Glossary of Loan Terminology

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Adjustable Rate Mortgage

Mortgage loans under which the interest rate is periodically adjusted to more closely coincide with current rates. The amounts and times of adjustment are agreed to at the inception of the loan. Also called: Adjustable Rate Loans, Adjustable Mortgage Loans (AML’s), Flexible Rate Loans, Variable Rate Loans.

Allowances, Alternates, Not In Contract (NIC)

These are three items to avoid on your project. They are the greatest source of change orders.

The contract documents (i.e., the drawings and specifications) should be complete to the point where all of the components that make up the project are clearly defined and specified, eliminating the need to classify certain items utilizing the above terms.

If the documents are not properly prepared by the architect, or they are unclear about certain items, they will direct the contractors to include allowances in their bids or will ask for alternate pricing. More often than not, you will find this to be the case on most projects. Be aware of what the contractors are being asked to submit bids for.


This is the way a loan or other debt is paid off by equal periodic payments (usually monthly), which are calculated to pay off the debt at the end of a fixed period of time. The calculations include the accrued interest on the outstanding balance.


An estimate of market value placed on all real property and mobile homes. There are two kinds of appraisals: mass appraisal, in which a community is valued for tax purposes; and fee appraisal, in which one property is appraised, often in comparison with other properties. Each is accomplished under a different set of rules and guidelines.

Articles of Incorporation

The Articles of Incorporation (sometimes also referred to as the Certificate of Incorporation or the Corporate Charter) are the primary rules governing the management of a corporation in the United States, and are filed with a state or other regulatory agency.

Balloon Payment

This is the unpaid principal amount of a loan due on a specific date in the future, usually the amount that must be paid in a lump sum at the end of the term.

Bidding Process

There are several ways in which a project can be bid.

  1. Competitive general contractor bidding – This is a process in which the owner engages a licensed architect to produce a set of building plans and specifications for a project. The owner and architect will then select a list of pre-approved general contracting firms to bid on the project. The owner and architect will then review the bids and most likely will interview the bidders that submitted the most competitive bids in order to determine which firm will be awarded the project.
  2. Negotiated bid – This is a process in which the contractor or construction manager (CM) is engaged by the owner without going through a competitive bid process. The contractor or CM will then assemble the pricing for the project and together with the owner and the architect they will review the pricing. In most cases the contractor or CM will be asked to value engineer certain aspects of the project in order to reduce the cost resulting in a negotiated final price for the project.

Certificate of Good Standing

This is a certificate that indicates that the church is in current corporate status with the state. Each year the church is required to file a report with the state listing the name of their officers and board members. A copy of this report is all that is needed.

Closing Costs

Expenses, beyond the selling price, such as loan fees, title fees, etc. Paid when documents are executed and/or recorded and the sale is complete.


Property pledged as security to a debt. If the borrower fails to repay the loan, the lender may gain ownership of the collateral and sell it to recover the money.

Construction Manager

A construction manager (CM) is a contractor that is hired by the owner to manage a construction project and to represent the owner’s interests.

The construction manager can contract with the subcontractors and suppliers or the owner can engage the subcontractors and suppliers directly. Either way, the CM has the responsibility to manage the overall project.

It is best to engage the services of a construction manager during the pre-construction phase of the project to work with the owner and the owner’s architect. The CM has valuable input regarding construction materials, means and methods of construction, value engineering, budgeting, phasing, scheduling and bidding that will help lead to a successful project right from the start. The goal is to establish a budget, work thru the design phase keeping the design in line with the budget and then obtain competitive pricing that should be relatively close to the budget that was established.

Corporate Resolution

This is a written statement made by the board of directors detailing which officers are authorized to act on behalf of the corporation. The corporate resolution will be found in the board minutes detailing decisions made by the board during the meeting. For example, a corporate resolution will be created if a board decides to borrow money. The resolution will detail the terms of the decision along with the date of the board meeting.

Debt-to-Income Ratio

The ratio, expressed as a percentage, compares a borrower’s monthly payment obligation on long-term debts to his or her income.


A document that provides title to property and is filed with a county recorder.

Design Build

There are several variations of design build.

