Loan types, lending terms, mortgage products, hard money lending, and financing strategies for real estate.
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Foundation terms you need to know first (55 terms)
A traditional bank mortgage is a conventional loan provided by a financial institution to purchase real estate, following guidelines from Fannie Mae and Freddie Mac, commonly used by investors to finance properties.
Principal paydown is the portion of your mortgage payment that reduces the outstanding loan balance, directly building equity in your real estate investment over time.
A repair credit is a financial concession from a seller to a buyer at closing, typically used to cover the cost of necessary repairs identified during a home inspection, reducing the buyer's upfront cash needed.
An owner-occupied property is real estate where the owner lives as their primary residence, often qualifying for favorable financing, lower down payments, and significant tax benefits.
A credit bureau is a company that collects and maintains financial information about individuals, compiling it into credit reports used by lenders to assess creditworthiness.
Complex strategies and professional concepts (37 terms)
Slow BRRRR is an advanced real estate investment strategy that extends the traditional BRRRR (Buy, Rehab, Rent, Refinance, Repeat) cycle over a longer period, often several years, to maximize equity appreciation and mitigate market risks.
A legally binding contract that alters the priority of liens on a property, allowing a senior lienholder to voluntarily place their claim in a junior position to another, typically to facilitate new financing or complex transactions.
Capital stacking is an advanced real estate financing strategy involving the layering of multiple debt and equity instruments to fund a property acquisition or development, optimizing the capital structure for specific risk-return profiles.
Premium financing is a sophisticated financial strategy where an investor borrows funds from a third-party lender to pay the premiums on a large insurance policy, typically a life insurance policy or substantial commercial property insurance, using the policy itself or other assets as collateral.
Subject-To investing is an advanced real estate strategy where an investor acquires a property by taking over payments on the seller's existing mortgage, without formally assuming the loan or notifying the lender.
The loan term is the duration over which a borrower agrees to repay a loan, typically expressed in years, and significantly impacts monthly payments, total interest paid, and overall financial strategy.
Loan-to-Cost (LTC) is a financial ratio used in real estate development and construction financing, comparing the loan amount to the total cost of a project, including acquisition, construction, and soft costs. It helps lenders assess risk and determine the maximum loan amount.
The Loan-to-Value (LTV) ratio is a financial metric used by lenders to assess the risk of a mortgage loan, calculated by dividing the loan amount by the property's appraised value, expressed as a percentage.
Loss mitigation involves strategies employed by lenders and borrowers to avoid foreclosure when a borrower faces financial hardship, aiming to find mutually beneficial solutions to manage mortgage debt.
The maximum purchase price is the highest amount an investor can pay for a property while still meeting their desired financial objectives and investment criteria, considering all costs and financing.
Mezzanine financing is a hybrid debt-equity instrument used in real estate to bridge the gap between senior debt and sponsor equity, offering higher leverage at a higher cost due to its subordinated position in the capital stack.
Monetary policy refers to actions taken by a central bank, like the Federal Reserve, to manage the money supply and credit conditions, influencing interest rates, inflation, and ultimately, the real estate market.
A mortgage is a loan obtained from a lender to purchase real estate, where the property itself serves as collateral for the debt. Borrowers make regular payments, including principal and interest, over a set period until the loan is fully repaid.
An independent financial professional who acts as an intermediary between borrowers and multiple lenders, helping real estate investors find and secure the most suitable mortgage products and terms for their investment properties.
A Mortgage Credit Certificate (MCC) is a federal tax credit that allows eligible first-time homebuyers to claim a portion of their annual mortgage interest as a direct dollar-for-dollar reduction of their federal income tax liability.
Mortgage debt is the total outstanding amount of money a borrower owes to a lender for a loan secured by real estate. It typically includes the remaining principal balance and any accrued interest, paid over a set period.
Mortgage interest is the cost charged by a lender for borrowing money to purchase a property, calculated as a percentage of the outstanding loan principal. It's a critical component of monthly mortgage payments and a significant factor in real estate investment profitability.
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