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D

Term Definition
Dealer
A person who holds real property with the primary purpose of selling it to customers. A dealer treats his or her profit from a sale as ordinary income.

Debt Coverage Ratio
Ratio between a property's Net Operating Income (NOI) for the year and the annual debt service (total mortgage payments). This is a metric often used by lenders to measure whether the property will generate sufficient cashflow to cover it's mortgage payments.

Debt Coverage Ratio (DCR)
A ratio that is used to underwrite loans for income producing property. To calculate DCR, divide net operating income by total debt service. Ratios of at least 1.10 are generally required, with ratios of 1.20 and higher considered the norm. (See definition of "underwriting" below).

Debt Ratio (DR, D:I)
Also known as debt to income. The ratio of the total of minimum monthly debt payments to gross monthly income. If a person’s minimum monthly payments on a credit card, auto lease, and mortgage (PITI) were $30, $220 and $750 respectively, and his/her gross monthly income was $3000, his or her debt ratio would be calculated as 33.33%. Non-fixed payments for things such as food, utilities, medical bills, and entertainment are not included in the calculation. However, contractual obligations such as a lease are included. The housing ratio in this example would be 25% ($750 / $3000). Preferred candidates for loans usually have debt ratios of 28% or less for housing, and 36% or less in total. The maximum ratios that lenders will allow are generally around 30% housing and 40% total, though lenders may consider extenuating circumstances when making their decision. Confirming loans such as FHA and VA loans allow a total of approximately 41%, while non-conforming loans sometimes allow total debt ratios as high as 55%.

Decree
an order issued from an authority; for example, a court order.

Deed
A written document that conveys a real property’s title to a certain party. This document must be properly signed, sealed, and delivered.

Deed in Lieu of Foreclosure
A party returns a property to the original lender without opening up the process of foreclosure.

Deed of Trust (DOT)
DOT's are similar to mortgages in that they serve as security for a loan by encumbering real estate. While a mortgage is between two parties (borrower and lender), a deed of trust involves three parties (borrower, lender and trustee). The trustee holds the property in trust as security for the payment of the debt. If the borrower defaults on the agreement, the trustee is legally authorized to sell the property.

Deed Restriction
See Conditions, Covenants, and Restrictions.

Default
A failure by the borrower to fulfill all of the obligations and commitments specified in the mortgage or deed of trust. Defaults usually give the lender the right to accelerate payments and begin the foreclosure process, though there are some exceptions.

Defeasance
A clause in a mortgage that gives the borrower the right to redeem the property after default by paying the entire debt plus any additional fees incurred.

Deferred Maintenance
Physical depreciation of a property due to lack of normal upkeep.

Deficiency Judgment
A court order stating that the borrower is still obligated to repay a certain amount of money. Used when a loan’s security does not completely cover a defaulted debt.

Density
The intensity with which land is used.

Density Test
A soil test that is conducted in order to find out whether the surface can support a house or other structure to be built in the future.

Depreciable Basis
The portion of the property's value that can be depreciated. Usually equals to Purchase Price minus Value of Land plus any Capital Improvements minus Depreciation already taken

Depreciation Recapture
A situation in which the owner is required to pay tax at normal rates of income to the extent of the excess accelerated depreciation. This occurs when a party sells real property at a gain and claims accelerated depreciation.

Discount Points
A method of giving the lender a higher yield from a loan. One point equals 1% of the loan amount. Two points on a $100,000 mortgage would cost $2,000 ($100,000 x 0.02).

Discount Rate
Conceptually, the discount rate can be thought of as a required return for a real estate investment based on its risk when compared with return earned on competing investments. One way to calculate such rate is to add a risk premium and a liquidity premium, corresponding to the property, to a relatively risk-free rate such as a US Treasury bill. This rate will be used to discount the property's expected cashflows to arrive at their present value.

Document Preparation
A fee is often charged to cover the expenses of preparing some of the legal documents that need to be signed at closing, such as the note, mortgage, and truth-in-lending statement.

Down Payment
A portion of the purchase price paid to a seller from sources of funds other than funds provided by a lender.

Draw
An  occasional advance of funds.

Due Diligence
The act of carefully checking, reviewing, and verifying all facts and important aspects of a deal before proceeding. In lending, this includes verification of employment, income and savings; obtaining a credit report; review of the appraisal; and status of the title.

Due-on-Sale
A lender’s reserved right to designate the loan as due and payable upon sale of the property.

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