A-Credit to Add-On Factor

 

A-Credit

A finance term referring to mortgage borrowers and applicants with very good credit history. They usually have FICO credit scores of 660 or higher; A-plus credit starts at 720.

Conforming loan programs require A-credit of its applicants. In the mortgage industry, borrowers must satisfy all of the following requirements to be considered A-credit: (1) no foreclosure or bankruptcy within the past seven years; (2) no late payments on their mortgage history during the past year and no more than one late payment in the past two years; (3) no more than one late payment on any installment loan during the past year and no more than two during the past two years; (4) no more than two late payments on revolving accounts during the past year and no more than four during the past two years; (5) no open collection accounts; and (6) a credit score of at least 660.

FHA and certain government-guaranteed programs will also finance homebuyers and homeowners with A-minus and B-credit. But most borrowers with damaged credit are forced to use sub-prime or Alt-A loans.

 

Act of God

Floods, earthquakes, hurricanes, mudslides and any other natural events that damage property are often considered acts of God. Many contractors and subcontractors routinely include in their contracts an exemption for delays caused by acts of God.

Basic hazard insurance policies also exclude many such “acts of God” from their basic coverage; property owners need to purchase special policies to cover specific acts of God.

 

Active Income

The IRS considers revenue or income generated from a person’s direct effort or investor’s active participation in a business’ operations as active income. Salary and wages from regular employment or self-employment are primary examples of active income. But the term also applies to investments that require active management by the property owner, such as some investment real estate.

This label comes into play when considering tax shelters, which contrasts active income with portfolio and passive income (the three types of ordinary income classified by the IRS).

 

Active Solar System

An HVAC system that uses solar power to heat and cool buildings (and homes) are considered active solar systems. Such systems normally use pumps and fans, in conjunction with solar panels, to move heat into, around or out of the building.

 

Actual Age

A property’s actual age is the number of years that a building or improvement to land has been in existence. This is typically public record for major improvements in most of the United States, as permits are typically required before any major construction is begun.

Appraisers use the actual age as the starting point for one of their property valuation methods. They check public records or interview the owner to determine when the building was built. They then determine what it would cost to build a brand-new replica of the property. Finally, they depreciate that “new construction” cost by the age of the property to determine an approximate value for the property.

However, this approach is not as dependable or accurate as using comparables.

 

Actual Cash Value

The type of coverage reimbursement provided by standard property insurance policies. This value is based on the original cost of the subject property minus depreciation.

For example, if an old boiler insured for cash value is damaged beyond repair, the insurer will not pay to replace it. Instead, the insurance adjuster will determine the actual cash value of the destroyed boiler. This actual cash value will start with the original cost of the current boiler and then depreciate the value according to the age and condition of the boiler before the accident. The net amount after depreciating for age and condition is the actual cash value that the property owner will receive from the insurer.

 

Actual Eviction

A legal remedy available to property owners who have lessees (tenants) in holdover tenancy. In other words, this is power given to landlords who have tenants in a property with an expired, invalid or terminated lease.

Actual eviction typically requires the landlord to decline all attempted rent payments, give the holdover tenant adequate notice and filing for court action to forcibly remove the holdover tenant. Federal, state and local consumer protection laws normally require landlords to follow specific guidelines when trying to evict tenants. In most cases, the eviction process can take several days or even weeks as the eviction must be approved by the local courts and enforced by the sheriff’s office.

 

Actual Notice

A legal term referring to information that a person or party has received through reading, seeing or hearing. Many real estate laws require the seller to provide the buyer with actual notice of known problems and issues about the subject property.

Many judicial suits, such as foreclosures and evictions, also require plaintiffs or a court officer to make a good-faith attempt at giving the defendant actual notice of the suit.

 

Ad Valorem Tax

A Latin term used for the real estate tax of a specific parcel of property. As the name suggests, this tax is based on the valuation of the property.

The traditional method for calculating a parcel’s property tax assessment is to multiply the assessed value — after any adjustments or deductions for homestead owners, senior citizens, or similar available offsets — by the official tax “millage” rate and any equalizer rate.

 

Addendum

An addition to a promissory note, deed or other legal document that amends or clarifies the terms of the original document. A valid addendum must satisfy all the requirements of a legal contract and clearly specify the original agreement that it is amending.

 

Additional Principal Payment

Loan payments made by the borrower in excess of the payment due, with the excess being applied directly toward the principal balance.

By reducing the principal balance faster than originally structured by the loan’s amortization schedule, the borrower can reduce the time required to pay off the loan as well as the interest charges during the entire loan term.

 

Add-On Factor

With commercial rental properties, the add-on factor is the ratio of the rentable square footage against the usable square footage. This factor is used to determine the tenant’s prorated share of common area expenses.

For example, a building has 20,000 square feet of usable space, but 5,000 square feet is used for general hallways, washrooms, utility closets and for the lobby. That only leaves 15,000 square feet of rentable space or a 75% R/U ratio.