REAL ESTATE GLOSSARY & DEFINITIONS D-G
Short for “deed in lieu of foreclosure,” this conveys title to the lender when the borrower is in default and wants to avoid foreclosure. The lender may or may not cease foreclosure activities if a borrower asks to provide a deed-in-lieu. Regardless of whether the lender accepts the deed-in-lieu, the avoidance and non-repayment of debt will most likely show on a credit history. What a deed-in-lieu may prevent is having the documents preparatory to a foreclosure being recorded and become a matter of public record.
Deed of Trust
Like a mortgage, a security instrument whereby real property is given as security for a debt. However, in a deed of trust there are three parties to the instrument: the borrower, the trustee, and the lender, (or beneficiary). In such a transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the debt to the lender or beneficiary. If the borrower pays the debt as agreed, the deed of trust becomes void. If, however, he defaults in the payment of the debt, the trustee may sell the property at a public sale, under the terms of the deed of trust. In most jurisdictions where the deed of trust is in force, the borrower is subject to having his property sold without benefit of legal proceedings. A few States have begun in recent years to treat the deed of trust like a mortgage.
Failure to make the mortgage payment within a specified period of time. For first mortgages or first trust deeds, if a payment has still not been made within 30 days of the due date, the loan is considered to be in default.
Failure to make mortgage payments when mortgage payments are due. For most mortgages, payments are due on the first day of the month. Even though they may not charge a “late fee” for a number of days, the payment is still considered to be late and the loan delinquent. When a loan payment is more than 30 days late, most lenders report the late payment to one or more credit bureaus.
A decline in the value of property; the opposite of appreciation. Depreciation is also an accounting term which shows the declining monetary value of an asset and is used as an expense to reduce taxable income. Since this is not a true expense where money is actually paid, lenders will add back depreciation expense for self-employed borrowers and count it as income.
The typical commission charged to a seller by a real estate agent to list and sell their home is 6%. A Discount Listing would be one that offers a lower commission to a seller for that service. Nationwide Realty Services Discount Listing programs vary from area to area and from time to time. These programs can include a reduced commission percentage rate, a Flat Fee Commission, or even a small fee for simply listing your home in the local MLS or on our web site.
In the mortgage industry, this term is usually used in only in reference to government loans, meaning FHA and VA loans. Discount points refer to any “points” paid in addition to the one percent loan origination fee. A “point” is one percent of the loan amount.
The amount of money to be paid by the purchaser to the seller upon the signing of the agreement of sale. The agreement of sale will refer to the downpayment amount and will acknowledge receipt of the downpayment. Downpayment is the difference between the sales price and maximum mortgage amount. The downpayment may not be refundable if the purchaser fails to buy the property without good cause. If the purchaser wants the downpayment to be refundable, he should insert a clause in the agreement of sale specifying the conditions under which the deposit will be refunded, if the agreement does not already contain such clause. If the seller cannot deliver good title, the agreement of sale usually requires the seller to return the downpayment and to pay interest and expenses incurred by the purchaser.
Down Payment Assistance
One of the largest expenses that a home buyer. has to overcome is the down payment. Typical loans may require a down payment of more than 5% of the selling price. So a home of $250,000 would require a down payment of $12,500 or more. Many buyers, especially 1st Time Buyers, Low Income Borrowers or Moderate Income Borrowers will have a difficult time raising this much cash. Two common programs are used to reduce or remove the down payment. These programs are 100% Financing and Silent Seconds.
As opposed to a real estate agent who represents a buyer only or a seller only, a Dual Agency exists when an agent represents both a buyer and seller on the same transaction. This can sometimes reduce the commissions paid to the agent, however, the relationship can place the agent in a difficult negotiating position. The agent may have a difficult time making negotiating suggestions to one party without violating the trust of the other party.
Earnest money deposit
When a home buyer. and a home seller enter into a real estate contract the buyer must offer a cash deposit to the seller to make the contract binding and to convince the seller that the buyer is serious about the purchase. This deposit is the Earnest Money Deposit. The amount of the deposit is completely negotiable between the buyer and seller but is typically several hundred to several thousand dollars.
A right- of- way granted to a person or company authorizing access to or over the owner’s land. An electric company obtaining a right- of- way across private property is a common example.
When a home buyer. moves from renting a home to owning a home, they will probably experience an income tax savings. When a 1st Time Buyer uses the tax credit program, those tax savings can be substantially higher. The new buyer can receive several hundreds of dollars each month in tax savings which can be paid to them in their regular pay checks. This additional income reduces the burden of the new monthly payment for the home and should be considered as reducing the payment. Therefore, the Effective Payment is the monthly house payment less any additional tax savings the new buyer receives. This Effective Payment gives the new buyer a better comparison of their new obligation to their current rent payment.
A legal right or interest in land that affects a good or clear title, and diminishes the land’s value. It can take numerous forms, such as zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive convenants. An encumbrance does not legally prevent transfer of the property to another. A title search is all that is usually done to reveal the existence of such encumbrances, and it is up to the buyer to determine whether he wants to purchase with the encumbrance, or what can be done to remove it.
