Glossary of Terms

It is often said that mortgage financing has a language of its own. To help you through the process, we have a dictionary of common terms you’re likely to come across during the home financing process. Of course, if you’re unsure about a term, or you see something you’re unfamiliar with, give us a call at 888-509-2867.

E

EARNEST MONEY

The earnest money is the deposit money given to the seller or his agent by the potential buyer upon the signing of the agreement of sale to show that he is serious about buying the house. If the sale goes through, the earnest money is applied against the down payment. If the sale does not go through, the earnest money deposit will be forfeited to the seller unless the purchase contract expressly provides conditions for its return to the buyer.

EASEMENT

The right to use the land of another for a specific limited purpose.

ECONOMIC OBSOLESCENCE

Impairment of desirability or useful life arising from economic forces, such as changes in optimum land use, legislative enactments that restrict or impair property rights, and changes in supply-demand relationships. Loss in the use and value of property arising from the factors of economic obsolescence is to be distinguished from loss in value from physical deterioration and functional obsolescence.

EMINENT DOMAIN

A government right to acquire private property for public use by condemnation and the payment of just compensation.

ENCROACHMENT

Unauthorized intrusion of a building or improvement such as a wall, fence, etc. onto another's land.

ENCUMBRANCE

A legal right or interest in land that affects a good or clear title and may diminish the land's value. It can take numerous forms, including zoning ordinances, easement rights, claims, mortgages, liens, charges, a pending legal action, unpaid taxes, or restrictive covenants. An encumbrance does not legally prevent the transfer of real property. It is up to the buyer to determine whether to purchase with the encumbrance.

ENTITLEMENT

The VA home loan benefit is called entitlement. This entitlement is for a VA guaranteed home loan. This is also known as eligibility.

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.

EQUITY

The value an owner has in real estate over and above the obligation against the property.

EQUITY LOAN

An installment loan or revolving line of credit that allows you to borrow money against the portion of your home that you already own (your equity). Generally the interest paid on equity loans is tax deductible.

ESCROW

The deposit of instruments and/or funds into the care of a neutral third party with instructions to carry out the provisions of an agreement or contract once all instruments and/or funds have been deposited. Many closings are handled by escrow agents. In this situation, the seller deposits the deed and the buyer deposits the funds necessary with the escrow agent. Once all requirements of the purchase contract are in the control of the escrow agent, the money and deed are distributed accordingly.

ESCROW PAYMENT

Also known as impounds in some states. That portion of a mortgagor's monthly payment held in trust by the lender to pay for taxes, mortgage insurance, hazard insurance, lease payments and other items as they become due.

ESCROW REIMBURSEMENT

The buyer reimburses the seller for the current balance of his escrow (or impounded) funds.

ESTIMATED CLOSING COSTS STATEMENT

The statement that lists the financial settlement between buyer and seller and the costs each must pay. A separate statement for buyer and seller is sometimes prepared.

ESTOPPELS

An impediment to a law of action whereby one is forbidden to contradict or deny one's own previous statement or act.

EXCLUSIVE AGENCY

Real estate agency with exclusive right to sell a property.

EXCLUSIVE RIGHT-TO-SELL

Listing agreement under which the owner promises to pay a commission if the property is sold during the listing period by anyone, even the owner.

F

FANNIE MAE

see FEDERAL NATIONAL MORTGAGE ASSOCIATION.

FARMERS HOME ADMINISTRATION (FmHA)

Provides financing to farmers and other qualified borrowers who are unable to obtain loans elsewhere.

FEDERAL HOME LOAN MORTGAGE CORPORATION (FREDDIE MAC/FHLMC)

A government-sponsored agency that is also a publicly traded company on the New York Stock Exchange. It purchases mortgage loans from mortgage bankers and financial depository institutions. FHLMC is a major secondary market investor.

FEDERAL HOUSING ADMINISTRATION (FHA)

A division of the Department of Housing and Urban Development. Its main activity is the insuring of residential mortgage loans made by private lenders. FHA also sets standards for underwriting mortgages.

FEDERAL NATIONAL MORTGAGE ASSOCIATION (FANNIE MAE/FNMA)

FNMA is one of the major secondary market investors that purchase loans from mortgage companies and other depository institutions. The company is a private corporation and its stock is traded on the New York Stock Exchange.

FEDERAL RESERVE BANK

The regulatory agency for certain commercial banks and bank holding companies. It sets monetary policy for the country and provides liquidity for supervised financial institutions.

FEDERAL TAX LIEN

A lien attached to property for nonpayment of a federal tax.

FEDERAL TAX RETURN

The U.S. government's method to identify individual and company's annual tax responsibility. The tax returns identify the income and taxes.

FEE SIMPLE

Highest possible degree of ownership of land. The estate allows owners to have unrestricted powers to dispose of property, which can be left by will or inherited.

FHA LOAN

A loan insured by the Federal Housing Administration open to all qualified home purchasers. While there are limits to the size of FHA loans, they are generous enough to handle moderately priced homes almost anywhere in the country.

FHA MORTGAGE INSURANCE

The amount the FHA charges upfront when they insure an FHA loan.

FIDUCIARY

A person in a position of trust or responsibility with specific duties to act in the best interest of a client. Real estate brokers and mortgage brokers are fiduciaries.

FINANCIAL DEPOSITOR INSTITUTIONS

Banks, savings and loans or credit unions.

FIRM COMMITMENT

A promise by FHA to insure a mortgage loan for a specified property and borrower. A promise from a lender to make a mortgage loan.

FIRST MORTGAGE

Mortgage holding priority over the claims of subsequent lenders against the same property.

FIXED RATE

An interest rate that does not change from the time you obtain a loan until it is paid in full.

FIXED-RATE MORTGAGE

A mortgage program in which the mortgage interest rate will remain the same throughout the term of the mortgage for the original borrower.

FIXTURE

Personal property affixed to structures or land, usually in such manner that it cannot be independently moved without damage to itself or the property housing, supporting, or pertinent to it. Varies under state laws.

FORECLOSURE

A legal process by which the lender or the seller forces a sale of a mortgaged property because the borrower has not met the terms of the mortgage. Also known as a repossession of property.

FREDDIE MAC

See Federal Home Loan Mortgage Corporation.

FULL DISCLOSURE

Revealing all known facts that may affect the decision of a buyer or tenant.

FUNCTIONAL OBSOLESCENCE

Impairment of functional capacity or efficiency. For example, homes without indoor plumbing (while they may contain working outdoor plumbing facilities) are considered functionally obsolete.