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.
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.
A deficiency judgment is a court order holding a borrower personally responsible for the remaining balance on a loan after the collateral, such as real estate, sells for less than the outstanding debt, typically following a foreclosure or short sale.
The delinquency rate is the percentage of loans or payments that are past due, indicating the financial health of a loan portfolio or the broader real estate market. It's a key metric for assessing credit risk and market stability.
A demand draft is a payment instrument issued by a bank on behalf of a customer, instructing another bank or its own branch to pay a specified sum of money to a named beneficiary. It is a secure and reliable method for transferring funds, often used in real estate transactions.
A derogatory mark is a negative entry on a credit report that indicates a borrower has failed to meet their financial obligations, signaling higher risk to lenders and impacting loan eligibility and interest rates.
Disbursement in real estate refers to the release or distribution of funds from an escrow account or a designated party to various recipients involved in a transaction or property operation, ensuring all financial obligations are met.
Discount points are an upfront fee paid to a lender at closing in exchange for a lower interest rate on a mortgage loan, effectively pre-paying some of the interest.
Dividend recapitalization is a corporate finance transaction where a company issues new debt to pay a large dividend to its shareholders, often used by private equity firms to extract value from an investment before a full exit.
A down payment is an initial upfront payment made when purchasing a property, representing a portion of the total purchase price and reducing the amount of money borrowed through a mortgage.
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