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Glossary of Terms

Application: A printed form used by a lender to record necessary information concerning a prospective client.

Appraisal: A report made by a certified appraiser setting forth an opinion or estimate of property value.

Appreciation: Appreciation refers to the increase in the value of a property over time. Appreciation can be caused by a number of things including inflation, the increase in demand or a decrease in supply of properties. Appreciation can also take into account added value as a result of property improvements (such as upgrading a kitchen, adding a room or a pool, etc.).

Appreciation is usually projected as a percentage of the property’s value over the course of a year.

ARV – As Repaired Value: Estimated Value of property after completion of rehab.

Borrower: the entity (also known as a mortgagor) who receives funds in the form of a loan with an obligation to repay the debt. Bayport Funding’s borrowers must be entities, they cannot be natural persons.

Bridge Loan: A short-term loan used until a person or company secures permanent financing or removes an existing obligation. This type of financing allows the user to meet current obligations by providing immediate cash flow. The loans are short term, up to one year and are usually backed by some form of collateral such as real estate.

Cap Rate: This popular return expresses the ratio between a rental property’s value and its net operating income. The cap rate formula commonly serves two useful real estate investing purposes: To calculate a property’s cap rate, or by transposing the formula, to calculate a property’s reasonable estimate of value.

Net Operating Income

÷ Market Value

= Cap Rate

Or,

Net Operating Income

÷ Cap rate

= Market Value

Cash on Cash Return: The ratio between a property’s cash flow in a given year and the amount of initial capital investment required to make the acquisition (e.g., mortgage down payment and closing costs). Most investors usually look at cash-on-cash as it relates to cash flow before taxes during the first year of ownership.

Cash Flow before Taxes

÷ Initial Capital Investment

= Cash on Cash Return

Cash to Close: Liquid assets that are readily available to be used to pay the down payment and closing costs involved in a closing of a mortgage transaction.

Closing: The consummation of a real estate transaction. The closing includes the delivery of a deed, financial adjustments, the signing of notes, and the disbursement of funds necessary to complete the sale and loan transaction.

Closing Costs: Money paid by the borrower in connection with the closing of a mortgage loan. This generally involves points, appraisal, credit report, title insurance, attorney’s fees, survey, and items such as taxes and insurance.

Closing date: The date on which the closing occurs.

Closing Statement: A form used at closing that gives an account of the funds received and paid at the closing.

Collateral: Property pledged as security for a debt, such as the real estate pledged as security for a mortgage.

Credit Score: A numerical score, based on an individual’s credit history that measures that individual’s credit worthiness and is based on credit history. Credit scores range from 300 to 850, and the higher the score, the more financially trustworthy a person is considered to be. Bayport Funding’s pulls credit scores from 3 major repositories, and utilizes the middle of the three scores to determine the “Credit Score” used to rate the borrower’s creditworthiness.

Default: The failure to perform an obligation as agreed in a contract (examples are not paying on time, not maintaining required insurance, transferring title to someone else).

Delinquency: A loan payment that is past due.

Point: One point is equal to one percent of the loan amount.

Earnest Money: A portion of the down payment delivered with a purchase offer by the purchaser of real estate to the seller or an escrow agency by the purchaser of real estate with a purchase offer as evidence of good faith.

Equity: The ownership interest; i.e. portion of a property’s value over and above the liens against it.

Escrow/Closing: A procedure whereby a disinterested third party handles legal documents and funds on behalf of a seller and buyer.

Foreclosure: Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.

Grace period: The period after the payment due date during which the borrower can pay without being charged late fees.

Homeowner’s Association Dues: The fees imposed by a condominium or homeowners association for maintenance of common areas.

Insurance:

  • Hazard insurance -protects a property owner against damage caused by fires, storms, earthquakes or other natural events. As long as the specific event is covered within the policy, the property owner will receive compensation to cover the cost of any damage incurred.
  • General Liability Insurance – policy that covers claims arising from an insured’s liability due to damage or injury.

Interest-only mortgage: A mortgage on which for some period the monthly mortgage payment consists of interest only. During that period, the loan balance remains unchanged. All of Bayport Funding’s loans are interest only.

Interest Rate: The percentage of an amount of money which is paid for its use, typically expressed as an annual percentage.

Late fees: Fees that lenders are entitled to collect from borrowers who don’t pay within the grace period – the Note will provide information regarding the amount of late fees to be charged.

Lien: A legal claim or attachment against property as security for payment of an obligation.

Loan Amount: The amount of money borrowed as specified in the Note.

Loan to Cost Ratio – LTC: Initial Loan Amount divided by borrower Cost Basis at the origination date.

Loan to Value Ratio LTV: The ratio between the amount of a given mortgage loan and the lower of sales price or appraised value.

Monthly Payment: The required amount to be paid monthly as stated in the Note – all of Bayport’s loans are interest only.

Mortgage: A mortgage is a legal debt instrument, securing the collateral of specified real estate property that the borrower is obliged to pay back with a predetermined set of payments. Mortgages are used by individuals and businesses to make large real estate purchases without paying the entire purchase price up front.

Mortgagee: The lender on a mortgage transaction.

Mortgagor: The borrower in a mortgage transaction who pledges property as security for a debt.

NOI – Net Operating Income: Net operating income (NOI) is a calculation used to analyze the profitability of real estate investments that generate income. Net operating income equals all revenue from the property minus all reasonably necessary operating expenses.

Non-Conforming Loan: Loans not eligible for sale to Fannie Mae or Freddie Mac due to various reasons including loan amount, credit outside normal underwriting guidelines.

Note: A written promise, on a legal document 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.

Occupancy: The use of property as a full-time residence (owner occupied), second home, or investment.

Origination Fee: The points or percentage charged for services performed by the company handling the initial application and processing of the loan.

Prepayment Penalty: A charge imposed by the lender if the borrower pays off the loan early. The charge is usually expressed as a percent of the loan balance at the time of prepayment, or a specified number of months in interest

Principal Balance: The remaining balance due on a debt/loan, exclusive of accrued interest.

PUD (Planned Unit Development): A planned combination of diverse land uses, such as housing, recreation, and shipping in one contained development.

Purchase Contract: An agreement between a buyer and a seller of real property setting forth the price and terms of the sale. Also known as a sales contract.

Rehab Funds: Rehabilitation funds are monies allocated to the fixing or constructing properties. They can be financed or not financed. If financed, they are usually held by the lender and disbursed as work is completed.

ROI – Return On Investment: Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio.

ROI = (Current Value of Investment – Cost of Investment) / Cost of Investment

Survey: The measurement and description of land by a registered surveyor.

Title: The legal evidence of ownership rights to real property.