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 (57 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.
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.
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.
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 (44 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.
Tax-exempt debt refers to bonds or other debt instruments issued by governmental entities or qualified private entities, where the interest earned by the bondholder is exempt from federal, and often state and local, income taxes.
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.
Loan covenants are legally binding conditions within a loan agreement that borrowers must adhere to, designed to protect the lender's interests by ensuring financial health and responsible asset management throughout the loan term.
Loan default is the failure of a borrower to fulfill the terms of a loan agreement, typically by missing required payments, which can lead to severe financial consequences like foreclosure and credit score damage.
The collection of legal agreements and disclosures that outline the terms, conditions, and obligations between a borrower and a lender for a real estate loan, formalizing the debt and collateral.
A loan draw is a disbursement of funds from a construction or rehabilitation loan, released in stages as specific project milestones are completed and verified by inspections.
A loan modification is a permanent adjustment to the terms of an existing mortgage or loan, typically made by the lender to help a borrower facing financial hardship avoid default and foreclosure.
A Loan Officer is a financial professional who helps individuals and businesses apply for and obtain loans, guiding them through the entire lending process from application to closing. They are key in connecting borrowers with suitable loan products.
A loan origination fee is an upfront charge from a lender for processing a new loan, typically a percentage of the loan amount, covering administrative costs like underwriting and processing.
Loan proceeds represent the net amount of funds a borrower receives from a lender after all associated fees, charges, and deductions have been subtracted from the gross loan amount. These funds are typically used to finance a real estate purchase, refinance an existing property, or fund construction projects.
Loan proceeds are generally not considered taxable income because they represent a debt that must be repaid, not an increase in wealth, under the Accession to Wealth Doctrine.
Loan qualification is the process by which lenders evaluate a borrower's financial health and creditworthiness to determine eligibility for a loan, assessing factors like credit score, debt-to-income ratio, and assets to mitigate risk.
A financial institution responsible for managing the administrative tasks of a mortgage loan, including collecting payments, managing escrow accounts, and communicating with borrowers, on behalf of the loan owner.
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.
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