Hard Money Loans Glossary
Hard Money Lending Terms
- Hard Money Loan: A short-term loan backed by real estate, used when traditional loans are not an option.
- Loan-to-Value (LTV) Ratio: The ratio of the loan amount to the value of the property being purchased.
- Bridge Loan: A short-term loan used until permanent financing is secured.
- Fix and Flip: A loan for purchasing and renovating a property to sell quickly for profit.
- Equity: The difference between the property’s market value and the loan balance.
- Interest-Only Loan: A loan where only the interest is paid during a portion of the loan term.
- Foreclosure: The legal process by which a lender takes control of a property after a borrower defaults.
- Exit Strategy: The plan for repaying a loan, such as selling the property or refinancing.
- Collateral: An asset pledged as security for a loan.
- Short-Term Financing: Loans that typically last between 6 months and 3 years.
- Asset-Based Loan: A loan based on the value of assets, often used when a borrower has less-than-perfect credit.
- Non-Traditional Loan: Loans that do not follow conventional lending standards.
- Points: Fees paid to the lender, expressed as a percentage of the loan amount, typically upfront.
- Prepayment Penalty: A fee charged if the loan is paid off before a specified time.
- Balloon Payment: A large payment due at the end of a loan term after making smaller payments.
- Transactional Funding: Short-term loans used to close a real estate transaction, often for quick property flips.
- Renovation Loan: A loan specifically used to fund property improvements.
- Underwriting: The process of evaluating a loan application and assessing the risk to the lender.
- First Lien: The primary mortgage or debt on a property that has priority over other claims.
- Gap Financing: Temporary financing used to bridge the difference between two funding sources.
- Term Loan: A loan that must be repaid over a specific period of time with fixed or variable payments.
- Draw Schedule: A plan detailing when and how the loan funds will be disbursed, usually based on project milestones.
- Escrow: An account where funds are held until certain conditions are met, typically in real estate transactions.
- Subprime Lending: Loans offered to borrowers with lower credit scores, usually at higher interest rates.
- Creditworthiness: A borrower’s ability to repay a loan based on credit history and financial situation.
- Origination Fee: The fee a lender charges to process a loan application.
- Closing Costs: Fees associated with finalizing a loan, such as title insurance, legal fees, and taxes.
- Title Insurance: A policy protecting against future claims on the property’s title.
- Loan Extension: An agreement to extend the repayment period of a loan.
- Cross Collateralization: Using multiple properties as collateral to secure a single loan.
- Private Lender: An individual or company providing non-bank loans to borrowers.
- Risk-Based Pricing: Loan interest rates determined by the borrower’s risk level, often influenced by credit score.
- Trust Deed: A legal document that transfers property ownership to a trustee to secure a loan.
- Default: Failure to meet the loan's repayment terms, leading to possible foreclosure or legal action.
- Fix and Rent: A strategy of buying and renovating a property, then renting it out for long-term income.
Commercial Mortgage Lending Terms
- Commercial Mortgage: A loan used to purchase, refinance, or develop commercial real estate.
- Debt Service Coverage Ratio (DSCR): A ratio measuring a property's income compared to its debt payments.
- Cap Rate (Capitalization Rate): The rate of return on a real estate investment based on its net operating income.
- Net Operating Income (NOI): The income generated by a property after operating expenses but before debt service.
- Amortization: The process of gradually paying off a loan with regular payments over time.
- Leasehold Mortgage: A loan secured by a lessee's interest in a property, rather than ownership of the property.
- Triple Net Lease (NNN): A lease agreement where the tenant pays rent plus property taxes, insurance, and maintenance.
- Commercial Property: Real estate used for business purposes, such as offices, retail spaces, and industrial buildings.
- Balloon Mortgage: A mortgage that requires a large lump-sum payment at the end of the term after smaller regular payments.
- Mezzanine Loan: A loan that is subordinate to the primary mortgage and often used to cover a funding gap.
- Permanent Financing: Long-term mortgage financing used after construction or a short-term loan.
- Construction Loan: A short-term loan used to fund the building or renovation of a property.
- Mixed-Use Property: Real estate combining multiple uses, such as residential and commercial.
- Multifamily Property: A property with multiple units, such as an apartment building.
- Industrial Property: Real estate used for manufacturing, distribution, or warehousing.
- Retail Property: Commercial real estate used for selling consumer goods, such as shopping centers.
- Office Building Loan: A loan used to purchase or refinance an office building.
- Investor-Owner Loan: A loan to a business owner who occupies part of the property they own.
- Commercial Real Estate Investment Trust (REIT): A company that owns, operates, or finances income-generating real estate.
- Debt Yield: A metric used to evaluate a property's ability to cover its debt, calculated as NOI divided by the loan amount.
- Interest Rate Swap: A financial contract where two parties exchange interest payments on a loan.
- Securitization: The process of pooling loans and selling them as securities to investors.
- Full Recourse Loan: A loan where the lender can seize the borrower's assets if they default.
- Non-Recourse Loan: A loan where the lender can only claim the collateral property in the event of default.
- Capital Stack: The structure of the financial components used to fund a real estate project, including debt and equity.
- Interest Reserve: A portion of a loan set aside to cover interest payments during construction.
- Cash Flow Projections: Estimates of future income and expenses for a property.
- Refinancing: Replacing an existing loan with a new one, often with better terms.
- Cash-Out Refinance: Refinancing to access equity by taking out a loan for more than the current loan balance.
- Equity Injection: The money a borrower invests in a project, often required by lenders.
Private Real Estate Lending Terms
- Private Money Loan: A loan from a private individual or entity, not a traditional bank.
- Promissory Note: A written agreement to repay a loan, outlining the loan amount, interest rate, and repayment terms.
- Deed of Trust: A document used to secure a loan by transferring property to a trustee.
- Non-Recourse Loan: A loan where the lender’s claim is limited to the property, not the borrower’s other assets.
- Recourse Loan: A loan that allows the lender to pursue the borrower’s other assets if they default.
- Loan Servicing: The management of a loan, including collecting payments and maintaining records.
- Real Estate Crowdfunding: A method of raising funds for real estate projects by pooling small amounts of capital from many investors.
- Partner Buyout: A loan used to buy out a partner’s interest in a jointly owned property.
- Foreclosure Bailout: A loan designed to help a property owner avoid foreclosure.
- Contract for Deed: A financing method where the buyer takes possession of the property while making payments to the seller but does not receive the title until the final payment is made.
- Tenant Improvement Loan: A loan used to make upgrades or improvements to a property, often for commercial spaces.
- Private Investor: An individual who invests in real estate projects outside traditional institutions.
- Real Estate Syndication: A partnership between investors to collectively finance real estate deals.
- Limited Partnership (LP): A partnership where some investors have limited liability and do not manage the business.
- General Partnership (GP): A partnership where partners share management responsibilities and liabilities.
- Joint Venture (JV): A business arrangement where two or more parties collaborate on a specific project.
- Equity Partner: An investor who provides capital in exchange for ownership in a project.
- Subordination Agreement: A legal document that ranks debts or claims on an asset, determining priority in repayment.
- Property Value Assessment: An evaluation of the worth of a property, often conducted by a professional appraiser.
- Investor Yield: The return on investment for an investor in a real estate project.
- Principal Balance: The outstanding amount of the