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.
Debt reduction is the strategic process of paying down outstanding loan balances, particularly mortgages, faster than scheduled to minimize interest expenses, increase equity, and improve an investor's financial position.
Debt service is the total amount of principal and interest payments required to repay a loan over a specific period, typically for a mortgage or other property-related financing.
The Debt Service Coverage Ratio (DSCR) is a financial metric used in commercial real estate lending to assess a property's ability to generate sufficient Net Operating Income (NOI) to cover its annual mortgage debt payments.
Debt Yield is a commercial real estate lending metric calculated as a property's Net Operating Income (NOI) divided by the total loan amount, used to assess a loan's risk by measuring the property's income-generating capacity relative to the debt, independent of interest rates.
A Debt-for-Property Swap is an advanced real estate transaction where a debtor transfers ownership of a property to a creditor in full or partial satisfaction of an outstanding debt, often used in distressed situations or for strategic asset acquisition.
The Debt-to-Equity (D/E) Ratio is a financial leverage metric that indicates the proportion of a company's or property's financing that comes from debt versus equity. It helps real estate investors assess the financial risk and solvency of an investment.
The Debt-to-Income (DTI) Ratio is a financial metric used by lenders to assess a borrower's ability to manage monthly payments and repay debts, calculated by dividing total monthly debt payments by gross monthly income.
Decreasing term life insurance is a type of term life insurance where the death benefit decreases over the policy's term, typically aligning with a declining debt such as a mortgage, while premiums usually remain level.
A Deed-in-Lieu of Foreclosure is a voluntary agreement where a homeowner transfers property ownership to their mortgage lender to satisfy a mortgage debt and avoid the formal foreclosure process.
Default risk is the potential for a borrower or tenant to fail to meet their contractual financial obligations, such as making mortgage or rent payments, leading to financial losses for lenders and property owners.
Defeasance is a complex financial and legal process in commercial real estate where a borrower substitutes a portfolio of U.S. Treasury securities for the original property as collateral, effectively releasing the property from the mortgage lien, typically to facilitate a sale or refinancing when the loan contains a lockout period or strict prepayment penalty.
A deferred payment is an arrangement where a borrower is allowed to postpone making a payment, or a portion of a payment, until a later agreed-upon date. This can apply to various financial obligations, including loans, mortgages, or even purchase agreements.
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