Glossary of Real Estate Finance Terms

The terms below are commonly used in the real estate finance industry. Use the alphabetic index to move quickly your term of interest. Please drop us an email if you need further explanation or you find a term we have not defined.

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A balloon mortgage is a short term loan that does not fully amortize over the loan's term. While the amortization period may be 30 years, just like a conventional, 30-year mortgage, the loan matures in a shorter period, commonly 5 or 7 years. At the end of this period, the remaining principal on the loan is due, what is called a balloon payment.

You have several options when the loan comes due: you can pay off the loan or you can refinance it. Many lenders offer a conversion feature at the end of the term allowing you to convert the loan to a 30-year, fixed-rate mortgage. The conversion option may depend on certain criteria such as having made your last 24 payments on time. A balloon mortgage with a conversion option often is called a Convertible (e.g., 5/25 or 7/23 Convertible).

You may be offered a lower interest rate on a convertible mortgage, but you risk foreclosure if you cannot exercise the conversion option.

An interest rate buy-down is an arrangement that allows the borrower to pay a lower interest rate at the beginning of the loan, typically during the first two or three years, in exchange for points or a higher interest rate for the remainder of the term.

A common buy-down is the a 3-2-1 buy-down, which reduces the interest rate by 3% below the note rate during the first year, 2% in the second year, and 1% in the third year. For this reduced rate, the lender traditionally charges the borrower points at closing.

More recently, lenders have designed variations of the old buy-downs. Rather than charge the borrower higher points, the lender increases the note rate to cover its yield in the later years. For example, if the rate for a conventional 30-year fixed mortgage is 6.0%, the lender might set the note rate to 6.75%. Thus, the buy-down would give the borrower a first year rate of 3.75%, a second rate of 4.75%, a third year rate of 5.75%, and a rate of 6.75% for the remainder of the loan.

An advantage of an interest rate buy-down is it may allow you to qualify for a more expensive home. The disadvantage is the loan is more expensive.

A
Abstract of Title	A written summary of the title history of a particular piece of real estate.
Acceleration Clause	A provision of a mortgage or note which provides that the entire outstanding balance will become due and payable in the event of default.
Adjustable Rate Mortgage (ARM)	Mortgage for which the interest rate adjusts periodically up or down through a set index. The initial interest rate usually is lower than that for fixed-rate mortgages, but monthly payments can go up or down when the rate is adjusted. Also called a floating rate mortgage.
Adjusted Gross Income	Gross income of a building if fully rented, less an allowance for estimated vacancies.
Adjustment Interval	The period of time between changes in the interest rate for an adjustable-rate mortgage. Typical adjustment intervals are six months and one year.
Amortization	The process of paying the principal and interest on a loan through regularly scheduled installments.
Annual Percentage Rate (APR)	The effective interest rate a loan would have if one accounted for costs associated with securing the loan, such as closing costs and points. It represents the annual cost of a loan and is thus a more reliable indicator for comparing different mortgage options.
Appraisal	An estimate of the value of a property made by a qualified professional called an appraiser.
ARM	See Adjustable Rate Mortgage.
Assessed Valuation	The value that a taxing authority places on real or personal property for the purpose of taxation.
Assumable Loan	A loan that can be transferred to a new owner when a property is sold.
B	(top)
Balloon (Payment) Mortgage	Usually a short-term fixed-rate loan that involves small payments for a certain period of time and one large payment for the remaining principal balance, due at a time specified in the contract.
Basis Point (bp)	1/100th of 1% (0.01%), typically stated as a number of basis points over an index rate.
Biweekly Mortgage	A type of fixed-rate mortgage with payments for half the usual monthly amount scheduled every two weeks. Because you make the equivalent of 13 months of payments every year, the loan term is shortened, and total interest cost are substantially lower.
Bridge Loan	A short-term loan secured by the equity in an as-yet-unsold house, with the funds to be used for a down payment and/or closing costs on a new house. There is no payment of principal until the house is sold or the end of the loan term, whichever comes first. Interest payments may or may not be deferred until the house is sold.
Buydown	The process of paying additional points on a loan to reduce the interest rate. Buydowns can be temporary or permanent.
