Looking Getting a loan during Divorce?

The divorce process can make real estate even more complicated. Average Americans have 68% of their wealth tied up in their primary residence. Close to 70% of all divorces involve some type of real estate, and that is why we are here to help you make informed decisions about your home. 

 Our goal is to provide the answers to common questions when you are going through Divorce:

• How to buy someone out of a house 
• How does a home buyout work in a divorce? 
• What is my house worth today?

In a decree of divorce or annulment, the court shall order a division of the estate of the parties in a manner that the court deems "just and right", having due regard for the rights of each party and any children of the marriage. Read the full Family code about Property Division

What happens to a mortgage in a divorce?   

A refinance would be a clean way to solve the problem and leave only one spouse as a borrower on the loan. The only person who will be responsible for payment after the refinance closes is the one whose name is on the mortgage. Then, you could remove the name of the person who will not make mortgage payments from the title.  

The good news there is no capital gains tax on the sale of a home to your spouse because of the divorce!  Read more about Capital gains tax. 

Doing this in the "correct order" and making sure that the person staying in the home is able to qualify by themselves is important. We don't want someone staying in the home to be "house poor" even if they are able to make the payments. 

Do I have to do a “cash out” refinance or Texas Home Equity Loan to get the money/equity?
No. In 1995, the Texas Constitution was amended to specifically designate an owelty of partition as one of the permitted encumbrances on a Texas homestead. Without an owelty, the parties would be limited to only cashing in on equity up to 80% of the value of the property under Texas Equity laws. The owelty allows the parties to recoup their equity up to 95% of the property’s value. 

How much accessible equity is in the home?   

 This is not as straightforward as you might think, but we have the knowledge and experience to help. To help you get an idea you can try out, our Divorce Buyout Calculator enter in a few numbers to get a starting point of how much equity is in your home.  We can walk you through this process and get you qualify for the mortgage cash out.

There are several options that spouses need to consider when deciding on what to do with the family house.  Then you can know for sure the answer to the question we get asked all the time, Who Gets the House in a Divorce in Texas?   

One of the most powerful tools to help "buy out" your spouse is what is called an Owelty Lien.     

Use our Divorce Buyout calculator to help determine what your situation looks like after fees, so you can see how much equity remains to split for all three scenarios and determine which option is best for you. 

 A buy-out of equity involves buying out the existing legal owner of a piece of real estate (your spouse). Refinancing the existing mortgage is the most common way to acquire equity ownership in the marital home from an ex-spouse.

Before you go to mediation and write up the divorce buyout agreement form, you can use this calculator to determine how much equity there is in the house. 

Knowing your options will help you make an informed decision because we believe knowledge is power.

Thinking about buying out your spouse?  How to buy someone out of a house?

 What is a buy-out? A buy-out is when one owner of a property pays the other owner's share of the property's equity so that the co-owner can be released from the mortgage and removed from the deed as owner. 

DO NOT ORDER YOUR OWN APPRAISAL 

It is not uncommon for clients to want to keep their home for several reasons, such as not wanting to lose it to their ex, being emotionally attached to it, or for the children.   If you choose to buy out the other spouse and stay in the house, you should know that it comes with some risks, including ones that you may regret in the future.  Once the buyout is done correctly, there is a release of liability mortgage after the divorce! 

Refinance Mortgage vs a Divorce Buyout?  

Refinancing is usually either a rate/term refinance or a cash-out refinance. Rate/Term refinances typically offer better terms in terms of lower interest rates and more equity. On the other hand, a cash-out refinance typically carries a higher interest rate and only allows the borrower to access up to 80% of the home's value, which could cause a problem when the goal of the refinance is to actually access the equity. This will help with an equity buyout refinance!  

 Mortgage divorce buyout
A divorce settlement agreement needs to be written (the Correct) in a way that allows the divorcing borrower to refinance as an Equity Buy-Out. This way divorced borrowers can access more equity in their homes without having to undergo higher pricing adjustments. 

 We can even help access 95% of your home equity in some cases! 

 Looking to try and VA Loan Assumption  Read more. And Check our Assumable Mortgage Calculator 

Use Our Mortgage Comparison Calculator:

Visit our site and find the Loan Comparison Calculator – it is your ticket to financial clarity. Don't Delay! 

We understand that keeping the house may be important to one spouse, but it's crucial to assess whether it's financially feasible. That's why we've developed the loan comparison tool, which can be used for refinancing or buyouts. 

We'll explore the key features of this tool and how it can help you make the right decision for your situation. YouTube Video on this

Decide which party should buy out the other 

One of you may be able to qualify for a loan better than the other. A borrower whose income can be verified and has good credit will get a better rate than one whose income cannot be verified.  

Monthly Income  

In the case of a single-income household, the mortgage lender may not approve the new loan if you do not make enough to pay the mortgage yourself. It may be necessary to sell your marital home unless your income increases quickly.  

