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.
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 (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.
Closing Day is the official date when a real estate transaction is finalized, ownership is transferred, and all necessary documents are signed and funds exchanged between the buyer and seller.
The Closing Disclosure (CD) is a five-page document outlining the final terms of a mortgage loan, including the loan amount, interest rate, monthly payments, and all closing costs, provided to the borrower at least three business days before closing.
A co-signer is an individual who legally agrees to be responsible for another person's debt, such as a mortgage, if the primary borrower fails to make payments. This arrangement helps primary borrowers qualify for financing by leveraging the co-signer's stronger credit and income.
Collateral is an asset or property pledged by a borrower to a lender to secure a loan, providing a guarantee for repayment and reducing the lender's risk.
A collateral assignment is a legal agreement where an asset, such as a promissory note, contract, or insurance policy, is pledged as security for a loan or obligation without transferring full ownership. The assignee (lender) gains a security interest in the asset, which can be exercised if the assignor (borrower) defaults.
A commercial loan is a debt financing product used by investors to acquire, develop, or refinance income-generating real estate properties, distinct from residential mortgages due to its focus on property performance and business use.
A construction loan is a short-term, interim financing option used to cover the costs of building a new property or undertaking significant renovations, with funds disbursed in stages as construction progresses.
A conventional loan is a mortgage not backed by a government agency, adhering to Fannie Mae and Freddie Mac guidelines, commonly used by real estate investors for various property types.
A convertible security is a type of investment that can be converted into a predetermined number of common shares of the issuing company or partnership at a specified conversion price or ratio, offering investors both income potential and equity upside.
Convexity measures the sensitivity of a bond's duration to changes in interest rates, quantifying the non-linear relationship between bond prices and yields, which is crucial for advanced fixed-income portfolio management.
The Cost of Capital is the blended rate of return a real estate investment must generate to cover the costs of its financing, encompassing both debt and equity capital.
A covenant in real estate is a formal, legally binding promise or agreement between parties, often recorded with the property deed, that dictates how a property can or cannot be used, or obligates parties to specific actions.
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