Hard Money Lending Glossary of Terms

Are you new to real estate investing? Check out our list of common hard money lending terms. Confused about something not listed here? Call us at 503-342-2000.

After-repair value (ARV): Commonly used by house flippers, ARV is the value of a property after it’s been renovated.

Appraisal: The current or projected worth of real estate is determined through an appraisal. This designation, which must come from an authorized appraiser, is used for insurance, taxation, and determining the selling price of a property.

Balloon payment: A balloon payment, which occurs at the end of a loan term, is a one-time payment that is larger than the prior monthly payments. Borrowers who use a balloon payment should expect to own a large sum at the end of their loan.

Bankruptcy: Legal proceeding that occurs when a business (or individual) is unable to pay outstanding debts. The debtor is given freedom from the debts (although their credit reports are affected) while creditors are given an opportunity to be repaid. There are several different types of bankruptcy.

Bare-land loans: These loans are for empty building lots within city limits or for unimproved vacant-land lots.

Comparative market analysis (CMA): A CMA uses a property and home analysis (looking at factors such as location, size, and construction, as well as comparables) to estimate a home’s value. A CMA is used to set listing prices.

Closing costs: The fees a borrower pays to complete a real estate transaction. Fees may include title insurance, title searches, deed recording fees, attorney’s fees, escrow fees, and more.

Collateral: The value required to secure a loan, such as a cash down payment and a real estate lien.

Credit score: The number that represents the credit worthiness of an individual or business. It predicts how likely one is to repay a loan on time.

Debt-to-income ratio (DTI): The comparison of how much is owed each month to how much is earned. To calculate, divide the totally monthly debt payments by the gross monthly income.

Delinquent loan: Occurs when a borrower has failed to meet the terms of the loan agreement. Most commonly, this occurs when a loan hasn’t been paid off on time.

Default: When a lender notifies a borrower that they’re behind in the agreed-upon payments. Being default in a loan is the first step in foreclosure.

Equity: A property’s value minus any debt owed.

Escrow: A neutral party that manages real estate transactions. This includes ensuring that all parties sign correctly and are represented, as well as handling the funds.

Foreclosure: When a lender sells a property to repay an unpaid loan.

Funding: Money provided to a borrower by a company or institution for the purpose of obtaining a real estate property.

Grace period: The time between the date a payment is due and the date that late fees will start accumulating.

Hard money loan: Type of loan funded by private investors that is asset-based and short-term. Learn if a hard money loan is right for you.

Interest: A fee paid on a regular basis and at a certain interest rate in exchange for the use of the money that was loaned.

Interest-only payment: An interest-only payment means that each month the borrower is only paying one month’s worth of interest on the gross amount of the loan. The first interest-only payment is due 30 days after the anticipated closing and funding date. There is a balloon payment due at the end of the term or upon sale of the property.

Investment property: Residential or commercial property that is purchased with the aim of earning a return on the investment. The property is non-owner occupied and can be held by an investor or group of investors.

Late fees: A fee paid by the borrower if a loan payment isn’t made by the determined grace period.

Lien: A legal claim against a property that protects the interests of creditors who are owed money by the property’s owners.

Loan-to-value (LTV) ratio: An assessment used by lenders to determine lending risk. High LTV ratios are considered higher risk loans and so they have higher interest rates.

Lot partition loans: This occurs when one lot is split into two (or more) lots, with a new home to be constructed on each lot.

Maturity date: The date when a loan (including fees and interest) must be paid back in full.

Mortgage: A type of loan generally used to buy a home or property that then serves as collateral. Payments are divided into principal and interest and paid in regular increments.

New construction loans: These loans cover single-family homes, multiple-unit projects (duplexes, triplexes, etc.), mixed-use commercial/residential, and commercial/industrial buildings.

Note: Legal document between a borrower and investor that discloses interest rate and loan terms. Short for promissory note.

Non-conforming loan: Loans that don’t meet financing guidelines used by conventional lenders.

Partially complete construction loans: When a borrower runs short on funds, these loans help complete the project.

Payoff: Paying off a loan completely, including principal, interest, and fees.

Personal guarantee: An individual’s legal guarantee to repay a loan (including interest and fees) on behalf of a business. The individual takes personal responsibility for payment if the business cannot pay the loan.

Preliminary title report (PTR): Report that outlines terms and conditions under which title insurance can be issued. It confirms ownership of the property and shows any liens that will not be covered.

Pre-payment penalty: Some lenders impose fines if a loan is paid off before it’s due – these terms will be outlined in the loan’s details.

Principal balance: The outstanding balance of a loan minus interest and other charges.

Private money lender: A term that refers to non-bank lending and lending via a private person or organization. Private lenders generally use the property’s value to decide the amount loaned and the rates.

Promissory note: In this document, a borrower promises to repay a loan. The terms of the loan may also be included.

Refinance: The process of revising the terms of an existing credit agreement for a loan or mortgage.

Rehab loans: These loans are primarily used for purchase and repair of residential, multi-family, or commercial buildings—either for resale or to retain for investment.

Security Interest: When a lender receives a legal claim on a borrower’s property in the event they stop making loan payments.

Title company: A company that verifies a property’s title is lawfully given to the buyer while making sure the seller has the rights to sell.

Title insurance: A policy that protects buyers and lenders against any title issues that might occur during property transfers, such as liens or defects.

Underwriter: A party with a mortgage or investment company that assesses and assumes the risk of another group for a fee.