Alimony and child support can be used as verifiable income, but it must have been received for 6 months and continue on for 3 years. 

If you own a cash business or recently were self-employed, this income typically cannot be verified to qualify for a mortgage. Any self-employed job must have 2 years of history and usually, that income earned is an average of those years. Both you and your spouse should speak to a mortgage professional about your ability to qualify.   

It is possible to divide property and assets in an equitable manner. However, if one of you is unable to qualify, or only qualifies for a significantly higher rate, that should be negotiated. You may choose to divide assets through other means if there is a substantial difference in what you qualify for, or simply sell the home and divide the proceeds. 

Prior to agreeing to a buyout, you need accurate information regarding the types and costs of loans that would be available to either of you.

Maintain Credit, Your Credit Score

Your credit score may no longer qualify you for a refinance if it has fallen since you took out your current mortgage loan. You may be able to overcome a low credit score by focusing on your score and picking the right loan program for you.   Rebuilding credit history over time is often the only "fix" for a low credit score.

Most people who go through a divorce find it difficult to pay their bills. Temporary support payments may not be coming in on time; you and your spouse may have had a disagreement about who will be responsible for paying which bills; your income may not stretch to support two households, or you may have moved out and have not seen the bills. When going through a divorce, many people find it difficult to maintain perfect credit for various reasons.

In order to make smart financial decisions, you need to understand the challenges associated with refinancing to buy your spouse out. Make sure that the mortgage professional you choose understands what you're going through and what you need to accomplish. Divorce is a difficult time, emotionally and financially. More than anything, you need accurate, reliable information so you can get a good rate, buy out your ex, and move on with your life. This divorce does not have to define you. This too shall pass. 

Still, have questions? 

Schedule a free 30-minute call with us and we can help you walk through your specific situation, as we know each person's circumstance is different. 

We at, The Gifford Group, have been there before and are here to help you as you walk through a divorce, and we can also help get you connected to the Five People You Need During Divorce

Learn about the 5 Biggest Real Estate Mistakes in Divorce

Don't use a quit claim deed during divorce

Read more at our New Beginnings Blog post 

If you are considering selling or buying out your spouse,

 remember the home sale exclusion

Abstract (Of Title) A summary of the public records relating to the title to a particular piece of land. An attorney or title insurance company reviews an abstract of title to determine whether there are any title defects that must be cleared before a buyer can purchase a clear, marketable, and insurable title.

Acceleration Clause Condition in a mortgage that may require the balance of the loan to become due immediately, if regular mortgage payments are not made or for breach of other conditions of the mortgage.

Acceptance An offeree’s consent to enter into a contract and be bound by the terms of the offer.

Additional principal payment A payment by a borrower of more than the scheduled principal amount due in order to reduce the remaining balance on the loan.

Adjustable Mortgage Loan Any mortgage that does not have a fixed interest rate and a fixed payment for the term of the loan, or does not amortize to zero at the end of the set term, when required payments are made on time.

Adjustable Rate Mortgage A mortgage in which the interest rate is adjusted periodically according to the movement in a pre-selected index.

Adjusted basis The original cost of a property plus the value of any capital expenditures for improvements to the property minus any depreciation taken

Adjustment date The date on which the interest rate changes for an adjustable-rate mortgage (ARM).

Adjustment Interval For an adjustable rate mortgage, the time between changes in the interest rate charged. The most common adjustment intervals are one, three or five years.

Adjustment period The period that elapses between the adjustment dates for an adjustable-rate mortgage (ARM).

Administrator A person appointed by a probate court to administer the estate of a person who died intestate.

Agreement of Sale Known by various names, such as contract of purchase, purchase agreement, or sales agreement according to location or jurisdiction. A contract in which a seller agrees to sell and a buyer agrees to buy, under certain specific terms and conditions spelled out in writing and signed by both parties.

Amenity A feature of real property that enhances its attractiveness and increases the occupant’s or user’s satisfaction although the feature is not essential to the property’s use. Natural amenities include a pleasant or desirable location near water, scenic views of the surrounding area, etc. Human-made amenities include swimming pools, tennis courts, community buildings, and other recreational facilities.

Amortization A payment plan, which enables the borrower to reduce his debt gradually through monthly payments of principal.

Amortization schedule A timetable for payment of a mortgage loan. An amortization schedule shows the amount of each payment applied to interest and principal and shows the remaining balance after each payment is made.

Amortization term The amount of time required to amortize the mortgage loan. The amortization term is expressed as a number of months.

Amortize Reduce a debt by regular payments of both principal and interest.

Amortization Schedule A timetable for payment of a mortgage showing the amount of each payment applied to interest and principal and the remaining balance.

Annual Percentage Rate (APR) The total yearly cost of a mortgage stated as a percentage of the loan amount: includes the base interest rate, primary mortgage insurance, and loan origination fee (points)

Annuity An amount paid yearly or at other regular intervals, often on a guaranteed dollar basis.

