Interest: Payment the borrower owes the lender (as a percent of the loan principal) for a loan. Includes initial fixed interest rate period followed by an adjustable rate period. Hybrid ARM (Adjustable-Rate Mortgage): Loan product that blends characteristics of a fixed-rate mortgage with an adjustable rate mortgage. Guarantor: Key principal(s) or any other person required to execute a guaranty for a non-recourse Fannie Mae or Freddie Mac loan imposing recourse on such Guarantor(s) in the event he/she/they intentionally commit certain ‘bad acts’ as defined in the loan documents. This calculation does not include other income such as parking fees, pet fees, laundry fees, etc. Gross Potential Rent (GPR): Calculation of the maximum potential income a property could generate from unit rent alone assuming the property is 100% occupied with no concessions. Government-Sponsored Enterprise (GSE): Congressionally chartered quasi-government entities which include Federal National Mortgage Association (FNMA or Fannie Mae), the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), and the Federal Housing Administration (FHA). Sometimes referred to as a, “Step-down” prepayment penalty.Įffective Gross Income (EGI): Annual net rental income (NRI) plus other income, minus vacancy, bad debt, and concessions.Įquity: Capital provided by you, your business partners, or an investor that is required by lenders as part of the total funding sources.įixed Rate: Interest rate that stays the same during the term of the loan.įully Amortizing Loan: When the loan term and amortization period match so the full loan amount will be paid off once the borrower reaches the end of the loan term. Declining Prepayment Penalty: Prepayment penalty applying a predetermined percentage to the principle balance whereby, such percentage has scheduled decreases throughout the loan term. DSR reserves became more common during the Covid-19 pandemic. Fannie Mae Small Loans and Freddie Mac Small Balance Loans (SBL) programs typically require a minimum DSCR of 1.20x – 1.25x, which means that the net cash flow must be 1.20-1.25 times greater than the debt service payment.ĭebt Service Reserve (DSR): Reserve account established to fund monthly debt service (interest only or principal and interest payments) in the event the borrower is unable to make payments due to unforeseen circumstances. These characteristics generally include building size, age, class, amenities and location.ĭebt: Capital that is lent with the obligation of the borrower to repay the full amount plus interest, on a regular basis (usually monthly).ĭebt Service Coverage Ratio (DSCR): Ratio of net cash flow to the total debt service payment on an annual basis or over any specified period. The properties net operating income divided by the cap rate will produce the value.Ĭash Flowing: When the cash inflows are higher than cash outflows, during a given period.Ĭomparables (Comps): Properties with similar characteristics as the property to which they are being compared which are used to derive fair market value and benchmark property operations as they relate to income and expenses (on a per unit basis). Conversely, a cap rate (expressed as a percentage) can be applied to the net operating income to derive the value. This is calculated by dividing a property’s net operating income by the current market value. Department of Housing and Urban Development, for a household in a specific census tract.Ĭap Rate: Ratio (expressed as a percentage) that is used as an estimation for an investor’s potential return on a real estate investment. The longer the amortization, the lower the monthly payment.Īrea Median Income (AMI): The median income, generally defined by the U.S. We typically use the term “agency lender” when referring to Fannie Mae and Freddie Mac.Īmortizing Loan: A type of debt requiring interest and principal to be paid steadily throughout the loan’s term.Īmortization Period: Period of time that it would take to pay off a loan based on the monthly payments of principal and interest. This is generally based on a ratio of property rents to area median income (AMI).Īgency Lender: Government-sponsored enterprise (GSE) including Federal National Mortgage Association (FNMA or Fannie Mae), Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), and the Federal Housing Administration (FHA). Multifamily Financing Glossary:Īffordability: Percentage of a property’s rents that qualify as “affordable” in accordance with the definitions set by the Federal Housing Finance Agency (FHFA). Whether you’re new to multifamily lending or simply interested in brushing up on your knowledge of the terminology, look no further! Our experts have compiled a list of the multifamily financing keywords and definitions that you need to know.
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