Arbor Financial Group Marketing Engines, Inc.

Glossary of Terms

Mortgage. Real Estate & Insurance


C C and Rs 
Also know as Conditions, Covenants and Restrictions, this document may apply to homes constructed in a particular area or subdivision. Homeowners Associations include this document as a part of title liens. If the Appraisal specifies these, they are mandatory for Project Approval.
Provision in the mortgage that gives us the right to call the mortgage due and payable at the end of a specified period for whatever reason.
A check that has been cashed by the bank on which the check was drawn.
A customer's financial ability to repay debt. Also see 3 Cs.
The amount of cash generated from income-producing property or investments after all operating expenses and loan payments have been made.
Maximum allowable interest rate increase for variable rate mortgages.
Money and/or property comprising the wealth owned/used by a person or business enterprise. Accumulated wealth of a person or business. Also the net worth of a business represented by the amount that its assets exceed liabilities.
Cost of an improvement made to extend the useful life of a property or to add to its value.
Gain or loss incurred from the sale or disposition of a capital asset.
Amount of the difference between the total cost of acquisition and the amount of the mortgage to be insured. This cash investment must come from an approved source of funds. See Source of Funds.
Refinancing 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. In other words, a refinance transaction in which the borrower receives additional cash (in an amount greater than the lesser of 2% of the principal amount of the new mortgage or $2,000).
A handwritten, signed and dated letter provided by customers who are receiving cash from the loan to explain how they intend to use that cash. Generally used to verify that borrowers aren't planning to use the cash to incur additional debt that will add to their monthly obligations and decrease disposable monthly income.
The amount of money one would receive today by selling an asset in the market place.
A check drawn by a bank on itself rather than on an account of a depositor. A cashier's check is generally acceptable to close a sale without waiting for the check to clear.
The highest interest rate that may be assessed or an adjustable-rate loan during the life of the loan based on the start rate and lifetime cap.
Document issued by an architect or engineer stating that a construction project is completed in accordance with the terms, conditions, approved plans, and according to specifications.
Index used to determine interest rate changes for certain ARM plans. It represents the weekly average of secondary market interest rates on six (6)-month negotiable certificates of deposit.
Written authorization given by a local municipality that allows a newly completed, or substantially completed structure to be inhabited. (Likewise, "C of O" or Temporary Certificate of Occupancy "TCO") is a document issued by a government authority certifying that a building is ready and fit for occupancy.
A copy attested to be true by the individual or entity holding the original.
This is a date established in an adjustable rate loan contract when a new interest rate will be assessed. Also known as adjustment date.
Chapter 13 is a debt reorganization plan where debts are repaid under a court-supervised repayment plan. Debtors submit part of their income for distribution among creditors. Also known as the wage-earner plan.
A Chapter 7 BK is a straight liquidation bankruptcy where the debtor submits all of their non-exempt assets to the trustee for liquidation; proceeds are disbursed to creditors.
A delinquent credit account with a balance owed that was never fully satisfied and the creditor removed it from the books for accounting purposes even though the debtor still owes payment in full.
History of all documents transferring a title to a parcel of real property, starting with the earliest existing document and ending with the most recent.
Periodic payments made under a divorce decree or a written separation agreement for the support of the children.
Personal property.
Agreement between a secured party and a debtor creating a security interest in personal property.
Title not encumbered or burdened with defects.
Conclusion of a transaction. In real estate, closing includes the delivery of a deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to the sale or loan transaction.
Money paid by borrowers and sellers to close a mortgage loan. This normally includes an origination fee, discount points, title insurance, survey, attorney's fee, and such prepaid items as taxes and insurance escrow payments.
Financial disclosure giving an account of all funds received and expected at closing, including the escrow deposits for taxes, hazard insurance, and mortgage insurance for the escrow accounts.
Any outstanding claim or encumbrance which, if valid, would affect or impair the title. It can be removed by a quit claim deed, release, or court action.
A 2nd borrower on a loan who is entitled with same exact interest in property as primary borrower.
Provision in a hazard insurance policy stating 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.
Property pledged by the borrower to secure the repayment of the loan. The lender's claim or lien appears on the title report for the property. See 3 Cs.
The total of all liens on the subject property divided by the appraised value of the property.
Monthly expenses for the customer's primary residence, which include rent or mortgage payments, other financing, hazard and flood insurance, mortgage insurance, real estate taxes, utilities and homeowner association dues.
Levies against individual unit owners in a condominium or PUD project for additional capital to defray the owners' association's costs and expenses to repair, replace, maintain, improve, or operate the common areas of the project.
Common Elements (Areas)
Portions of a building, land, and amenities owned (or managed) by a PUD or condominium owners' 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.
Person's name appearing on the application with the mortgagor. The co-mortgagor's income, assets, and debts are added together with the mortgagor's for underwriting and ratio analysis. The co-mortgagor's name must appear on the Note and the Mortgage Deed of Trust.
A property used for business purposes.
Property owned equally by a husband and wife. This classification of property is only used in certain states.
Properties used for comparative purposes in the appraisal process. Refers to facilities of reasonably the same size and location with similar amenities. Also properties that have been recently sold and have characteristics similar to property under consideration, indicating the approximate fair market value of the subject property.
Compensating Factor
Element that may be used to justify the approval of a loan with ratios in excess of normal guidelines. Elements include, but are not limited to:
    • Borrower can provide large down payment (in excess of 10%).
    • Borrower has substantial cash reserves.
    • Borrower receives compensation or income not reflected in effective income, but directly affecting the ability to pay the mortgage.
Special or unusual terms offered by the seller that may warrant the buyer paying a higher price for the property.