Application A form used to apply for a mortgage loan and to record pertinent information concerning a prospective mortgagor and the proposed security.

Application Fee The fee charged by the lender to the borrower for applying for a loan.

Appraised value An opinion of a property’s fair market value, based on an appraiser’s knowledge, experience, and analysis of the property.

Appraiser A person qualified by education, training, and experience to estimate the value of real property and personal property.

Appraisal A professional opinion of the market value of a property.

Appreciation An increase in the value of a house due to changes in market conditions or other causes.

Assessed Value The valuation placed upon property by a public tax assessor for purposes of taxation.

Assessment The process of placing a value on property for the strict purpose of taxation. May also refer to a levy against property for a special purpose, such as a sewer assessment.

Assessor A public official who establishes the value of a property for taxation purposes.

Asset Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on).

Assignment The transfer of a mortgage from one person to another.

Assumable Loan These loans may be passed on from a seller of a home to the buyer. The buyer “assumes” all outstanding payments.

Assumption clause A provision in an assumable mortgage that allows a buyer to assume responsibility for the mortgage from the seller. The loan does not need to be paid in full by the original borrower upon sale or transfer of the property.

Assumption fee The fee paid to a lender (usually by the purchaser of real property) resulting from the assumption of an existing mortgage.

Assumption of Mortgage An obligation undertaken by the purchaser of property to be personally liable for payment of an existing mortgage. In an assumption, the purchaser is substituted for the original mortgagor in the mortgage instrument and the original mortgagor is to be released from further liability in the assumption, the mortgagee’s consent is usually required.

Attorney-in-fact One who holds a power of attorney from another to execute documents on behalf of the grantor of the power. The original mortgagor should always obtain a written release from further liability if he desires to be fully released under the assumption. Failure to obtain such a release renders the original mortgagor liable if the person assuming the mortgage fails to make the monthly payments. An “Assumption of Mortgage” is often confused with “purchasing subject to a mortgage.” When one purchases subject to a mortgage, the purchaser agrees to make the monthly mortgage payments on an existing mortgage, but the original mortgagor remains personally liable if the purchaser fails to make the monthly payments. Since the original mortgagor remains liable in the event of default, the mortgagee’s consent is not required to a sale subject to a mortgage. Both “Assumption of Mortgage” and “Purchasing Subject to a Mortgage” are used to finance the sale of property. They may also be used when a mortgagor is in financial difficulty and desires to sell the property to avoid foreclosure.

– B –

Balance sheet A financial statement that shows assets, liabilities, and net worth as of a specific date.

Bankrupt A person, firm, or corporation that, through a court proceeding, is relieved from the payment of all debts after the surrender of all assets to a court-appointed trustee.

Bankruptcy A proceeding in a federal court in which a debtor who owes more than his or her assets can relieve the debts by transferring his or her assets to a trustee.

Before-tax income Income before taxes are deducted.

Beneficiary The person designated to receive the income from a trust, estate, or a deed of trust.

Bill of sale A written document that transfers title to personal property.

Binder or “Offer to Purchase” A preliminary agreement, secured by the payment of earnest money, between a buyer and seller as an offer to purchase real estate. A binder secures the right to purchase real estate upon agreed terms for a limited period of time. If the buyer changes his mind or is unable to purchase, the earnest money is forfeited unless the binder expressly provides that it is to be refunded. Broker (See Real Estate Broker)

Blanket insurance policy A single policy that covers more than one piece of property (or more than one person).

Bond An interest-bearing certificate of debt with a maturity date. An obligation of a government or business corporation. A real estate bond is a written obligation usually secured by a mortgage or a deed of trust.

Borrower One who receives funds with the expressed or implied intention of repaying the loan in full.

Bridge loan A form of second trust that is collateralized by the borrower’s present home (which is usually for sale) in a manner that allows the proceeds to be used for closing on a new house before the present home is sold.

Broker An individual in the business of assisting in arranging funding or negotiating contracts for a client but who does not loan the money himself. Brokers usually charge a fee or receive a commission for their services.

Building code Local regulations that control design, construction, and materials used in construction. Building codes are based on safety and health standards.

Building Line or Setback Distances from the ends and/or sides of the lot beyond which construction may not extend. The building line may be established by a filed plat of subdivision, by restrictive covenants in deeds or leases, by building codes, or by zoning ordinances.

Buy down Money advanced by an individual (seller, builder, etc.) to reduce monthly payments for a home mortgage either during the entire term or for an initial period of years.

– C –   Call option A provision in the mortgage that gives the mortgagee the right to call the mortgage due and payable at the end of a specified period for whatever reason.

Capital expenditure The cost of an improvement made to extend the useful life of a property or to add to its value.

Capital improvement Any structure or component erected as a permanent improvement to real property that adds to its value and useful life.