C	(top)
Cap	The maximum amount that the interest rate or payment may increase for an adjustable-rate loan, regardless of index changes. An interest rate cap limits the amount the interest rate can change, while a payment cap limits the increase in monthly payment to a specific dollar amount.
Cash Out	A loan transaction in which the borrower receives funds as the time of closing.
Cash Reserves	Cash reserves are the same cash assets as those used for the down payment and closing costs but, since reserves are not paid to anyone, the asset does not have to be liquidated. The monetary value assigned to any asset used for reserves is equal to the amount of cash the borrowers would receive if they liquidated the asset.
Capital Expenditures	Line items on a profit and loss statement that would not be expensed on an annual basis. This category would include replacement of major building systems, such as roofs, driveways, etc.
Capitalization Rate	A method used to estimate the value of a property based on the rate of return on investment. Equals normalized earnings after taxes divided by present value, expressed as a percentage.
Cash Reserves	These are liquid and semi-liquid assets a borrower has available that exceed the funds needed for the down payment and closing costs. For some transactions, lenders require that borrowers have between 2 and 6 months of cash reserves to qualify for a loan.
Cash to Close	Liquid assets that are readily available to be used to pay the closing costs for a mortgage transaction.
Certificate of Eligibility	A document issued by the federal government certifying a veteran’s eligibility for a Veterans Administration (VA) mortgage guarantee.
Certificate of Title	A written statement usually furnished by a title company or attorney that presents the status of the title to a piece of property.
Closing	The meeting between the buyer, seller and lender (or their agents) where the property and funds legally change hands. Also referred to as "settlement."
Closing Agent	A third party who oversees the closing of the loan transaction.
Closing Costs	The cost and fees associated with the official change in ownership of the property and with obtaining the mortgage usually assessed at the closing or settlement.
Closing Documents	The documents that are signed at closing, including the Deed of Trust or Mortgage with attachments, Promissory Note, Truth-in-Lending Disclosure, and other documents related to the transaction.
Closing Statement	A form, sometimes referred to as Settlement Statement or HUD1 Statement, used at closing that gives an account of the funds received and paid at the closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance.
Collateral	Property pledged as security for a debt, such as the real estate pledged as security for a mortgage.
Combined Loan-to-Value Ratio (CLTV)	The ratio between the loan amounts of all loans on a property and the value of the property. The ratio is commonly expressed as the percentage of value a lender is willing to finance. It differs from the loan-to-value (LTV) ratio only when the property has more than one lien.
Commitment	A binding pledge made by the lender to the borrower to make a loan, usually at a stated interest rate within a given period of time for a given purpose, subject to the compliance of the borrower to stated conditions.
Commitment Fee	Fee paid by a potential borrower to a lender for the lender’s promise to lend money at a specified rate and within a given time period.
Commitment Letter	A lender’s written offer to grant a loan outlining the terms, the amount of the loan, the interest rate and any other conditions. It can also serve as a communication of the lender’s decision to the borrower’s application.
Comparables	An abbreviation for comparable properties used for comparative purposes in the appraisal process. Comparables are properties that have sold recently and have reasonably the same size and location with similar amenities to the property under consideration, thereby indicating the approximate fair market value of the subject property.
Comparative Market Analysis	An estimate of the value of a property based on an analysis of sales of properties with similar characteristics.
Conduit	The financial intermediary that sponsors the conduit between the lender(s) originating loans and the ultimate investor. The conduit makes or purchases loans from third party correspondents under standardized terms, underwrites and documents them, and when sufficient volume has been obtained, pools the loans for sale to investors in the CBMS markets.
Conforming Loan	A mortgage loan that conforms to regulatory limits such as loan amount, loan-to-value ratio, and other characteristics.
Construction Loan	A short term interim loan for financing the cost of construction. The lender advances funds to the builder at periodic intervals as the work progresses.
Conventional Mortgage	A mortgage not obtained under a government insured program (such as FHA or VA).
Convertible	An option available on some adjustable-rate mortgages that allows the loan to be converted to a fixed rate mortgage. Conversion may involve paying a one-time fee and may be limited to within a certain time-frame.
Co-signer	Someone who is willing to sign a mortgage loan obligation with the primary signer to become responsible for the obligation if the primary signer defaults on loan. Normally, the cosigner is required to go through the same application and approval process as the original signer of the loan.
