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Educational articles for Commercial Mortgage Brokers

Commercial Mortgage Glossary of Terms

  • 1003: Standard mortgage application form submitted by most brokers
  • Accommodation mortgage: Taking a junior lien position on collateral with little or no equity remaining
  • Amortize: Term of loan upon which payments are calculated
  • Appraisal: Inspection performed on subject property to ascertain its value
  • Approach to value: Appraisers may use three approaches to value – income approach, sales approach, cost approach
  • Approach to value – cost: Appraiser will focus on land value + the cost to replace the improvement (structure)
  • Approach to value – income: Appraiser’s focus is on the cash flow (rents vs. expenses) of the property
  • Approach to value – sales: Appraiser’s focus is on recent sales within the same area of subject with similar use; this is the most common approach
  • ARM: Adjustable Rate Mortgage
  • Balloon: A mortgage with payments that do not fully amortize the loan; the balance is due in a lump sum payment
  • Blanket: A mortgage which covers more than one property
  • Borrower: Receiver of funds with intentions to repay the loan in full under agreed terms
  • Broker: Brings parties together (borrowers/lenders) to negotiate loan terms for a commission
  • Collateral: Any property pledged as security for a debt
  • Credit score: Numbered rating system used to determine a prospective borrower’s credit worthiness; ranges 300-800
  • Due diligence: Evaluation process used in determining levels of risk in a potential loan purchase of a loan portfolio
  • Drive-by: 1-3 page appraisal report referring to outside (only) of collateral
  • Environmental: A summary of government data used to determine collateral environmental risk factors
  • Estimate of closing cost: Preliminary list of costs associated with obtaining a loan
  • FMV: Fair Market Value
  • Guarantor: A person or entity guaranteeing payment of a loan in the event of default of the borrower
  • HOEPA: Home Owner’s Equality Protection Act- deals with predatory lending (high interest rates)
  • Hud-1: A standard settlement sheet form used at loan closings
  • Judgments: Liens against borrower or collateral that have been allowed or decreed by a court
  • LLC: Limited Liability Company
  • Loan type: Usually based on the use of funds – personal, business purpose, corporate
  • LOX: Letter Of Explanation, usually pertains to credit issues
  • LTV: Loan To Value – percentage of appraised value on which a lender will extend credit (value/loan amount = LTV)
  • Mortgage: Legal document which secures the repayment of the note; recorded on the collateral pledged for the loan
  • N/O/O: Abbreviation for non-owner occupied
  • Note: Also known as the promissory note; legal document which outlines the loan terms including loan amount, interest rate, etc.
  • O/O: Abbreviation for owner occupied
  • Pipelines: Reports of deals in various stages of origination
  • Points: A percentage of the loan amount paid to the broker; e.g. 1 point on a $100,000 loan is $10,00; front end points
  • PPP:  Prepayment Penalty- A penalty charge to a borrower for early substantial pay off (usually within the first 5 years)
  • Program: An outline of underwriting guidelines used to determine the terms of a loan; e.g. APEX’s programs are A1- A2- A3- A4- A5- A7
  • Property type: Description of property; e.g. mixed-use, commercial, 4-unit residential, single family residence, etc.
  • Real estate tax escrow: Funds collected over and above the principal and interest amount to be paid out to local taxing authorities as the real estate taxes come due
  • REO: Real estate owned- collateral owned by lender post- foreclosure and sheriff’s sale
  • Repair escrow: A sum of money withheld from the proceeds of the loan until improvements or repairs are completed on collateral
  • Rescission: On personal references, funds are not distributed for a 3-day period post-closing to allow the borrower to review the loan documents with the option to cancel the loan if desired; collateral must be borrower’s primary residence
  • Settlement sheet: Also known as Hud; a form listing all of the fees, costs, pay-offs, etc. related to a loan
  • Subject property: Property that is or is being considered for collateral for the loan
  • Term: Length of the loan in months or years
  • Title report: A report on collateral showing ownership, legal description, existing liens, etc.
  • UCC: Uniform Commercial Code- documents that enable lenders to lien items contained in or attached to the property along with other items such as liquor license or mobile home, etc.
  • Underwriting: The structuring of loan terms that will reduce the risk and protect against lender’s loss
  • Use of funds: The borrower’s reason for applying for the loan; e.g. purchase, refinance, debt consolidation, improvements, etc.
  • YSP: Yield Spread Premium- A form of compensation that a mortgage broker, acting as the intermediary, receives from the original lender for selling an interest rate to a borrower that is above the lender’s par rate for which the borrower qualifies.
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