Cap A provision of an ARM limiting how much the interest rate or mortgage payments may increase.

Cash Out A loan transaction in which the borrower receives funds at the time of closing.

Cash-out refinance A refinance transaction in which the amount of money received from the new loan exceeds the total of the money needed to repay the existing first mortgage, closing costs, points, and the amount required to satisfy any outstanding subordinate mortgage liens.

Certificate of deposit A document written by a bank or other financial institution that is evidence of a deposit, with the issuer’s promise to return the deposit plus earnings at a specified interest rate within a specified time period. Certificate of Eligibility A document issued by the federal government certifying a veteran’s eligibility for a Department of Veterans Affairs (VA) mortgage. Certificate of Reasonable Value (CRV) A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage.

Certificate of Title A certificate issued by a title company or a written opinion rendered by an attorney that the seller has good marketable and insurable title to the property, which he is offering for sale. A certificate of title offers no protection against any hidden defects in the title, which an examination of the records could not reveal. The issuer of a certificate of title is liable only for damages due to negligence. The protection offered a homeowner under a certificate of title is not as great as that offered in a title insurance policy.

Chain of title The history of all of the documents that transfer title to a parcel of real property, starting with the earliest existing document and ending with the most recent.

Change frequency The frequency (in months) of payment and/or interest rate changes in an adjustable-rate mortgage (ARM).

Chattel Another name for personal property.

Claim An amount requested of an insurer, by a policyholder or a claimant, for an insured loss.

Clear title A title that is free of liens or legal questions as to ownership of the property

Closing The occasion where a sale is finalized; the buyer signs the mortgage, and closing costs are paid. Also called “settlement.”

Closing Costs Expenses (over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property. Also called “settlement costs.”

Closing cost item A fee or amount that a homebuyer must pay at closing for a single service, tax, or product.

Closing Day The day on which the formalities of a real estate sale are concluded. The certificate of title, abstract, and deed are generally prepared for the closing by an attorney and this cost charged to the buyer. The buyer signs the mortgage, and closing costs are paid. The final closing merely confirms the original agreement reached in the agreement of sale.

Cloud (On Title) An outstanding claim or encumbrance, which adversely affects the marketability of title.

Co-Borrower An additional borrower on a loan. A co-borrower’s obligation on a loan are the same as all other borrowers.

Coinsurance A sharing of insurance risk between the insurer and the insured. Coinsurance depends on the relationship between the amount of the policy and a specified percentage of the actual value of the property insured at the time of the loss.

Coinsurance clause A provision in a hazard insurance policy that states the amount of coverage that must be maintained — as a percentage of the total value of the property — for the insured to collect the full amount of a loss.

Collateral An asset (such as a car or a home) that guarantees the repayment of a loan. The borrower risks losing the asset if the loan is not repaid according to the terms of the loan contract.

Collection The efforts used to bring a delinquent mortgage current and to file the necessary notices to proceed with foreclosure when necessary.

Co-maker A person who signs a promissory note along with the borrower. A co-maker’s signature guarantees that the loan will be repaid, because the borrower and the co-maker are equally responsible for the repayment.

Commission Money paid to a real estate agent or broker by the seller as compensation for finding a buyer and completing the sale.

Commitment Letter A formal offer by a lender stating the terms under which it agrees to loan money to a homebuyer.

Common area assessments Levies against individual unit owners in a condominium or planned unit development (PUD) project for additional capital to defray homeowners’ association costs and expenses and to repair, replace, maintain, improve, or operate the common areas of the project.

Common areas Those portions of a building, land, and amenities owned (or managed) by a planned unit development (PUD) or condominium project’s homeowners’ association (or a cooperative project’s cooperative corporation) that are used by all of the unit owners, who share in the common expenses of their operation and maintenance. Common areas include swimming pools, tennis courts, and other recreational facilities, as well as common corridors of buildings, parking areas, means of ingress and egress, etc.

Common law An unwritten body of law based on general custom in England and used to an extent in the United States.

Community property In some western and southwestern states, a form of ownership under which property acquired during a marriage is presumed to be owned jointly unless acquired as separate property of either spouse.

Comparables An abbreviation for comparable properties used for comparative purposes in the appraisal process; facilities of reasonably the same size and location with similar amenities; properties which have been recently sold, which have characteristics similar to property under consideration, thereby indicating the approximate fair market value of the subject property.

Compound interest Interest paid on the original principal balance and on the accrued and unpaid interest.

Condemnation The taking of private property for public use by a government unit, against the will of the owner, but with payment of just compensation under the government’s power of eminent domain. Condemnation may also be a determination by a governmental agency that a particular building is unsafe or unfit for use.

Condominium Individual ownership of a dwelling unit and an individual interest in the common areas and facilities, which serve the multi-unit project.

Condominium conversion Changing the ownership of an existing building (usually a rental project) to the condominium form of ownership.

Condominium hotel A condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services and that is operated as a commercial hotel even though the units are individually owned.