Credit Report	A report containing detailed information on a person's credit history, including identifying information, credit accounts and loans, bankruptcies and late payments, and recent inquiries. It can be obtained by prospective lenders with the borrower's permission, to determine his or her creditworthiness.
D	(top)
Debt-to-Income Ratio	The ratio, expressed as a percentage, that results when a borrower’s monthly payment on all debts (mortgage, car payments, credit cards, etc.) is divided by his or her monthly income.
Debt Service	The periodic payments (principal and interest) made on a loan.
Debt Service Coverage Ratio (DSC)	The ratio of cash flow available to pay for debt to the total amount of debt payments to be made. A ratio of 1.0 means breakeven. Most lenders look for a ratio of 1.20 or higher.
Declining Percentage	A form of prepayment penalty for which the borrower pays a lump sum based on a percentage of the outstanding principal balance at the time of the prepayment. The percentage may be the same for a period of time or it may decline, e.g., five percent for year one, four percent for year two, etc.
Deed of Trust	An instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower, in favor of the lender and re-conveyed upon payment in full.
Default	The failure to perform an obligation as agreed in a contract.
Defeasance	A form of prepayment penalty for which the borrower is required to purchase and deposit with the lender substitute collateral, such as a Treasury security that matches the principal and interest payments of the prepaid loan and thereby sufficiently services the debt of the prepaid loan.
Deficiency Judgement	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 payment that is overdue but within the period allowed before actual default is declared.
Department of Veterans Affairs (VA)	An independent agency of the federal government that guarantees long-term, low- or no-down payment mortgages to eligible veterans.
Deposit	A sum of money given to bind a sale of real estate. Also known as earnest money.
Discount Point	Amount payable to the lending institution by the borrower or seller to decrease or "buy down" the mortgage note interest rate. One point is equal to one percent of the loan amount (1 point, or 1%, of an $80,000 loan would be $800).
Down Payment	An amount paid in cash to the seller when a home is purchased. The down payment is the difference between the purchase price and the mortgage amount.
Due Diligence	The process of investigation, performed by investors, into the details of a potential investment, such as an examination of operations and management and the verification of material facts.
Due-on-Sale Clause	A provision in a mortgage or deed of trust that allows the lender to demand immediate payment of the balance of the mortgage if the borrower sells the home.
E	(top)
Earnest Money	A portion of the down payment delivered to the seller or an escrow agency by the purchaser of real estate with a purchase offer as evidence of good faith.
Easement	A right to the limited use of land owned by another. An electric company, for example, could have an easement to put up electric power lines over someone's property.
Encumbrance	Anything that affects or limits the title to a property, such as outstanding mortgages, easement rights or unpaid back taxes.
Engineering Report	Report generated by an architect or engineer describing the current physical condition of the property and its major building systems, i.e., HVAC, parking lot, roof, etc. The report also determines an amount for calculating replacement reserves, if needed.
Environmental Report	Report generated by an qualified environmental firm to determine potential environmental hazards in a building's region or within the building itself.
Environmental Risk	Risk of loss of collateral value and of lender liability due to the presence of hazardous materials, such as asbestos, PCB's, radon or leaking underground storage tanks (LUSTS) on a property.
Equal Credit Opportunity Act (ECOA)	A Federal law requiring lenders and other creditors to make credit equally available without discrimination based on race, color, religion, national origin, sex, age, marital status, receipt of income from public assistance programs or past exercising of rights under the Consumer Credit Protection Act.
Equity	The difference between the fair market value and current indebtedness, also referred to as "owner's interest."
Equity Capital	Capital raised from owners. In a commercial real estate transaction, an investor also may provide equity capital for a percentage of ownership.
Escrow	1. A special account set up by the lender in which money is held to pay for taxes and insurance. 2. A third party who carries out the instructions of both the buyer and seller to handle the paperwork at the settlement.
F	(top)
Fair Credit Reporting Act (FCRA)	A Federal law that requires a lender who is rejecting a loan request because of adverse credit information to inform the borrower of the source of such information.
Fair Market Value	An appraisal term for the price that a property would bring in a competitive market, given a willing seller and willing buyer, each having reasonable knowledge of all pertinent facts, with neither being under any compulsion to buy and sell.
