Deed-in-Lieu of Foreclosure Instead of the costly, damaging process of foreclosure, a lender may allow a borrower in default to simply hand over the deed to the lender as satisfaction for the loan. Deferred Payment A payment that the lender agrees to accept later, usually tacked on to the loan balance and due as a balloon payment at loan maturity. Basically, the borrower gets to skip that payment, but they will eventually owe that payment, and interest is still assessed against it. Deficiency If a borrower in default sells the property, but the proceeds from the sale cannot cover the outstanding loan balance, the lender may seek a deficiency judgment against the borrower in court. This enables the lender to continue to go after the borrower for collection of the debt — seize other assets, garnish wages, etc. Delinquency Failing to make payments on a loan as agreed. Delinquent borrowers may face delinquency fees, foreclosure, and deficiency judgments. Discount Points A fee the lender may accept up front to reduce the interest rate on a loan. For example, for each “point” you pay up front (1% of the loan balance), the lender may reduce the interest rate by 1%. If you seek a $500,000 loan at 5% interest, paying one “point” as a fee ($5,000) may reduce your interest rate to 4%. Down Payment The portion of the purchase price paid by the borrower, not the lender. If a borrower is buying a $250,000 home with a $225,000 mortgage loan, the buyer must make a $25,000 down payment to make up the difference.
Earnest Money Deposit A refundable deposit paid at the time of execution of the purchase contract, used to express the buyer’s “good faith” intent to close the contract. If the buyer exits the contract in accordance with a contingency in the contract, the buyer gets the deposit back. If the buyer exits the contract without any contingencies to exercise, the seller gets to keep the deposit as collateral for the deal falling through. At closing, the deposit gets applied to the down payment. Escrow A “neutral third party” process that ensures the terms of a real estate purchase contract are satisfied, holding all funds in trust until the terms of the contract are met. Without escrow, a buyer might make a big down payment and take on a big loan for a house that doesn’t exist; or the seller might transfer title, only for a check to bounce. Escrow makes sure both parties are satisfied before anything irrevocable takes place. In the mortgage industry, escrow also refers to a separate account to hold funds for mandatory housing payment expenses, like insurance and property taxes. The lender may require the borrower to make extra payments into an escrow fund for the payment of these expenses. This is to make sure they actually get paid; if the borrower doesn’t make these payments, the collateral for the loan is at risk. Equity The ownership interest in an asset. If a person owns a $300,000 house with a $200,000 loan, they are said to have $100,000 equity in that house. FHA Mortgage A mortgage insured by the US Federal Housing Administration, used to help lower-income and lower- credit borrowers buy homes. Fixed-Rate Mortgage A mortgage where the interest rate stays the same for the entire life of the loan. The interest rate is usually fixed based on market interest rates at the time of loan origination, in a process known as “rate lock.” The loan is usually fully-amortized, and the monthly payments never change.
RITA REALTOR | BROKERAGE 904-555-5555 | Rita@realtor.com | www.Authorify.com
LARRY LOAN OFFICER | OFFICE 904-555-1010 | Larry@loans.com | www.Authorify.com
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