  1. The owner can hire a design build firm that actually has a licensed architect as part of its staff and has the capability of constructing the project in-house.
  2. The owner can hire a contractor to construct a design build project. The contractor then engages the services of an independent architect to design the project for him to build. Utilizing this format, the architect is working for the contractor, not the owner.
  3. The owner can hire an architect to construct a design build project. The architect then engages the services of an independent contractor to build the project for him. Utilizing this format, the contractor is working for the architect, not the owner.

There are projects that get successfully completed using the methods outlined above. However, the preferred method is to engage a licensed architect and a contractor independently so that both are accountable to the owner. Using design build, who is looking out for the owner’s best interest?


The value of a person’s interest in real property after all liens and charges have been deducted.


There are two types of exclusions – Standard and Non-Standard.

  1. Standard Exclusions – When receiving bids for a project, the contractor usually attaches a list of exclusions that includes what is generally known as “standard exclusions” in the industry. The list will include such things as permit fees, surveying, utility connection fees, dewatering, removal of contaminated soil and winter protection. It is always best to review this list with your architect to make sure the excluded items are acceptable.
  2. Non-Standard Exclusions – When submitting a bid for a project, contractors will sometimes attach a list of exclusions that are known as “non-standard” in the industry. These exclusions can vary greatly and you should review these very carefully with your architect since some of the items may be an integral part of the project.

Fixed Rate Mortgage

A loan on which the same rate of interest is charged for the life of the loan.

Guaranteed Maximum Price (GMP)

A GMP is a price given to the owner by the contractor or construction manager that represents the amount that the project will be constructed for. This price will not include any changes that may occur due to owner requested changes or changes that arise due to unforeseen conditions.


This is a claim upon a piece of property for the payment or satisfaction of a debt or obligation.

Loan-to-Value Ratio

This is the comparison of the amount of the mortgage loan and the appraised value of the property, expressed as a percentage.

Origination Fee

The fee charged by a lender to prepare loan documents, make credit checks, inspect and sometimes appraise a property; usually computed as a percentage of the face value of the loan.


Prepaid interest assessed at closing by the lender. Each point is equal to 1 percent of the loan amount (e.g., two points on a $100,000 mortgage would cost $2,000).

A fee charged by the lender to fund a loan, in addition to and separate from other fees charged. One point equals one percent of the amount of the loan. Discount points are charged or are received based on the note rate the borrower selects. Additionally a one point origination fee is typically charged by a lender to underwrite a residential loan.

Project Schedule

Always ask for a project schedule from the contractor or construction manager. It is a very useful tool to help track the progress of the work. It also aids the architect when reviewing invoices since they correlate directly with the % of completed work in place.

Purchase Contract

A document in which a property’s buyer and seller approve the price and other terms of the transfer of title. Also known as an agreement of sale or a sale contract.

Schedule of Values (SOV)

The schedule of values is a listing of all the components that make up your project along with the scheduled dollar value for each item. The SOV is used by the lender for financing purposes and it is used for invoicing and % of completion during the course of the project.


This is a very important factor to consider when hiring a contractor or a construction manager. Always be certain as to the type of supervision you can expect to be provided by the firm that you hire. You don’t want to place yourself in a situation where your contractor or construction manager is managing your project from a distance and you become the hands on manager of your own project.


This is a measurement of land, prepared by a registered land surveyor, showing the location of the land with reference to know points, its dimensions, and the location and dimensions of any buildings.

Title Insurance

This is a policy, usually issued by a title insurance company, which insures a home buyer against errors in the title search. The cost of the policy is usally a function of the value of the property, and is often borne by the purchaser and/or seller.

Title Search

This is an examination of municipal records to determine the legal ownership of property. Usually is performed by a title company.


This is the decision whether to make a loan to a potential home buyer based on credit, employment, assets, and other factors and the matching of this risk to an appropriate rate and term or loan amount.

Volunteers & In-House Contractors

This is a great benefit to the owner if it works. There have been successfully completed projects in which a portion of the work was completed by in-house contractors or volunteer labor or both. However, in most instances this does not work. The volunteers may not be available when the contractor needs them and the in-house contractor that is performing the work for a reduced cost may pay more attention to those projects where he is making a profit. In other words, the project slows down possibly causing the contractor to ask the owner for additional compensation due to a delay beyond his control. Accountability is a necessity.


Areas within a local government’s jurisdiction in which certain types of land uses are allowed. For example, a zoning ordinance might permit houses but not factories in a neighborhood.