Fannie Mae (FNMA)	The Federal National Mortgage Association, a congressionally chartered corporation that buys mortgages on the secondary market from Banks, Savings & Loans, etc., pools them, and sells them as mortgage-backed securities to investors on the open market. Monthly principal and interest payments are guaranteed by FNMA but not by the U.S. Government.
FHA	Federal Housing Administration, a government agency.
FHA Loan	A loan insured by the Federal Housing Administration. FHA mortgages loans may require lower down payments than conventional mortgages, and also feature less stringent income and financial requirements.
Fixed Rate Mortgage	A loan with an interest rate that remains constant for the life of the loan.
Floating Rate Mortgage	See Adjustable Rate Mortgage.
Flood Certification	An independent agency report required by the lender to determine whether a property is located in a flood hazard zone, which would then require a federally mandated flood insurance policy.
Floor-To-Area Ratio (FAR)	The relationship between the total amount of floor space in a multi-story building and the base of that building. FAR's are dictated by zoning laws and vary from one neighborhood to another, in effect stipulating the maximum number of stories a building may have.
Foreclosure	The process by which a lender takes back a property on which the mortgagee had defaulted. A servicer may take over a property from a borrower on behalf of a lender. A property usually goes in to the process of foreclosure if payments are no more than 90 days past due.
Forward Commitment	A written promise from a lender to provide a loan at a future time.
Freddie Mac (FHLMC)	The Federal Home Loan Mortgage Corporation, a government-chartered corporation that buys qualified mortgage loans from the financial institutions that originate them, securitizes the loans, and distributes the securities through the dealer community. The securities are not backed by the U.S. Government. The market value of these securities prior to maturity is not guaranteed and will fluctuate.
G	(top)
Gift Letter	A written explanation signed by the individual giving the gift stating, "This is a bona fide gift and there is no obligation expressed or implied to repay this sum at any time."
Graduated Payment Mortgages (GPM)	A repayment condition in which payments gradually increase at a predetermined rate, usually through the use of negative amortization. The advantage of this type of loan is a lower monthly payment at the beginning of the loan term. The disadvantages are typically a slightly higher rate than a traditional fixed rate mortgage and lenders usually require a larger down payment. In addition, the negative amortization increases the balance due on the total loan which can be a problem if the value of the property declines.
Gross Income	Total income, before deducting taxes and expenses. The scheduled (total) income, either actual or estimated, derived from a business or property.
Growing Equity Mortgage	Mortgage that has a fixed interest rate and increasing monthly payments. The advantage of this type of loan is that the loan can be paid off in a shorter duration than a traditional fixed rate loan.
H	(top)
Hard Money	Usually short-term loans designed for properties that do not cash flow, situations requiring quick closings, or borrowers or transactions that cannot qualify for conventional financing.
Hazard Insurance	Insurance protection against damage to a property from fire, windstorms, and other common hazards.
Home Equity Line-of-Credit (HELOC)	A loan through which the lender extends a specified amount of credit for a specified time period secured by the borrower's home.
Homeowner's Insurance	An insurance policy that covers the dwelling and its contents in case of fire or wind damage, theft, liability for property damage and personal liability.
HUD	Housing and Urban Development, a federal government agency.
HUD-1 Form	See Settlement Statement.
I	(top)
Index	An economic indicator, usually a published interest rate, that provides a representation of the value of the securities which constitute it. Indices often serve as barometers for a given market or industry and benchmarks against which financial or economic performance is measured. Examples include the prime rate and the LIBOR. ARM rates adjust based on a specified index.
Interest	The sum paid for borrowing money, which pays the lender's costs of doing business.
Interest Rate	The sum charged for borrowing money, expressed as a percentage.
Interest Rate Cap	A provision of an adjustable rate mortgage limiting how much the interest rate may increase in a single adjustment period.
Interest Shortfall	The aggregate amount of interest payments from the borrower that is less than the accrued interest on the certificate.
J	(top)
Junior Debt	Debt that is either unsecured or has a lower priority than that of another debt claim on the same asset or property. Also called subordinated debt.
K	(top)
L	(top)
Lease Assignment	An agreement between the commercial property owner and the lender that assigns lease payments directly to the lender.
Leasehold Improvements	The cost of improvements for a leased property, often paid by the tenant.