Equal Credit Opportunity Act (ECOA)
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.
An item of value, money, or documents deposited with a third party to be delivered upon the fulfillment of a condition. For example, the earnest money deposit is put into escrow until delivered to the seller when the transaction is closed.
Once you close your purchase transaction, you may have an escrow account or impound account with your lender. This means the amount you pay each month includes an amount above what would be required if you were only paying your principal and interest. The extra money is held in your impound account (escrow account) for the payment of items like property taxes and homeowner’s insurance when they come due. The lender pays them with your money instead of you paying them yourself.
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 one’s credit record.
Fannie Mae (FNMA)
The Federal National Mortgage Association, which is a congressionally chartered, shareholder-owned company that is the nation’s largest supplier of home mortgage funds. For a discussion of the roles of Fannie Mae, Freddie Mac (FHLMC), and Ginnie Mae (GNMA), see the Library.
Fannie Mae’s Community Home Buyer’s Program
An income-based community lending model, under which mortgage insurers and Fannie Mae offer flexible underwriting guidelines to increase a low- or moderate-income family’s buying power and to decrease the total amount of cash needed to purchase a home. Borrowers who participate in this model are required to attend pre-purchase home-buyer education sessions.
Federal Housing Administration (FHA)
An agency of the U.S. Department of Housing and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans made by private lenders. The FHA sets standards for construction and underwriting but does not lend money or plan or construct housing.
Federal Home Loan Mortgage Corporation (FHLMC) commonly referred to as Freddie Mac is an agency that purchases conventional mortgage loans from lenders. FHLMC and FNMA together make up what is know as the Secondary Market. Although it does not originate any loans, by purchasing home loans originated by lenders, it frees up more money to be used by those lenders to originate more home loans. These loans must conform to FHLMC standards which is why they are called Conforming Loans. FHLMC programs can often be combined with other programs to create very effective financing packages.
Fee simple estate
An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.
Lender programs designed to lower the up front cash requirement of a Home buyer’s These programs can involve just one loan or multiple loans (a 1st Trust Deed and a 2nd Trust Deed) and may even involve using multiple lenders for each loan. Nationwide Realty Services is a Mortgage Broker which allows us to use more than one lender for your transaction and get the best terms for the 1st Trust Deed and then use another lender and get the best terms on the 2nd Trust Deed.
Flat Fee Listing
The typical commission charged to a seller by a real estate agent to list and sell their home is 6%. Therefore a typical commission on a home which sells for $100,000 is $6,000. When working in an area of million dollar homes the commission could exceed $60,000 for one transaction. When working in these areas, many real estate agents may offer a set dollar amount as a commission rate rather than a percentage of the selling price. This set dollar amount is know as a Flat Fee Listing.
When a borrower stops making their house payments, the lender will file a “Notice of Default” with the county recorders office. The borrower will then have a few months to make up any payments that were missed. After that period expires, the lender will take the property back from the borrower. The taking back of the property is a Foreclosure. Most lenders will then sell the property.
FSBO (FSBO or Fisbo)
Rather than paying a commission to a real estate agent to list for sale, market their home, negotiate with home buyers, and close the transaction, many sellers are willing to take that task on themselves in order to save the commission. When a seller represents themselves without using a real estate agent, they are offering the home as a “ For Sale by Owner” or FSBO.
Full Service Listing
The processes involved in listing and selling your home include: Establishing the market type (Buyer’s Market, Seller’s Market, or Balanced Market), creating a Financing Package, establishing a selling price for you home, preparing your home for showing, placing your home on the market, opening your home to potential buyers, entertaining offers, negotiating the sale, and closing the transaction. A real estate company that offers all the above would be offering a Full Service Listing.
Government loan (mortgage)
A mortgage that is insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) or the Rural Housing Service (RHS). Mortgages that are not government loans are classified as conventional loans.
For years the government has understood that unless we can bring in 1st Time Buyers to the real estate market, the entire market will fail. In fact, 1st Time Buyers have made up about 40% of all buyers throughout the country. After all, if you a are a home seller selling a moderately low priced home, most of the home buyers who will want your home will be 1st Time Buyers. If you take those buyers out of the market, who will buy the lower priced homes so that those sellers can buy their second or third homes? Therefore, the government has been very active in creating special programs designed to get more 1st Time Buyers, Moderate Income Buyers and Low Income Borrowers into the market. These programs will include Silent Seconds, Shared Equity, MCC, CHBP, FHA, VA,
CalHFA, and many more.
Government National Mortgage Association (Ginnie Mae)
A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Created by Congress on September 1, 1968, GNMA performs the same role as Fannie Mae and Freddie Mac in providing funds to lenders for making home loans. The difference is that Ginnie Mae provides funds for government loans (FHA and VA)
Typically funded by Government Agencies from the federal level town to the county or city level. These programs offer interest free loans to selected home buyers which will be forgiven if the borrower stays in the home for a set period of years (usually 6-10 years). This means that if you live in your home for that number of years, you never have to pay back the loan or any interest on the loan, thus it becomes a gift. These gifts can be used for down payments or closing costs.