Determination that a building is not fit for use or is dangerous and must be destroyed. Taking of private property for a public purpose through an exercise of the right of eminent domain.
Conditional Lien Release
Signed by a contractor, subcontractor or material supplier, this form waives their right to file a mechanic's lien. This is signed on the condition that they receive payment for work performed. This release may be submitted throughout the construction phase or at completion of construction on an OTC loan.
Condo Hotel/Condominium Hotel
See Condotel.
Real estate project in which each unit owner has title to a unit in a building, an undivided interest in the common areas of the project, and sometimes the exclusive use of certain limited common areas.
Condominium Conversion
Changing the ownership of an existing building (usually a rental project) to a condominium form of ownership.
Condominium project that has rental or registration desks, short-term occupancy, food and telephone services, and daily cleaning services, and which is operated as a commercial hotel even though the units are individually owned.
Required element in all contracts by which a legal right or promise is exchanged for the act or promise of another person.
Construction Administrative Fee
This fee covers the cost of all inspections and disbursements during the construction phase of an OTC loan.
Construction Loan Agreement
Closing document that spells out the parameters and conditions of the construction phase of an OTC loan, as well as the responsibilities of all parties associated with the loan. The Lender, the borrower(s) and the builder/contractor will all sign this document at the closing table.
Construction Start Date
The date the OTC loan security instrument is recorded reflecting a certain lender as lender of record.
Construction Term
The actual term of the construction phase of an OTC loan. It is stated in months: 4, 6,9, 12 or 18 months are the current options or conventional loans.
Credit owed by the individual, not secured by real estate.
Consumer Reporting Agency (or Bureau)
Organization that prepares reports used by credit grantors to determine the credit and public records history of an individual. The agency obtains data for these reports from repositories of accumulated credit records as well as from other sources.
Clause in a contract that requires the completion of a certain act or the occurrence of a certain event before the contract is binding.
Contingency Reserves
A reserve account usually equal to 5% of the Direct Costs of the construction project of an OTC loan. These funds are held in reserve and will be available to cover any unexpected construction mishaps or severe problems.
Contractor Review Request
This form is to be used for submitting a builder/contractor for prior approval for the OTC program. It requires specific information about the builder / contractor and provides for attachment of licensing & insurance information.
A loan that was not underwritten by HUD, the SBA, VA or the FHA.
Conventional Mortgage
Mortgage that is not insured or guaranteed by the federal government.
Convertible ARM
Adjustable-rate mortgage that includes an option for the mortgagor to change the mortgage to a fixed-rate mortgage in the early years of the mortgage term.
A provision in some Adjustable Rate Mortgages ("ARM") that allows a borrower to change the ARM to a fixed-rate loan at some point during the term.
Act of transferring title to real property from one party to another.
Document, such as a deed, lease, or mortgage, which is used to transfer title to real property.
An artificial person or legal entity created by or under the authority of the law of a state. May have limited liability, perpetual life, freely transferable shares and centralized management.
Corporate Relocation
Arrangements under which an employer moves an employee to another area as part of the employer's normal course of business, or 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.
One who agrees to assume the debt obligation if the principal borrower defaults on mortgage payments. A cosigner assumes only personal liability and has no ownership interest in the property. His or her income and obligations are used in the underwriting process to reinforce the credit of the principal borrower. The cosigner's credit is not given equal weight with that of the principal borrower, but serves only as a compensating factor. Contrast with co-mortgagor.
Repairs that improve the appearance of the property.
Cost of Funds Index
Index used to determine interest rate changes for certain 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.
Limitations placed on the use and enjoyment of real property. Usually intended to maintain a certain look within a neighborhood and common in subdivisions, PUDS or condominium communities.
A letter signed by the borrower that authorizes a lender, to conduct a credit investigation.
Credit Life Insurance
Insurance often bought by mortgagors because it pays off the mortgage debt if the borrower dies while the policy is in force.
A company that collects and organizes information about an individual's credit and payment habits. The 3 national credit bureaus are Experian, TransUnion and Equifax.
A letter that is sent to a credit applicant advising him or her that the application has been denied and the reason for the denial.
The number of years a borrower has established credit. This information shows up on the borrower's report.
The history of whether the borrower has met financial obligations on time in the past.
The length of time a customer has had established credit.
A report provided by a credit reporting bureau that provides a detailed account of the applicant's credit history.
A numerical assessment assigned to the customer by credit bureaus that represents a measurement of the customer's overall credit rating. The scores are weighted and range from approximately 365 to 840. Low scores reflect a "high risk", while higher scores reflect a "lower risk". Each credit bureau has its own credit score system.
Cancellation Clause
A Cancellation Clause is a provision in a lease or other contract which confers upon one or more of the parties to the lease the right to terminate the party's or parties' obligations thereunder upon the occurrence of the condition or contingency set forth in the said clause.
Capital Improvement
A Capital Improvement is a permanent improvement to real estate, usually extending the useful life and value of a property.
Co-brokerage is an agreement between two brokerage firms to share listings and commissions. This is usually used when one of the brokers is the seller's exclusive listing agent and the other broker represents the buyer.
Commitment Letter
A Commitment Letter is the letter issued by a lending bank which legally binds it to provide funds as specified subject to written terms and conditions.
A Condominium is an apartment building in which each apartment owner owns his or her own apartment plus a percentage of the ownership of the common areas of the entire property. Each owner receives a unit deed, proof of that ownership.
Condominium Apartments
Unlike cooperatives, condominiums are owned outright as actual property. At closing, the buyer receives a deed to the apartment. Each owner is billed directly and is responsible for making individual real estate tax and mortgage payments, if any. The common charges for maintenance and upkeep are billed to owners on a monthly basis.