Lender Buy-Down Mortgage	A convertible mortgage offering a discounted interest rate at the beginning of the loan that gradually increases to an agreed-upon fixed-rate over the first few years of the loan. It provides lower initial payments and a stable final monthly rate, but the final rate may be somewhat higher than on a standard fixed-rate mortgage.
Lien	A legal claim or attachment against property as security for payment of an obligation.
Lifetime Cap	A provision of an ARM that limits the total increase in interest rate over the life of the loan.
Line of Credit	An arrangement in which a bank or vendor extends a specified amount of unsecured credit to a specified borrower for a specified time period.
Loan Origination Fee	The fee charged by a lender to prepare all the documents associated with your loan.
Loan-to-Value Ratio (LTV)	The ratio between the loan amount and the value of the property. The ratio is commonly expressed to a potential borrower as the percentage of value a lender is willing to finance.
Lock-In	A commitment by a lender guaranteeing a specified interest rate for a specified period of time. Also called rate lock. This process may require a fee or premium.
Lock-Out Period	A period of time after loan closing during which a borrower cannot prepay the loan.
London Interbank Offered Rate (LIBOR)	The short-term rate at which banks will lend to each other in London. Commonly used as a benchmark for adjustable-rate loans.
LTV	See Loan-to-Value Ratio.
M	(top)
Margin	The amount that is added to an index rate to determine the total interest rate for an adjustable rate mortgage.
Maturity	The termination period of a note (e.g., a 30-year mortgage has maturity of 30 years).
Mezzanine Financing	Late-stage venture capital, usually the final round of financing prior to an IPO.
Miniperm	Short-term permanent financing, usually 3 to 5 years.
Mortgage Insurance	An insurance policy the borrower buys to protect the lender from nonpayment of the loan. Private mortgage insurance policies are usually required if you make a down payment that is less than 20% of the appraised value of the home.
Mortgage Note	A written promise to pay a sum of money at a stated interest rate during a specified term. The note contains a complete description of the conditions under which the loan is to be repaid and when it is due.
Mortgagee	The lender in a mortgage transaction.
Mortgagor	The borrower in a mortgage transaction who pledges property as security for a debt.
Multi-Family Property Class A	Properties are above average in terms of design, construction and finish; command the highest rental rates; have a superior location, in terms of desirability and/or accessibility; generally are professionally managed by national or large regional management companies.
Multi-Family Property Class B	Properties frequently do not possess design and finish reflective of current standards and preferences; construction is adequate; command average rental rates; generally are well maintained by national or regional management companies; unit sizes are usually larger than current standards.
Multi-Family Property Class C	Properties provide functional housing; exhibit some level of deferred maintenance; command below average rental rates; usually located in less desirable areas; generally managed by smaller, local property management companies; tenants provide a less stable income stream to property owners than Class A and B tenants.
N	(top)
Negative Amortization	Occurs when interest accrued during a payment period is greater that the scheduled payment, and the excess amount is added to the outstanding loan balance. For example, if the interest rate on an ARM exceeds the interest rate cap, then the borrower's payment will be insufficient to cover the interest accrued during the billing period. The unpaid interest is added to the outstanding loan balance.
Net Effective Rent	Rental rate adjusted for lease concessions.
Net-Net Lease (NN)	Usually requires the tenant to pay for property taxes and insurance in addition to the rent.
Net Operating Income (NOI)	Total income less operating expenses, adjustments, etc., but before mortgage payments, tenant improvements and leasing commissions.
Non-Conforming Loan	A mortgage loan that does not conform to regulatory limits such as loan amount, loan-to-value ratio, and other characteristics.
Non-Recourse	A mortgage or deed of trust securing a note without recourse allows the lender to look only to the security (property) for repayment in the event of default, and not personally to the borrower. The lender's only recourse in the event of default is the security (property), and the borrower is not personally liable.
Notice of Default (NOD)	To initiate a non-judicial foreclosure proceedings involving a public sale of the real property securing a deed of trust. The trustee under the deed of trust records a Notice of Default and Election to Sell ("NOD") the real property collateral in the public records.
O	(top)
Operating Expenses	Periodic expenses necessary to the operation and maintenance of an enterprise (e.g., taxes, salaries, insurance, maintenance). Often used as a basis for rent increases.
