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.
Amortization is the process of paying off a debt over a set period through regular, fixed payments that gradually shift from mostly interest to mostly principal.
The Annual Percentage Rate (APR) represents the total cost of borrowing money, including the interest rate and other associated fees, expressed as a yearly percentage. It provides a comprehensive measure for comparing loan products.
An appraisal contingency is a clause in a real estate purchase agreement that allows the buyer to back out of the deal or renegotiate if the property's appraised value is less than the agreed-upon purchase price. It protects buyers from overpaying and ensures lenders do not finance more than a property is worth.
An appraisal gap is the difference that occurs when a property's appraised value is lower than the agreed-upon purchase price, requiring the buyer to cover the shortfall in cash or renegotiate the deal.
A professional, unbiased report by a licensed appraiser that estimates a property's fair market value at a specific point in time, primarily used for financing and real estate transactions.
The Asset Coverage Ratio (ACR) is a financial metric that assesses a company's or an investor's ability to cover its liabilities with its assets, providing insight into solvency and debt capacity, particularly crucial for real estate investment firms and large portfolios.
Asset verification is the process lenders use to confirm a borrower's financial resources, ensuring they have sufficient funds for a down payment, closing costs, and reserves for a real estate purchase.
The BRRRR Method is an advanced real estate investment strategy (Buy, Rehab, Rent, Refinance, Repeat) designed to build a scalable rental property portfolio by leveraging forced appreciation to recycle initial capital for subsequent investments.
A balloon payment is a large, lump-sum payment of the remaining principal balance that becomes due at the end of a loan term, typically after a period of smaller, partially amortized or interest-only payments.
A Bank Statement Loan is a non-qualified mortgage (Non-QM) product designed for self-employed individuals and real estate investors who cannot easily document their income through traditional tax returns, instead relying on 12-24 months of business or personal bank statements for income verification.
A benchmark rate is a standard interest rate used by financial institutions as a reference for setting other interest rates, particularly for loans, mortgages, and financial products, reflecting the cost of borrowing in the market.
A beneficiary is an individual, group, or entity designated to receive assets, property, or benefits from a will, trust, life insurance policy, or other legal instrument.
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