A Basic Housing Development Glossary
ACQUISITION FINANCING Funds obtained for the purpose of purchasing vacant land or properties that require rehabilitation.
APPRAISAL Official report required by lenders and regulators, giving an opinion of value based on pertinent data and prepared by a qualified appraiser.
BID SPECIFICATIONS Detailed set of instructions prepared by an architect specifying how a project is to be constructed or renovated and identifying type and quality of materials to be used. The specifications form the basis for soliciting bids from general contractors.
BUILDING CODE Regulations, ordinances or statutory requirements of a governmental unit relating to building construction and occupancy.
CASH FLOW The income remaining after all operating expenses and debt service have been paid.
CDBG (COMMUNITY DEVELOPMENT BLOCK GRANTS) Community Development Block Grants are provided to communities from the U.S. Dept. of Housing and Urban Development (HUD) for a range of eligible activities, setting their own priorities as long as they meet basic program requirements. Larger cities and counties receive formula funding; small communities compete for funding which is administered by states.
CHDO (COMMUNITY HOUSING DEVELOPMENT ORGANIZATION) A non profit housing development organization which can be eligible for a portion of a Participating Jurisdiction's HOME Funds allocation and for technical assistance, site control and seed money loans. A CHDO may also be eligible for organizational support. A community development organization must meet HUD-established criteria and be certified by the Participating Jurisdiction within its area of service in order to be eligible for development set asides and organizational support.
CLOSING COSTS Expenses involved in transferring real estate from a seller to a buyer, including lawyer's fees, charges for surveys, title searches, title insurance, and fees for recording deeds, mortgages and other documents.
COLLATERAL Stocks, bonds, evidence of deposit, and other marketable properties which a borrower pledges as security until a loan is repaid. In mortgage lending, the collateral is the specific real property being financed.
COMMITMENT A statement in writing representing a lender's legal commitment to a borrower that it will loan a certain amount of money at a particular interest rate and term, contingent upon specific conditions being met by the borrower.
COMMITMENT FEE Lender's charge for agreeing to hold credit available for a specific period of time and to reimburse the lender for administrative costs of underwriting the loan. The fee is usually payable when the borrower accepts the commitment, evidenced by signing the commitment letter.
CRA (COMMUNITY REINVESTMENT ACT) Passed in 1977 (federal legislation), it states that commercial banks and thrifts have a continuing and affirmative obligation to help meet the credit needs of the local communities which they serve. It requires regulatory agencies to evaluate these institutions' record of meeting the credit needs of their designated communities, consistent with the safe and sound operation of the institution.
CONSTRUCTION LOAN A loan, usually short term, which is made to finance the actual construction or renovation of a property. The funds are distributed as needed in accordance with a disbursement agreement, and the money is repaid on completion of the project, usually from the proceeds of a permanent mortgage.
CONTRACT OF SALE (PURCHASE AGREEMENT) Document which states the conditions under which a property will be transferred and the rights and obligations of the buyer and the seller during the contract period.
DSC (DEBT SERVICE COVERAGE) The ratio of estimated net operating income to debt service. This ratio is established by lenders to provide a cushion between the amount remaining after payment of operating costs and the amount of the annual mortgage payment.
ENVIRONMENTAL ASSESSMENT Official report required by lenders to determine whether a proposed development site may have been contaminated by hazardous wastes.
ENVIRONMENTAL SURVEY Assessment of the project site to identify physical characteristics, such as soil conditions, presence of wetlands.
EQUITY The amount of an owner's free and clear interest in real property which represents the difference between the property's market value and the amount of debt and other encumbrances.
ESCROW Money, securities or other properties or instruments held by a third party until the conditions of a contract are met.
FIRST LIEN The first right to hold property as security until the debt which it secures is paid. In real estate lending, the lien is evidenced by a first mortgage which has precedence over all other mortgages in case of default.
FORECLOSURE The elimination of all rights of ownership and interest in a property through legal process after an owner has failed to satisfy the terms of a mortgage, trust deed, or contract.
FORGIVABLE LOAN A loan with no repayment obligation if program requirements are met for a specified period of time. Usually provided by a public or other non-profit entity.
FUND BALANCE The net worth of an organization determined by subtracting the organization's liabilities from its assets.
GENERAL CONTRACTOR The main contractor for a project who may hire smaller or more specialized contractors for portions of a development.
GUARANTEE OF PAYMENT A pledge by a corporation or individual to provide repayment of a loan.