Origination Fee	See Loan Origination Fee.
Overage	Profits remaining after subtracting for operating expenses, taxes, interest and insurance.
Owner Financing	A purchase in which the seller provides all or part of the financing.
P	(top)
Percentage Lease	Commonly used for large retail stores. Rent payments include a minimum or "base rent" plus a percentage of the gross sales "overage." Percentages generally vary from 1% to 6% of the gross sales depending on the type of store and sales volume.
Phase I	An assessment and report prepared by a professional environmental consultant who reviews the property - both land and improvements - to ascertain the presence or potential presence of environmental hazards at the property, such as underground water contamination, PCB's, abandoned disposal of paints and other chemicals, asbestos and a wide range of other potentially damaging materials. This Environmental Site Assessment (ESA) provides a review and makes a recommendation as to whether further investigation is warranted (a Phase II Environmental Site Assessment). This latter report would confirm or disavow the presence of an mitigation efforts that should be undertaken.
PITI	Principal, interest, taxes and insurance, the four components of a mortgage payment.
Planned Unit Development (PUD)	A planned combination of diverse land uses, such as housing, recreation, and shopping in one contained development or subdivision. A major feature of a PUD includes areas of common land for use by the housing unit owners. Tthe association of unit owners generally owns, pays fees, and maintains the common areas.
PMI	See Mortgage Insurance.
Points	See Discount Point.
Preliminary Title Report	The results of a title search by a title company prior to issuing a title binder or commitment to insure clear title.
Prepayment	The payment of all or part of a debt prior to its due date.
Prepayment Penalty	A penalty sometimes charged to a borrower who makes a prepayment. The three most common forms of prepayment penalty are "yield maintenance," "defeasance," and "declining percentage."
Pre-qualification	A preliminary assessment of a buyer's ability to secure a loan, based on a specific set of lending guidelines and buyer representations made. It usually results in a determination of the amount of money a prospective home buyer is qualified to borrow. This is not a guarantee or commitment by a lender to extend credit.
Prime Rate	The interest rate that commercial banks charge their most creditworthy borrowers, such as large corporations.
Principal	1. The amount of debt, not including interest, left on a loan. 2. The face amount of a loan.
Processing	The preparation of a mortgage loan application and supporting documentation for consideration by a lender or insurer.
Pro Forma	Description of financial statements that have one or more assumptions or hypothetical conditions built into the data. Often used with balance sheets and income statements.
Property Classification	Most lenders will classify a property by its age and needed maintenance.
Property Tax	Taxes based on the market value of a property. Property taxes vary from state to state.
Q	(top)
Qualifying Ratios	Guidelines applied by lenders to determine how large a loan to grant a home buyer.
R	(top)
Rate Lock Option	An agreement guaranteeing the home buyer a specified interest rate provided the loan closes in a specified time period.
Real Estate Investment Trust (REIT)	Pooled funds that purchase and hold commercial real estate.
Real Estate Owned (REO)	A term used by lending institutions as applied to ownership of real property acquired for investment or as a result of a foreclosure.
Real Estate Settlement Procedures Act (RESPA)	A federal law requiring lenders to provide home mortgage borrowers with information on known or estimated settlement costs. It also establishes guidelines for escrow account balances and the disclosure of settlement costs.
Recording Fee	The charges made by the register of deeds to record the legal documents.
Recourse	A loan for which the borrower is personally liable for payment if the borrower defaults.
Refinance	The renewal of an existing loan by the same borrower.
Rent Step-Up	A lease agreement in which the rent increases every period for a fixed amount of time or for the life of the lease.
Replacement Reserves	Monthly deposits that a lender may require a borrower to place in an account for future capital improvements of major building systems; i.e., HVAC, parking lot, carpets, roof, etc.
Reserve Funds	A portion of the bond proceeds that are retained to cover losses on the mortgage pool. A form of credit enhancement (also referred to as "reserve accounts").
S	(top)
Sale/Lease Back	When a lenders buys a property and leases it back to the seller for an extended period of time. This arrangement allows the seller to make full use of the asset while not having capital tied up in the asset. Leasebacks sometimes provide tax benefits.
Satisfaction of Mortgage	The recordable instrument issued by the lender verifying full payment of a mortgage debt.
