The Finance Owl

Banks – Loans – Mortgages – Money

USA Loans GlossaryDebt - This occurs when an individual, company or organization owes an amount for funds borrowed.

Debt Consolidation – One loan is used to pay off a number of debts over a long term period.

Debt Service – A necessary payment, usually monthly, quarterly or annually, that meets the debt agreement.

Debt Service Reserve – A cash reserve, set aside by the borrower, can be used to repay debt when insufficient funds are made.

Debt-to-Income Ratio – This is a percentage of your total debt compared to your total income before taxes.

Deed (Warranty or Quitclaim) – A deed is a legal document that transfers ownership of real estate from one party, the grantor, to another party the grantee. A warranty deed confirms that the seller owns the property being sold and it is free from any outstanding claims from any lenders or creditors. A quitclaim deed is a document presented to a buyer by a person who does not own the property being sold but holds full responsibility. This type of document is mainly used if a property is to stay within a family such as if the owner dies leaving the property to the family.

Default - This is the failure to make any mortgage or loan payments on time or to comply with any other mortgage covenants.

Delinquent - This is overdue or any unpaid payments.

Depreciation - Depreciation is a reduction in the value of property overtime as a result of wear and tear or any other reason.

Destination Charge – A fixed fee which reflects the average cost a dealer would pay for the shipping and delivering a new car.

Discount Points – Discount points are fees paid at closing to your mortgage lender to lower the interest rate on your mortgage loan. One point is equivalent to one percent of the loan amount.

Document Preparation – This is cost of preparing the necessary documents for closing.

Down Payment – Down payment is the difference between the purchase price of a property and the mortgage loan amount. The buyer will usually pay a certain amount of cash towards the purchase of the property to demonstrate commitment. Down payments vary between 5 – 20 % of the sales price.

Draw Period – This is a period of time in which a borrower may withdraw funds from an available line of credit. Time periods depend on the terms of the loan. At the end of the draw period the borrower may renew or maybe requested to pay back the outstanding balance in full or monthly payments.

Due Diligence – This is the verification of information and facts presented by the borrower such as sources of income, value of assets serving as collateral, accuracy of financial statements or tax status.

Equity - Home equity is the difference between the fair market value and the unpaid mortgage on a home.

Equity Participation – Equity participation is having a stake within a company as a result of making an investment. Returns on the investment are dependent on the profitability of the company.

Escrow - An Escrow agent operates as a neutral third party on behalf of sellers and buyers in a real estate transaction having the authority to deal with any documents or funds. As a result the buyer and seller are protected in the transaction from any unauthorized use of funds on both sides. An Escrow account, required and held by many lenders, is a trust account held in the borrowers name to pay obligations such as property taxes and insurance.

Fair Credit Reporting Act (FCRA) – The Fair Credit Reporting Act is an American Federal law that promotes the accuracy, fairness and privacy of information in the files of the Consumer Reporting Agency or CRA. CRA’s are used by businesses when requiring a credit history which is used to determine a loan, credit, insurance or employment application.

Fair Market Value – This is the likely price which a willing buyer will buy a property from a willing seller on the open market assuming either party are not desperate.

Fannie Mae - Fannie Mae is a Federal National Mortgage Association (FNMA) chartered as a government sponsored enterprise (GSE) which purchases and securitizes mortgages for resale in the secondary market.

FHA - Otherwise known as the Federal Housing Administration, a federal agency established to improve housing standards and conditions. The FHA provides mortgage insurance for certain residential mortgages.

FICO - FICO or the Fair Isaac Company, Inc. is a numerical credit score, ranging from 200 -900, that is used by lenders when assessing a credit risk.

Finance Charge – A finance charge, expressed as a dollar amount, is the cost of interest including points and any other fees incurred during the terms of the loan.

First Mortgage – This is a mortgage that has priority over all the other mortgages that may be on a property.

Fixed Rate Mortgage – A fixed rate mortgage is a loan with an interest rate that is set for an agreed period.

Flood Certificate – This is a form of confirmation, required by the lender, if the property is in or out of a federally designated flood zone.

Flood Insurance – A type of insurance required by law if the property is in a federally designated flood zone therefore giving protection against loss due to flooding.

Foreclosure - This is a legal process by which the lender regains property following default on mortgage repayments by the borrower.

Freddie Mac – A government sponsored enterprise (GSE) which purchases and securitizes mortgages for resale in the secondary market.

Fund Balance – This is the difference between total assets and total liabilities of a nonprofits organization.

Gift Funds – These are funds given to the borrower as a gift from another party that do not need to be repaid. Such funds maybe used for down payment or closing costs.

Good Faith Estimate (GFE) – This is a document, prepared by the lender, providing an estimate of all the fees and costs associated with the home loan. A good faith estimate must be provided within 3 business days of loan application.

Gross Annual Income – This is the total amount of income per year before any deductions have been made.

Guaranteed Loan – A loan guaranteed to be repaid by a third party if the borrower defaults.

Home Equity Line of Credit (HELOC) – This is a type of flexible loan, with a set credit limit, in which the borrower’s home equity serves as collateral. Most loan amounts have a limit of 75 – 85% of the home’s appraisal value. A borrower may make a repayment of any amount as long as it is greater than the minimum payment. Funds can be drawn out when needed such as for major expenses, home improvement or debt consolidation.

Home Equity Loan – This is a loan secured by the equity in the borrower’s home. Borrowers may use a home equity loan for major expenses, home improvement or debt consolidation.

Home Inspection – This is an examination of a property by a professional home inspector to assess the home’s overall condition identifying any structural problems and mechanical system faults.

Housing and Urban Development (HUD) – HUD is a federal agency responsible for carrying out house and urban development programs.