Construction Loan A short-term loan for funding the cost of construction. The lender advances funds to the builder as the work progresses.

Consumer reporting agency (or bureau) An organization that prepares reports that are used by lenders to determine a potential borrower’s credit history. The agency obtains data for these reports from a credit repository as well as from other sources.

Contingency A condition that must be met before a contract is legally binding.

Contract An oral or written agreement to do or not to do a certain thing.

Contractor In the construction industry, a contractor is one who contracts to erect buildings or portions of them. There are also contractors for each phase of construction: heating, electrical, plumbing, air conditioning, road building, bridge and dam erection, and others.

Conventional Mortgage Any mortgage that is not insured or guaranteed by the federal government.

Convertibility clause A provision in some adjustable-rate mortgages (ARMs) that allows the borrower to change the ARM to a fixed-rate mortgage at specified time.

Convertible Arm An adjustable-rate mortgage that can be converted to a fixed-rate mortgage under specified conditions.

Coverage The amount of protection, usually expressed in a percentage of the total claim amount, an insured receives under a certificate.

Cooperative (co-op) A type of multiple ownership in which the residents of a multiunit housing complex own shares in the cooperative corporation that owns the property, giving each resident the right to occupy a specific apartment or unit.

Cooperative Corporation A business trust entity that holds title to a cooperative project and grants occupancy rights to particular apartments or units to shareholders through proprietary leases or similar arrangements.

Cooperative Housing An apartment building or a group of dwellings owned by a corporation, the stockholders of which are the residents of the dwellings. It is operated for their benefit by their elected board of directors. In a cooperative, the corporation or association owns title to the real estate. A resident purchases stock in the corporation, which entitles him to occupy a unit in the building or property owned by the cooperative. While the resident does not own his unit, he has an absolute right to occupy his unit for as long as he owns the stock.

Cooperative mortgages Mortgages related to a cooperative project.

Cooperative project A residential or mixed-use building wherein a corporation or trust holds title to the property and sells shares of stock representing the value of a single apartment unit to individuals who, in turn, receive a proprietary lease as evidence of title.

Corporate relocation Arrangements under which an employer moves an employee to another area as part of the employer’s normal course of business or under which it transfers a substantial part or all of its operations and employees to another area because it is relocating its headquarters or expanding its office capacity.

Cost of funds index (COFI) An index that is used to determine interest rate changes for certain adjustable-rate mortgage (ARM) plans. It represents the weighted-average cost of savings, borrowings, and advances of the 11th District members of the Federal Home Loan Bank of San Francisco.

Covenant A clause in a mortgage that obligates or restricts the borrower and that, if violated, can result in foreclosure.

Commitment A written letter of agreement detailing the terms and conditions by which the lender will lend and the borrower will borrow funds to finance a home.

Credit history A record of an individual’s open and fully repaid debts. A credit history helps a lender to determine whether a potential borrower has a history of repaying debts in a timely manner.

Credit life insurance A type of insurance often bought by mortgagors because it will pay off the mortgage debt if the mortgagor dies while the policy is in force.

Creditor A person to whom money is owed.

Credit Report A report of an individual’s credit history prepared by a credit bureau and used by a lender in determining a loan applicant’s creditworthiness.

Credit repository An organization that gathers, records, updates, and stores financial and public records information about the payment records of individuals who are being considered for credit.

Cure A loan that is removed from a delinquency status with no loss to the insurer.

-D-

Deed-in-lieu   A deed given by a mortgagor to the mortgagee to satisfy a debt and avoid foreclosure. Also called a “voluntary conveyance.”

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.

Default Failure to make mortgage payments on a timely basis or to comply with other conditions of a mortgage.

Deficiency Judgment A court order to pay the balance owed on a loan if the proceeds from the sale of the security are insufficient to pay off the loan. Deficiency judgments are not allowed in all states.

Delinquency A loan in which a payment is overdue but not yet in default.

Deposit A sum of money given to bind the sale of real estate, or a sum of money given to ensure payment or an advance of funds in the processing of a loan. Depreciation A decline in the value of property; the opposite of “appreciation.” Discount Points See Points. Documentary Stamps A State tax, in the forms of stamps, required on deeds and mortgages when real estate title passes from one owner to another. The amount of stamps required varies with each State. Dower The rights of a widow in the property of her husband at his death. Down Payment The part of the purchase price, which the buyer pays in cash and does not finance with a mortgage Due-on-sale provision A provision in a mortgage that allows the lender to demand repayment in full if the borrower sells the property that serves as security for the mortgage. Due-on-transfer provision This terminology is usually used for second mortgages.

– E –

Earnest Money 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 will be forfeited or lost unless the binder or offer to purchase expressly provides that it is refundable.

Easement Rights 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.

Effective age An appraiser’s estimate of the physical condition of a building. The actual age of a building may be shorter or longer than its effective age.

