Glossary Glossary Index | A B C | D E F | G H I J K L M N | O P Q R S T U V Z   Debt   An amount owed to another. Debt is one area of financial information that lenders review carefully during the mortgage lending process. It is also referred to as liability.   Back to glossary index   Debt-to-Income Ratio   A borrower's total monthly debt divided by gross monthly income and shown as a percentage. (Example: If debt = $1,200 and gross monthly income = $5,000, then the Debt-to-Income Ratio would equal $1,200 divided by $5,000 or 24%.) Total monthly debt includes monthly mortgage payments as well as student loans, car loans, and credit card payments. Also called the back-end ratio or total debt ratio.   Back to glossary index   Default   The failure to make loan payments on time, in the amount specified, or as required in the terms of the obligation or note.   Back to glossary index   Depreciation   A decrease in the value of a property due to market conditions or other causes.   Back to glossary index   Discount Points   Points are a percentage of the loan amount paid at closing that may affect the interest rate. For instance, on a $90,000 loan amount, 1 point = 1 % or $900. Points are typically paid to buy down the rate. Alternatively, in exchange for a higher rate, the lender may pay points to offset a borrower's closing costs. These are considered negative points   Back to glossary index   Down Payment   The part of the purchase price of a property that a purchaser pays in cash up-front, and does not finance with a mortgage.   Back to glossary index   Earnest Money   A deposit made in good faith, when an offer is made on a home. Typically, this money is not refundable, unless the terms of the contract are not met.   Back to glossary index   Equal Credit Opportunity Act (ECOA)   A federal law that requires lenders and other creditors to make credit equally available to all applicants without discrimination based on race, color, religion, national origin, age, sex, marital status, or that the applicant's income is derived from public assistance programs or has in good faith exercised any right under the Consumer Credit Protection Act.   Back to glossary index   Equity   A homeowner's financial interest in a property. Equity is the difference between the fair market value of the property and all amounts owed on the property. On a new mortgage purchase loan, the down payment represents the initial equity in the property.   Back to glossary index   Equity Line of Credit   An open-end loan, usually recorded as a second mortgage, that permits borrowers to obtain cash advances based on an approved line of credit.   Back to glossary index   Escrow   A transaction in which a third party holds money for the seller or buyer, or for the borrower and lender in order to handle legal documents and disbursement of funds.   Back to glossary index   Escrow Account   A trust account created by a third party to hold money. A mortgage escrow account is an account set up to pay taxes and insurance. Monthly mortgage payments may include 1/12 of annual property taxes and insurance. When the bills comes due, lenders use the money in the escrow account to pay them.   Back to glossary index   Escrow Analysis   The periodic examination of escrow accounts to determine if current monthly deposits are enough to pay taxes, insurance, and other bills when due. Lenders are required to review escrow accounts annually, and provide the borrower with the analysis.   Back to glossary index   Escrow Payment   The portion of the monthly mortgage payment that is held in an escrow account to pay for taxes and homeowner's insurance. This is known as impounds or reserves in some states.   Back to glossary index   Estate   The total of real property and personal property owned by an individual at time of death.   Back to glossary index   Estimated Gross Costs of Buying   Total principal and interest payments over the number of years that a homeowner plans to own a home.   Back to glossary index   Estimated Increase in Equity   A specified property value increased by a selected rate of appreciation for a specific number of years.   Back to glossary index   Estimated Net Costs of Buying   The estimated gross costs of buying minus the total of estimated tax savings and the estimated increase in equity.   Back to glossary index   Estimated Tax Savings   The amount of tax a renter would save by not owning a home. The tax figure is derived from property taxes and interest paid.   Back to glossary index   Estimated Total Costs of Renting   What it would cost to rent instead of own a house using the total current rental payments for the same number of years a homeowner would plan to own a home (plus a yearly rental increase adjustment).   Back to glossary index   Estimated Total Savings   The difference between the estimated net costs of renting and the lower net cost of buying.   Back to glossary index   Fair Credit Reporting Act   A consumer protection law that regulates the disclosure of consumer credit reports by consumer/credit reporting agencies and establishes procedures for correcting mistakes on an individual's credit record.   Back to glossary index   Fannie Mae   Fannie Mae is an agency chartered by the U.S. Congress and is the nation's largest supplier of home mortgage funds. In other words, it buys mortgages from lenders. This is known as the secondary market.   Back to glossary index   Federal Home Loan Mortgage Corporation - Freddie Mac   Created by Congress, this stockholder-owned corporation, a portion of whose board of directors is appointed by the President of the United States, supports the secondary market in mortgages on residential and multifamily properties with mortgage purchase and securitization programs.   Back to glossary index   Federal Housing Administration (FHA)   An agency within the U.S. Department of Housing and Urban Development (HUD), the FHA insures residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money, plan housing or construct housing.   Back to glossary index   FHA Mortgage   An FHA mortgage is insured and guaranteed by the Federal Housing Administration (FHA) and requires little or no down payment. These loans are designed to make a home purchase more affordable than with a conventional loan, especially for the first-time homebuyer. Be aware that FHA loans are subject to limitations on the amount of money that can be borrowed for an FHA loan. These limits vary throughout the country.   Back to glossary index   First Mortgage   A first mortgage is a mortgage that is the primary lien against a property, and takes priority over all other liens.   Back to glossary index   Fixed-rate Mortgage (FRM)   A mortgage in which the interest rate does not change during the entire term of the loan. This means that the monthly payments for principal and interest are also fixed for the life of the loan.   Back to glossary index   Float Rate   (See Rate Float)   Back to glossary index   Flood Insurance   Special hazard coverage from a reputable flood insurance provider that is recommended on all properties and required if a property is located in a special flood hazard area.   Back to glossary index   Fund a Loan   Funding is the actual date that funds are dispersed to the seller of a property or a borrower on a refinance. In some cases this happens simultaneous with closing.   Back to glossary index