SBA	Small Business Administration, a federal government agency established in 1953 to provide financial, technical and management assistance to help Americans start, run, and grow their businesses. With a portfolio of business loans, loan guarantees and disaster loans the SBA is the nation's largest single financial backer of small businesses.
Second Mortgage	A mortgage on real estate that has already been pledged as collateral for an earlier mortgage. The second mortgage carries rights that are subordinate to those of the first. Also called Secondary Financing.
Secondary Mortgage Market	A market in which existing mortgages are bought and sold. It contrasts with the primary mortgage market where mortgages are originated.
Spread	Number of basis points over a base rate index.
Standby Commitment	A formal offer by a lender making explicit the terms under which it agrees to lend money to a borrower over a certain period of time.
Structural Report	Report generated by an architect or engineer describing the current physical condition of the property and its major building systems, such as HVAC, parking lot, and roof.
Subprime Loan	A rating term describing a riskier loan typically associated with weaker credit.
Survey	The measurement and description of land by a registered surveyor.
T	(top)
Tax & Insurance Impound	Monthly deposits that a lender may require to be included with principal and interest payments for the payment of taxes and insurance.
Tenant Improvements (TI)	The expense to physically improve the property to attract new tenants to new or vacated space, which may include new improvements or remodeling. May be paid by tenant, landlord, or both. Typically, tenants are provided with a market rate TI allowance ($/sq. ft.) that the owner will contribute towards improvements. The tenant must pay for amounts above the TI allowance.
Term	The length of a loan.
Title	The actual legal document conferring ownership of a piece of real estate.
Title Insurance	An insurance policy that insures you against errors in the title search, essentially guaranteeing the borrower's and lender's financial interest in the property.
Title Search	An examination of public records to disclose the past and current facts regarding the ownership of a given piece of real estate.
Transfer Tax	In some areas city, county or state taxes imposed when property passes from one person to another.
Triple - Net Lease	A lease that requires the tenant to pay for property taxes, insurance, and maintenance in addition to the rent.
Truth-in-Lending Act	A federal law requiring the disclosure of credit terms using a standard format. This is intended to facilitate comparison of loan terms between financial institutions.
U	(top)
Underwriting	The process of deciding whether to make a loan based on credit, employment, assets other factors.
Uniform Residential Loan Application (1003)	This application, also called a 1003 is the standard loan application used by all residential lenders.
V	(top)
VA Loan	Government insured loan guaranteed by the Department of Veterans Affairs, requiring very low or no down payments and with generous requirements for qualification. They are available only to veterans of the armed services, those currently on active duty or in the reserves, and their spouses.
W	(top)
Workout	Attempt to resolve a problematic situation, such as a bad loan.
X	(top)
Y	(top)
Yield Maintenance	A prepayment premium that allows lenders to attain the same yield as if the borrower made all scheduled mortgage payments until maturity. The lender collects a lump sum from the borrower based on a formula that considers the present value of the difference between the prepaid loan's interest rate and current rates with a similar maturity date.
Yield-To-Average Life	Yield calculation used, in lieu of "yield-to-maturity" or "yield-to-call," where books are retired systematically during the life of the issue, as in the case of a "Sinking Fund," with contractual requirements. Because the issuer will buy its own bonds on the open market to satisfy its sinking fund requirement if the bonds are trading below Par, there is, to that extent, automatic price support for such bonds. They, therefore, tend to trade on a yield-to-average-life basis.
Yield-To-Call	Yield that would be realized on a callable bond in the event that the bond was redeemed by the issuer on the next available call date.
Yield-To-Maturity	Concept used to determine the rate of return an investor will receive if a long-term, interest-bearing investment, such as a bond, is held to its maturity date. It takes into account purchase price, redemption value, time to maturity, coupon yield, and the time between interest payments. Recognizing the time value of money, it is the discount rate at which the present value of all future payments would equal the present price of the bond (also referred to as "internal rate of return"). It is implicitly assumed that coupons are reinvested at the YTM rate. YTM cam be approximated using a bond value table (also referred as a "bond yield table") or can be determined using a programmable calculator equipped for bond mathematics calculations.
Z	(top)
Zero Point Option	An option which allows the borrower not to pay the points associated with the loan origination fee. This savings is offset by a slightly higher loan interest rate.