Effective gross income Normal annual income including overtime that is regular or guaranteed. The income may be from more than one source. Salary is generally the principal source, but other income may qualify if it is significant and stable.

Eminent domain The right of a government to take private property for public use upon payment of its fair market value. Eminent domain is the basis for condemnation proceedings.

Employer-assisted housing A special Fannie Mae housing initiative that offers several different ways for employers to work with local lenders to develop plans to assist their employees in purchasing homes.

Encroachment An obstruction, building, or part of a building that intrudes beyond a legal boundary onto neighboring private or public land, or a building extending beyond the building line.

Encumbrance 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 covenants. 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.

Endorser A person who signs ownership interest over to another party. Contrast with co-maker.

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 difference between the market value of a property and the homeowner’s outstanding mortgage balance.

Equity Loan A loan based on the borrower’s equity in his or her home. Prior to closing; also, an account held by the lender into which a homeowner pays money for taxes and insurance.

Escrow account The account in which a mortgage servicer holds the borrower’s escrow payments prior to paying property expenses. Escrow analysis The periodic examination of escrow accounts to determine if current monthly deposits will provide sufficient funds to pay taxes, insurance, and other bills when due.

Escrow collections Funds collected by the servicer and set aside in an escrow account to pay the borrower’s property taxes, mortgage insurance, and hazard insurance.

Escrow disbursements The use of escrow funds to pay real estate taxes, hazard insurance, mortgage insurance, and other property expenses as they become due.

Escrow payment The portion of a mortgagor’s monthly payment that is held by the servicer to pay for taxes, hazard insurance, mortgage insurance, lease payments, and other items as they become due.

Estate The ownership interest of an individual in real property. The sum total of all the real property and personal property owned by an individual at time of death.

Eviction The lawful expulsion of an occupant from real property.

Examination of title The report on the title of a property from the public records or an abstract of the title.

Exclusive listing A written contract that gives a licensed real estate agent the exclusive right to sell a property for a specified time, but reserving the owner’s right to sell the property alone without the payment of a commission.

Executor A person named in a will to administer an estate

– F –

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.

Fair-market-value The highest price that a buyer, willing but not compelled to buy would pay, and the lowest a seller, willing but not compelled to sell, would accept.

FDIC (Federal Deposit Insurance Corporation). Provides insurance of accounts for institutions whose deposits were formerly covered by the Federal Savings & Loan Insurance Corporation. (FSLIC).

Fee simple The greatest possible interest a person can have in real estate.

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.

FHA (Federal Housing Administration). A division of the Department of Housing and Urban Development. The FHA’s main activity is the insuring of residential mortgage loans made by private lenders. It sets standards for construction and underwriting. FHA neither lends money, nor plans, nor constructs housing.

FHA Loan Government loans are loans that are guaranteed or purchased by government organizations. Two of the most popular Government Loans are the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).

FHFB (Federal Housing Finance Board). It oversees the credit functions of the twelve regional Federal Home Loan Banks.

FHLBB (Federal Home Loan Bank Board). A regulatory and supervisory agency for federally charted savings institutions, which oversees the operations of the FSLIC and FHLMC. This agency was abolished by the Financial Institutions Reform, Recovery and Enforcement Act of 1989. (See FIRREA.)

FHLMC (Federal Home Loan Mortgage Corporation, Freddie Mac). A private corporation authorized by Congress, which became an independent, stockholder-owned government corporation with the passage of FIRREA. FHLMC promotes the flow of funds into the housing markets by purchasing conventional mortgages in the secondary market and selling securities backed by those mortgages in the capital market.

Finance Charge The total dollar amount your loan will cost you. It includes all interest payments for the life of the loan, any interest paid at closing, your origination fee and any other charges paid to the lender and/or broker. Appraisal, credit report and title search fees are not included in the finance charge calculation.

Finder’s fee A fee or commission paid to a mortgage broker for finding a mortgage loan for a prospective borrower.

FIRRA (Financial Institutions Reform, Recovery and Enforcement Act of 1989). An act signed into law in August 1989, by President Bush that restructured the thrift regulatory an insurance system.

Firm commitment A lender’s agreement to make a loan to a specific borrower on a specific property.

First Mortgage The mortgage that has first claim in the event of default.

Fixed installment The monthly payment due on a mortgage loan.

Fixed-Rate Mortgage (FRM) A mortgage in which the interest rate does not change during the entire term of the loan.

FNMA (Federal National Mortgage Association, Fannie Mae). A government-sponsored corporation, owned solely by private investors, created to provide support to the secondary market for FHA and VA mortgages and conventional mortgages.

Fixture Personal property that becomes real property when attached in a permanent manner to real estate.

Flood insurance Insurance that compensates for physical property damage resulting from flooding. It is required for properties located in federally designated flood areas.

Forfeiture The loss of money, property, rights, or privileges due to a breach of legal obligation.

