real property that becomes a part of the real estate.

Fixed-Rate Mortgage
a mortgage with payments that remain the same throughout the life of the loan because the interest rate and other terms are fixed and do not change.

Fixed Expenses
payments that do not vary from month to month.

First Mortgage
the mortgage with first priority if the loan is not paid.

FICO Score
FICO is an abbreviation for Fair Isaac Corporation and refers to a person's credit score based on credit history. Lenders and credit card companies use the number to decide if the person is likely to pay his or her bills. A credit score is evaluated using information from the three major credit bureaus and is usually between 300 and 850.

Float
the act of allowing an interest rate and discount points to fluctuate with changes in the market.

Foreclosure
a legal process in which mortgaged property is sold to pay the loan of the defaulting borrower. Foreclosure laws are based on the statutes of each state.

Forbearance
a lender may decide not to take legal action when a borrower is late in making a payment. Usually this occurs when a borrower sets up a plan that both sides agree will bring overdue mortgage payments up to date.

Front End Ratio
a percentage comparing a borrower's total monthly cost to buy a house (mortgage principal and interest, insurance, and real estate taxes) to monthly income before deductions.

Freddie Mac
Federal Home Loan Mortgage Corporation (FHLM); a federally chartered corporation that purchases residential mortgages, securitizes them, and sells them to investors; this provides lenders with funds for new homebuyers. Also known as a Government Sponsored Enterprise (GSE).

FSBO (For Sale by Owner)
a home that is offered for sale by the owner without the benefit of a real estate professional.

Ginnie Mae
Government National Mortgage Association (GNMA); a government-owned corporation overseen by the U.S. Department of Housing and Urban Development, Ginnie Mae pools FHA-insured and VA-guaranteed loans to back securities for private investment; as With Fannie Mae and Freddie Mac, the investment income provides funding that may then be lent to eligible borrowers by lenders.

Global Debt Facility
designed to allow investors all over the world to purchase debt (loans) of U.S. dollar and foreign currency through a variety of clearing systems.

Good Faith Estimate
an estimate of all closing fees including pre-paid and escrow items as well as lender charges; must be given to the borrower within three days after submission of a loan application.

Gross Income
money earned before taxes and other deductions. Sometimes it may include income from self-employment, rental property, alimony, child support, public assistance payments, and retirement benefits.

Grantor
an individual conveying an interest in real property.

Grantee
an individual to whom an interest in real property is conveyed.

Graduated Payment Mortgages
mortgages that begin with lower monthly payments that get slowly larger over a period of years, eventually reaching a fixed level and remaining there for the life of the loan. Graduated payment loans may be good if you expect your annual income to increase.

GSE
abbreviation for government sponsored enterprises

Guaranty Fee
payment to FannieMae from a lender for the assurance of timely principal and interest payments to MBS (Mortgage Backed Security) security holders.

Hazard Insurance
protection against a specific loss, such as fire, wind etc., over a period of time that is secured by the payment of a regularly scheduled premium.

HELP
Homebuyer Education Learning Program; an educational program from the FHA that counsels people about the home buying process; HELP covers topics like budgeting, finding a home, getting a loan, and home maintenance; in most cases, completion of the program may entitle the homebuyer to a reduced initial FHA mortgage insurance premium-from 2.25% to 1.75% of the home purchase price.

HECM (Reverse Mortgage)
the reverse mortgage is used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. A lending institution such as a mortgage lender, bank, credit union or savings and loan association funds the FHA insured loan, commonly known as HECM.

Housing Counseling Agency
provides counseling and assistance to individuals on a variety of issues, including loan default, fair housing, and home buying.

Homestead Credit
property tax credit program, offered by some state governments, that provides reductions in property taxes to eligible households.

Homeownership Education Classes
classes that stress the need to develop a strong credit history and offer information about how to get a mortgage approved, qualify for a loan, choose an affordable home, go through financing and closing processes, and avoid mortgage problems that cause people to lose their homes.

Homeowner's Insurance
an insurance policy, also called hazard insurance, that combines protection against damage to a dwelling and its contents including fire, storms or other damages with protection against claims of negligence or inappropriate action that result in someone's injury or property damage. Most lenders require homeowners insurance and may escrow the cost. Flood insurance is generally not included in stan...

Home Warranty
offers protection for mechanical systems and attached appliances against unexpected repairs not covered by homeowner's insurance; coverage extends over a specific time period and does not cover the home's structure.

Home Inspection
an examination of the structure and mechanical systems to determine a home's quality, soundness and safety; makes the potential homebuyer aware of any repairs that may be needed. The homebuyer generally pays inspection fees.

Home Equity Loan
a loan backed by the value of a home (real estate). If the borrower defaults or does not pay the loan, the lender has some rights to the property. The borrower can usually claim a home equity loan as a tax deduction.

Home Equity Line of Credit
a mortgage loan, usually in second mortgage, allowing a borrower to obtain cash against the equity of a home, up to a predetermined amount.

HUD1 Statement
also known as the "settlement sheet," or "closing statement" it itemizes all closing costs; must be given to the borrower at or before closing. Items that appear on the statement include real estate commissions, loan fees, points, and escrow amounts.

HVAC
Heating, Ventilation and Air Conditioning; a home's heating and cooling system.