As part of the board package procedure, the real estate agent will present the buyer with the building's condo board requirements and application papers, which may include:

  • Application
  • Signed financial statements
  • Tax returns
  • Bank statements
  • Brokerage statements
  • Personal and financial letters of interest
  • Professional reference letters
  • The contract of sale
  • Bank financing documents (if financing)
Usually, a condop refers to a residential co-op that is operated pursuant to "condo style" rules. (Alternatively, this term refers to a hybrid form of co-op/condo ownership designed to shelter income, from commercial space owned by the building, for example.)
A Contract, also known as a Purchase of Sales Agreement, is a written agreement between seller and purchaser in which the purchaser agrees to buy certain real estate and the seller agrees to sell upon conditions and terms set forth therein.
Conversion is a change in ownership type or status. Example: A rental housing building may be converted to co-operative or condominium ownership. A commercial loft building may be converted into residential apartments.
A Co-operative is a corporation that owns a building. Purchasers receive shares of stock in the corporation, and a Proprietary Lease for their apartment.
Cooperative Apartments
Cooperative apartments represent approximately 70% of all resident-owned real estate in Manhattan. Instead of purchasing the residence outright, the co-op buyer purchases a certain number of shares in a corporation. These shares entitle the buyer to a proprietary lease, affirming the buyer's right to occupy a specific apartment. Tenants/shareholders of a co-op pay a monthly maintenance, based on the number of shares, to cover real estate taxes, the building's mortgage, employee salaries, and overall building maintenance.

Facts about Cooperative Apartments:

  • A co-op's board of directors has the right to accept or reject a potential shareholder without providing a reason why.
  • Most co-ops limit the amount of the purchase price that may be financed by the buyer. Some buildings require all cash.
  • Interest on an underlying mortgage, if any, and real estate taxes typically comprise a portion of a co-op's maintenance charges. Hence, a corresponding percentage of those mainteneance charges will be tax deductible.
  • Shareholders must obtain permission from the board before subleasing a unit; some buildings forbid subleasing entirely.
  • Prospective buyers must provide detailed personal financial data, tax returns, and professional reference letters to the board in order to be approved. The building's board will also personally interview the buyer.
  • A flip tax (generally 1 to 2% of the selling price) is a common feature in cooperative sales. This "tax" or fee helps build the co-op's capital reserve fund and pay for building improvements. Flip taxes are payable by buyer or seller, depending on building policy.
A Covenant is an agreement(s) written into deeds promising performance or nonperformance of certain acts or stipulating certain uses or non-uses of the property.