Foreclosure The process by which a mortgage property may be sold when a mortgage is in default.

Fully amortized ARM An adjustable-rate mortgage (ARM) with a monthly payment that is sufficient to amortize the remaining balance, at the interest accrual rate, over the amortization term.

Full Recasting Setting the P&I payments to the level that will fully amortize the loan’s outstanding balance over the remaining term using the fully indexed accrual rate at the recasting point.

Fully Indexed Accrual Rate The interest (accrual) rate resulting from the index at closing (or at another point in the loan) plus the lender’s full spread, rounded as prescribed in the loan documents (often to the nearest 1/8th of 1%).

– G –

General Warranty Deed A deed which conveys not only all the grantor’s interests in and title to the property to the grantee, but also warrants that if the title is defective or has a “cloud” on it (such as mortgage claims, tax liens, title claims, judgments, or mechanic’s liens against it) the grantee may hold the grantor liable.

Good Faith Estimate An estimate of charges, which a borrower is likely to incur in connection with a loan closing.

Graduated Payment Mortgage (GPM) A mortgage where the payments are scheduled to increase, usually annually, for a set number of years, and then level off. GPM can be used with either a fixed or adjustable interest rate, and usually has a 30-year term.

Grantee That party in the deed who is the buyer or recipient.

Grantor That party in the deed who is the seller or giver.

Gross Monthly Income The total amount the borrower earns per month, not counting any taxes or expenses. Often used in calculations to determine whether a borrower qualifies for a particular loan.

Growing Equity Mortgage (GEM) A fixed rate, graduated payment mortgage with small initial payments that increase each year so that the loan pays off in a shortened term, usually 15 years.

– H –

Hazard Insurance Insurance to protect the homeowner and the lender against physical damage to a property from fire, wind, vandalism, or other hazards.

Homeowner’s Insurance An insurance policy that combines liability coverage and hazard insurance.

Homeowner’s Warranty A type of insurance that covers repairs to specified parts of a house for a specific period of time.

Housing Ratio The ratio of the monthly housing payment to total gross monthly income. Also called Payment-to-Income Ratio or Front-End Ratio.

HUD (Department of Housing and Urban Development). A cabinet department responsible for the implementation and administration of government housing and urban development programs.

– I –

Income property Real estate developed or improved to produce income.

Index (Also called “Rate Index”). A regularly published rate, independent of the lending institution, that measures the prevailing cost of funds, and is used periodically with the margin to set AML accrual rates.

Initial Borrower Interest Rate The rate on which the borrower’s first payment is calculated.

Initial Borrower Payment Rate The annual interest rate used to calculate the borrower’s initial cash payment.

Inflation An increase in the amount of money or credit available in relation to the amount of goods or services available, which causes an increase in the general price level of goods and services. Over time, inflation reduces the purchasing power of a dollar, making it worth less.

Initial interest rate The original interest rate of the mortgage at the time of closing.

Installment The regular periodic payment that a borrower agrees to make to a lender.

Installment loan Borrowed money that is repaid in equal payments, known as installments. A furniture loan is often paid for as an installment loan.

Insurable title A property title that a title insurance company agrees to insure against defects and disputes.

Insurance A contract that provides compensation for specific losses in exchange for a periodic payment. An individual contract is known as an insurance policy, and the periodic payment is known as an insurance premium.

Insurance binder A document that states that insurance is temporarily in effect. Because the coverage will expire by a specified date, a permanent policy must be obtained before the expiration date.

Insured mortgage A mortgage that is protected by the Federal Housing Administration (FHA) or by private mortgage insurance (MI). If the borrower defaults on the loan, the insurer must pay the lender the lesser of the loss incurred or the insured amount

Interest The fee charged for borrowing money.

Interest accrual rate The percentage rate at which interest accrues on the mortgage. In most cases, it is also the rate used to calculate the monthly payments, although it is not used for an adjustable-rate mortgage (ARM) with payment change limitations. Interest Rate The percentage of an amount of money, which is paid for its use for a specified time.

Interest Rate Cap A provision of an ARM limiting how much interest rates may increase per adjustment period.

Interest rate ceiling For an adjustable-rate mortgage (ARM), the maximum interest rate, as specified in the mortgage note.

Interest rate floor For an adjustable-rate mortgage (ARM), the minimum interest rate, as specified in the mortgage note.

Investment property A property that is not occupied by the owner.

IRA (Individual Retirement Account) A retirement account that allows individuals to make tax-deferred contributions to a personal retirement fund. Individuals can place IRA funds in bank accounts or in other forms of investment such as stocks, bonds, or mutual funds.

– J –

Joint tenancy A form of co-ownership that gives each tenant equal interest and equal rights in the property, including the right of survivorship.

Judgment A decision made by a court of law. In judgments that require the repayment of a debt, the court may place a lien against the debtor’s real property as collateral for the judgment’s creditor.

