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Mortgage Glossary
Debt to Income Ratio - The comparison of your gross income to housing as compared to your non-housing expenses. The FHA usually requires monthly mortgage payment to 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.
Deed - Legal document with which title to real property is transferred from one owner to another. The deed contains a description of the property, and is signed, witnessed, and delivered to the buyer at closing.
Discount Points (or Points) - Points are an up-front fee paid to the lender at the time that you get your loan. Each point equals one percent of your total loan amount. Points and interest rates are inherently connected: in general, the more points you pay, the lower your interest rate. However, the more points you pay, the more cash you need up front since points are paid in cash at closing. Generally 0 - 2% of loan
Document Preparation Fee - Occasionally companies charge this to prepare the loan closing documents. This fee covers the cost of this service.
Down Payment - The amount of your home's purchase price you need to supply up front in cash to get your loan. For conventional loans, you should strive for a down payment that's at least 20% of your home's value, since lenders generally do not require private mortgage insurance with a down payment of at least 20% of your home's purchase price. (Note, however, that FHA and VA loans have different policies regarding insurance.)
Due On Sale Clause - Provision in a mortgage or deed of trust allowing the lender to demand immediate payment of the loan balance upon sale of the property.
Duplex - Owner occupied property for more than one family.
back to topEarnest Money - Deposit made by a buyer towards the down payment in evidence of good faith when the purchase agreement is signed. The deposit 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.
Escrow - A transaction in which a third party acts as the agent for seller and buyer, or for borrower and lender, in handling legal documents and disbursement of funds. Also refers to a special account held by the lender to which the borrower pays monthly installments, collected as part of the monthly mortgage payment, for annual expenses such as taxes and insurance. The lender disburses escrow account funds on behalf of the borrower when they become due. Also known as Impound Account.
Estimated Closing Fee - An estimate of the fees that must be paid on or before the closing date by the buyer and/or seller for services, taxes and items necessary to obtain mortgage. These fees will average between 2% and 5% of the loan amount and vary by lender, property location, and type of mortgage. Some fees are one-time expenses and some are recurring.
Equity - The difference between the current market value of a property and the total debt obligations against the property. On a new mortgage loan, the down payment represents the equity in the property.
Express Courier Fee - This fee covers the cost of an overnight courier to expedite the payoff of the existing loan. About $30.
back to topFannie Mae - The official name of the Federal National Mortgage Association, this agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.
Federal Housing Association - A federal agency within the Department of Housing and Urban Development (HUD), which insures residential mortgage loans made by private lenders and sets standards for underwriting mortgage loans. The FHA sets standards for construction and underwriting, however it does not lend money or plan or construct housing.
Federal Housing Association (or FHA) Mortgage - A low down payment loan that is insured against loss by the Federal Housing Administration. The borrower pays an insurance premium and the loan amount is usually limited.
Federal Reserve Board - The 7-member Board of Governors that oversees Federal Reserve Banks, establishes monetary policy (interest rates, credit, etc.), and monitors the economic health of the country. Its members are appointed by the President subject to Senate confirmation, and serve 14-year terms. also called the Fed.
Finance Charge - Your finance charge is the total of all the interest you would pay over the entire life of the loan, assuming you kept the loan to maturity, as well as all prepaid finance charges. Loan charges include origination fees, discount points, mortgage insurance, and other applicable charges. If the seller pays any of these charges, they cannot be included in the finance charge. If you pre-pay any principal during your loan, your monthly payments remain the same, but your total finance charge will be reduced.
Financial Statement - The financial summary of a person's or a company's financial situation. The statement includes a person's assets and liabilities for a given date and a company's Profit and Loss Statement for a given date.
FICO (or Fair Isaac & Co) - The most common credit-scoring model used by lenders, it is also known as a Fair, Isaac score. Your FICO can range from 200 to 900. According to this model, the higher your score, the less likely you are to default on your loan.
First Mortgage - A mortgage that is in first lien position, taking priority over all other liens. In the case of a foreclosure, the first mortgage will be repaid before any other mortgages.
Fixed Rate Mortgage - An interest rate that is fixed for the term of the loan, 15 year and 30 year loans are the most common types. Also called a traditional loan.
Flood Certification Fee - Federal law requires that you obtain flood hazard insurance if your property lies in a flood zone. A flood determination company is used to identify if your house is located in a flood zone. The flood certification fee covers the cost. If your house is located in a flood zone, you will be required to purchase Flood Insurance.
Flood Insurance - Insurance that compensates for physical damage to a property by flood. Typically not covered under standard hazard insurance.
Foreclosure (or Repossession) - Legal process by which a mortgaged property may be sold to pay off a mortgage loan that is in default.
Freddie Mac - This agency buys loans that are underwritten to its specific guidelines. These guidelines are an industry standard for residential conventional lending.
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Quicken Loans
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