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 draw schedule is a pre-determined plan for disbursing funds from a construction or rehabilitation loan in stages, linked to specific project milestones or work completion percentages.
The drawee is the party, typically a bank or financial institution, ordered by the drawer to pay a specific sum of money to the payee, most commonly seen in check transactions or other financial instruments. In real estate, the drawee is crucial for processing payments like earnest money or closing funds.
A due-on-sale clause is a mortgage provision allowing the lender to demand immediate repayment of the entire loan balance if the property is sold or transferred without their consent, protecting against unauthorized loan assumptions.
Duration (Interest Rate) measures the sensitivity of a debt instrument's price to changes in interest rates, expressed in years. It is a critical metric for real estate investors managing fixed-income assets and liabilities, indicating the weighted average time until a bond's cash flows are received.
An Early Withdrawal Penalty is a fee charged by a lender if a borrower pays off a loan before its scheduled term or makes significant extra payments, often found in certain real estate loan agreements.
Earnest money is a deposit made by a buyer to a seller, held in escrow, demonstrating the buyer's serious intent to purchase a property and serving as security against buyer default.
Assets or property that a lender deems acceptable to secure a loan, providing assurance that the borrower will fulfill their repayment obligations and allowing the lender to recover funds in case of default.
A record of an individual's past and current jobs, including employers, job titles, and dates of employment, used by lenders to assess financial stability for real estate loans.
Employment verification is the process by which a lender confirms a borrower's current employment status, job title, and income to assess their ability to repay a loan.
Equity build-up refers to the increase in a property owner's stake or ownership percentage in a real estate asset over time. It primarily occurs through two mechanisms: principal paydown on a mortgage and property value appreciation.
Equity conversion is the process by which real estate investors transform the accumulated equity in their properties into accessible cash or other liquid assets, typically for reinvestment, debt consolidation, or other financial objectives.
Equity crowdfunding allows multiple investors to collectively fund real estate projects through online platforms, receiving an equity stake and sharing in potential profits and appreciation. It democratizes access to real estate investments by lowering entry barriers.
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