A judgment lien A lien on the property of a debtor resulting from the decree of a court.

Judicial foreclosure A type of foreclosure proceeding used in some states that is handled as a civil lawsuit and conducted entirely under the auspices of a court.

Jumbo Loans Jumbo, or non-conforming, is a term used to describe a loan that does not conform to Fannie Mae or Freddie Mac guidelines.

– L –

Late charge The penalty a borrower must pay when a payment is made a stated number of days (usually 15) after the due date.

Lease A written agreement between the property owner and a tenant that stipulates the conditions under which the tenant may possess the real estate for a specified period of time and rent.

Leasehold estate A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.

Legal description A property description, recognized by law that is sufficient to locate and identify the property without oral testimony.

Lender An institution that makes loans to borrowers on real estate.

Liabilities A person’s financial obligations. Liabilities include long-term and short-term debt, as well as any other amounts that are owed to others.

Liability insurance Insurance coverage that offers protection against claims alleging that a property owner’s negligence or inappropriate action resulted in bodily injury or property damage to another party.

Lien A legal claim against a property that must be paid when the property is sold.

Lifetime Cap A provision of an ARM that limits the total increase in interest rates over the life of the loan.

Lifetime payment cap For an adjustable-rate mortgage (ARM), a limit on the amount that payments can increase or decrease over the life of the mortgage.

Line of credit An agreement by a commercial bank or other financial institution to extend credit up to a certain amount for a certain time to a specified borrower.

Liquid asset A cash asset or an asset that is easily converted into cash.

Loan A sum of borrowed money (principal) that is generally repaid with interest.

Loan Commitment Formal offer by a lender stating the terms under which it agrees to loan money to a homebuyer.

Loan origination The process by which a mortgage lender brings into existence a mortgage secured by real property.

Loan Servicing The collection of mortgage payments from borrowers and related responsibilities of a loan servicer.

Loan -To-Value (LTV). The loan-to-value ratio (LTV) is the original loan amount divided by the lower of the sales price or the appraised value.

Lock The period, expressed in days, during which a lender will guarantee a rate.

Lock-in period The time period during which the lender has guaranteed an interest rate to a borrower.

– M –

Marketable Title A title that is free and clear of objectionable liens, clouds, or other title defects. A title which enables an owner to sell his property freely to others and which others will accept without objection.

Master association A homeowners’ association in a large condominium or planned unit development (PUD) project that is made up of representatives from associations covering specific areas within the project. In effect, it is a “second-level” association that handles matters affecting the entire development, while the “first-level” associations handle matters affecting their particular portions of the project.

Maturity The date on which the principal balance of a loan, bond, or other financial instrument becomes due and payable.

Merged credit report A credit report that contains information from three credit repositories. When the report is created, the information is compared for duplicate entries. Any duplicates are combined to provide a summary of a your credit.

Margin (Also called “Spread”). The amount the lender adds to the index to determine the Fully Indexed Accrual Rate.

Money market account A savings account that provides bank depositors with many of the advantages of a money market fund. Certain regulatory restrictions apply to the withdrawal of funds from a money market account.

Money market fund A mutual fund that allows individuals to participate in managed investments in short-term debt securities, such as certificates of deposit and Treasury bills.

Monthly Housing Expense Total principal, interest, taxes, and insurance paid by the borrower on a monthly basis. Used with gross income to determine affordability.

Monthly payment mortgage A mortgage that requires payments to reduce the debt once a month.

Mortgage A legal document that pledges a property to the lender as security for a payment of a debt.

Mortgage Banker A company that originates mortgages exclusively for resale in the secondary market.

Mortgage Broker A company that for a fee matches borrowers with lenders.

Mortgagee The lender in a mortgage agreement.

Mortgage Commitment A written notice from the bank or other lending institution saying it will advance mortgage funds in a specified amount to enable a buyer to purchase a house.

Mortgage Insurance Premium The payment made by a borrower to the lender for transmittal to HUD to help defray the cost of the FHA mortgage insurance program and to provide a reserve fund to protect lenders against loss in insured mortgage transactions. In FHA insured mortgages this represents an annual rate of one-half of one percent paid by the mortgagor on a monthly basis.

Mortgage life insurance A type of term life insurance often bought by mortgagors. The amount of coverage decreases as the principal balance declines. In the event that the borrower dies while the policy is in force, the debt is automatically satisfied by insurance proceeds.

Mortgage Note A written agreement to repay a loan. The agreement is secured by a mortgage, serves as proof of indebtedness, and states the manner in which it shall be paid. The note states the actual amount of the debt that the mortgage secures and renders the mortgagor personally responsible for repayment.

Mortgagor The borrower in a mortgage agreement.

Multi-dwelling units Properties that provide separate housing units for more than one family, although they secure only a single mortgage.

Multifamily mortgage A residential mortgage on a dwelling that is designed to house more than four families, such as a high-rise apartment complex.