HARD COSTS The direct costs to construct a building, also known as "bricks and mortar" costs, as distinguished from legal, financing, architectural and other fees required for the project.
HRA (HOUSING AND REDEVELOPMENT AUTHORITY) A branch of city or county government that coordinates housing programs and administers redevelopment activities.
HUD (HOUSING AND URBAN DEVELOPMENT) The U.S. Department of Housing and Redevelopment, created in 1965 to administer programs of the federal government which provide assistance for housing for the development of the nation's communities. HUD administers housing and home finance programs, the Public Housing Administration and FHA.
LIHTC (LOW INCOME HOUSING TAX CREDIT) A congressionally created tax credit (Internal Revenue Code Section 42) available to investors in low income housing designed to encourage investment that helps finance construction and rehabilitation of housing for low income renters.
LOAN CLOSING Legal session during which final loan documents are executed and the loan is funded.
LOAN TERM the amount of time over which a borrower is expected to repay the loan.
LOAN TO VALUE The ratio of money a lender is willing to lend relative to the appraised value of the property.
MHFA (MINNESOTA HOUSING FINANCE AGENCY) A state agency established in 1971 to finance the construction and rehabilitation of housing for families of low and moderate income. Agency funds are generated through the sale of tax exempt and taxable bonds, as well as from state appropriations and federal grants.
MORTGAGE Debt instrument by which the borrower (mortgagor) gives the lender (mortgagee) a lien on property as security for the repayment of a loan.
NOI (NET OPERATING INCOME) The amount of income left after total operating expenses, but not the mortgage payments, have been paid.
NO-INTEREST LOAN A loan for which the lender does not charge interest, but which must be repaid.
OPERATING AND MAINTENANCE EXPENSES The ordinary expenses of operating and maintaining an income property, such as taxes, insurance, repairs, utilities, etc.
OPERATING RESERVE Funds set aside to be used to offset possible losses due to unexpectedly low rent collections or unusually high operating and maintenance costs.
PARTNERSHIP Legal entity formed by a contract between two or more people or firms to join in an enterprise, pool their funds and talents and share in its profits and losses.
PHA (PUBLIC HOUSING AGENCY) Any state or local government entity or its agency which is authorized to engage in or assist the development or operation of low-income housing. Public Housing projects are owned by PHAs, but supported through funding from the federal government (HUD).
PRE-DEVELOPMENT FINANCING Funding to cover project --such as architectural, engineering, legal, and environmental services--that are incurred before funds to pay the project costs are available. Funds may come from the owner's resources or from an intermediary funding organization.
PRO FORMA INCOME AND EXPENSES Statement showing the expected development or annual income and expenses of a project.
REPLACEMENT RESERVES Funds set aside on an annual basis to be used to pay for anticipated replacement of systems and equipment.
SITE CONTROL Evidence that a developer has, or will have control of a site by the time financing is committed. Evidence can be a purchase agreement, option to purchase.
SOFT COSTS Expenses other than "bricks and mortar" costs incurred in developing a real estate project. They include legal, architectural, financing and other fees.
SOURCES AND USES A schedule submitted as part of a financing application that identifies the different sources of funding for the construction of a project and a detailed identification of the uses of the funds in the development process.
SUBORDINATED LOAN A loan that is repayable only after other debts with a higher claim have been satisfied.
SURVEY A legal record of the exact boundaries and location of a property
TAX INCREMENT FINANCING A financing method which uses the additional taxes generated by a completed development to pay for development costs such as land acquisition and site improvements. The difference between the taxes before the development occurs and after its completion is referred to as the "increment". The City must create a Tax Increment Financing District according to state statute; it must meet criteria related to evidence of blight, extent of unemployment and other standards related to redevelopment districts.
TAX CREDITS Tax benefits, granted for engaging in particular activities, that are subtracted on a dollar for dollar basis, from taxes owed.
TITLE INSURANCE Insurance which protects an owner or other party of interest against defects in title created by improper parties signing an instrument of conveyance, fraud, etc.
UNDER WRITING PROCESS Process of analyzing the creditworthiness of a loan application and to determine the terms and conditions of a loan.
VACANCY ALLOWANCE The estimated amount of income that will be lost during one year from rental units that remain empty for a period of time.
WRITE DOWN A financing mechanism by which a municipality or local housing authority purchases land and sells it at a reduced price to a developer.