Intermediate Term Mortgage
a mortgage loan with a contractual maturity from the time of purchase equal to or less than 20 years.

Interest Rate Swap
a transaction between two parties where each agrees to exchange payments tied to different interest rates for a specified period of time, generally based on a notional principal amount.

Interest Rate
the amount of interest charged on a monthly loan payment, expressed as a percentage.

Interest
a fee charged for the use of borrowing money.

Insurance
protection against a specific loss, such as fire, wind etc., over a period of time that is secured by the payment of a regularly scheduled premium.

Inquiry
a credit report request. Each time a credit application is completed or more credit is requested counts as an inquiry. A large number of inquiries on a credit report can sometimes make a credit score lower.

Inflation Coverage
endorsement to a homeowner's policy that automatically adjusts the amount of insurance to compensate for inflationary rises in the home's value. This type of coverage does not adjust for increases in the home's value due to improvements.

Inflation
the number of dollars in circulation exceeds the amount of goods and services available for purchase; inflation results in a decrease in the dollar's value.

Index
the measure of interest rate changes that the lender uses to decide how much the interest rate of an ARM will change over time. No one can be sure when an index rate will go up or down. If a lender bases interest rate adjustments on the average value of an index over time, your interest rate would not be as volatile. You should ask your lender how the index for any ARM you are considering has chan...

Indemnification
to secure against any loss or damage, compensate or give security for reimbursement for loss or damage incurred. A homeowner should negotiate for inclusion of an indemnification provision in a contract with a general contractor or for a separate indemnity agreement protecting the homeowner from harm, loss or damage caused by actions or omissions of the general (and all sub) contractor.

Jumbo Loan
or non-conforming loan, is a loan that exceeds Fannie Mae's and Freddie Mac's loan limits. Freddie Mac and Fannie Mae loans are referred to as conforming loans.

Judgment
a legal decision; when requiring debt repayment, a judgment may include a property lien that secures the creditor's claim by providing a collateral source.

Late Payment Charges
the penalty the homeowner must pay when a mortgage payment is made after the due date grace period.

Lender Option Commitments
an agreement giving a lender the option to deliver loans or securities by a certain date at agreed upon terms.

Lender
A term referring to an person or company that makes loans for real estate purchases. Sometimes referred to as a loan officer or lender.

Lease Purchase (Lease Option)
assists low to moderate income homebuyers in purchasing a home by allowing them to lease a home with an option to buy; the rent payment is made up of the monthly rental payment plus an additional amount that is credited to an account for use as a down payment.

Lease
a written agreement between a property owner and a tenant (resident) that stipulates the payment and conditions under which the tenant may occupy a home or apartment and states a specified period of time.

Listing Agreement
a contract between a seller and a real estate professional to market and sell a home. A listing agreement obligates the real estate professional (or his or her agent) to seek qualified buyers, report all purchase offers and help negotiate the highest possible price and most favorable terms for the property seller.

Liquid Asset
a cash asset or an asset that is easily converted into cash.

Line of Credit
an agreement by a financial institution such as a bank to extend credit up to a certain amount for a certain time to a specified borrower.

Life Cap
a limit on the range interest rates can increase or decrease over the life of an adjustable-rate mortgage (ARM).

Lien Waiver
A document that releases a consumer (homeowner) from any further obligation for payment of a debt once it has been paid in full. Lien waivers typically are used by homeowners who hire a contractor to provide work and materials to prevent any subcontractors or suppliers of materials from filing a lien against the homeowner for nonpayment.

Lien
a legal claim against property that must be satisfied when the property is sold. A claim of money against a property, wherein the value of the property is used as security in repayment of a debt. Examples include a mechanic's lien, which might be for the unpaid cost of building supplies, or a tax lien for unpaid property taxes. A lien is a defect on the title and needs to be settled before transf...

Liability Insurance
insurance coverage that protects against claims alleging a property owner's negligence or action resulted in bodily injury or damage to another person. It is normally included in homeowner's insurance policies.

Liabilities
a person's financial obligations such as long-term / short-term debt, and other financial obligations to be paid.

Loss Mitigation
a process to avoid foreclosure; the lender tries to help a borrower who has been unable to make loan payments and is in danger of defaulting on his or her loan

Lock-in Period
the length of time that the lender has guaranteed a specific interest rate to a borrower.

Lock-In
since interest rates can change frequently, many lenders offer an interest rate lock-in that guarantees a specific interest rate if the loan is closed within a specific time.

Loan to Value (LTV) Ratio
a percentage calculated by dividing the amount borrowed by the price or appraised value of the home to be purchased; the higher the LTV, the less cash a borrower is required to pay as down payment.

Loan Servicer
the company that collects monthly mortgage payments and disperses property taxes and insurance payments. Loan servicers also monitor nonperforming loans, contact delinquent borrowers, and notify insurers and investors of potential problems. Loan servicers may be the lender or a specialized company that just handles loan servicing under contract with the lender or the investor who owns the loan.

Loan Origination Fee
a charge by the lender to cover the administrative costs of making the mortgage. This charge is paid at the closing and varies with the lender and type of loan. A loan origination fee of 1 to 2 percent of the mortgage amount is common.

Loan Officer
a representative of a lending or mortgage company who is responsible for soliciting homebuyers, qualifying and processing of loans. They may also be called lender, loan representative, account executive or loan rep.