Glossary of Common Lending Terms:
A - C
After Repair Value (ARV):
The estimated market value of a property after renovations are completed.
Amortization:
The schedule of loan payments that includes principal and interest, typically structured over a fixed term.
Appraisal:
A professional evaluation of a property’s current or potential future value, often required for loan approval.
As-Is Value:
The current market value of a property before any repairs or improvements.
Bridge Loan:
A short-term loan used to cover immediate financing needs while waiting for long-term financing or property sale.
Broker Price Opinion (BPO):
A property valuation prepared by a real estate agent, often used as a lower-cost alternative to an appraisal.
Buy and Hold:
A real estate investment strategy where an investor purchases a property to generate long-term rental income.
Capital Expenditures (CapEx):
Major expenses for repairs, upgrades, or improvements that extend the property’s lifespan.
Cash-Out Refinance:
Refinancing a property to pull out equity as cash for future investments or expenses.
Closing Costs:
The fees and expenses associated with purchasing a property, including title insurance, attorney fees, loan origination fees, and transfer taxes.
Comparative Market Analysis (CMA):A report analyzing recently sold, similar properties to estimate a property’s value.
Closing Costs:
The fees and expenses associated with purchasing a property, including title insurance, attorney fees, loan origination fees, and transfer taxes.
Closing Costs:
The fees and expenses associated with purchasing a property, including title insurance, attorney fees, loan origination fees, and transfer taxes.
D - F
Debt Service Coverage Ratio (DSCR):
A ratio measuring a property’s ability to cover its debt obligations, calculated as Net Operating Income (NOI) divided by debt service (loan payments).
Deed of Trust:
A legal document securing a loan with a property, similar to a mortgage.
Default:
The failure to meet loan obligations, which may result in foreclosure.
Depreciation:
The gradual loss of a property’s value over time due to wear and tear, often used for tax deductions.
Draw Schedule:
The predetermined timeline for disbursing funds in a construction or renovation loan, based on project milestones.
Earnest Money Deposit (EMD):
A deposit paid by the buyer to show commitment to purchasing the property, typically held in escrow.
Equity:
The difference between a property’s market value and the outstanding loan balance.
Exit Strategy:
The investor’s plan for paying off a loan, such as selling, refinancing, or renting the property.
Fix & Flip:
A real estate investment strategy where a property is purchased, renovated, and sold for a profit.
Foreclosure:
The legal process where a lender repossesses a property due to non-payment of a loan.
Funding Fee:
A fee charged by lenders for processing a loan, often expressed as a percentage of the loan amount.
G - L
Ground-Up Construction Loan:
A loan specifically designed to finance new construction projects from start to finish.
Gross Rent Multiplier (GRM):
A valuation metric calculated by dividing a property's price by its annual gross rental income.
Hard Money Loan:
A short-term, asset-based loan that relies on the value of a property rather than the borrower’s creditworthiness.
Holding Costs:
The expenses incurred while holding a property, including loan payments, taxes, insurance, and utilities.
Inspection Contingency:
A contract clause allowing the buyer to negotiate repairs or withdraw from the purchase based on inspection results.
Interest-Only Loan:
A loan where the borrower only pays interest for a set period before principal payments begin.
Lien:
A legal claim against a property that must be paid off before it can be sold.
Loan-to-Cost (LTC):
The ratio of the loan amount to the total project cost (purchase price + renovation costs).
Loan-to-Value (LTV):
The ratio of the loan amount to the property’s current or appraised value.
M - R
Market Rent:
The rental price a property could generate based on comparable properties in the area.
Maximum Allowable Offer (MAO):
The highest price an investor should pay for a property, calculated using ARV, repair costs, and desired profit margin.
Mixed-Use Property:
A property that combines residential, commercial, or industrial spaces in one building or development.
Net Operating Income (NOI):
The total income generated by a property after deducting all operating expenses, excluding debt payments.
Origination Fee:
A fee charged by a lender to process and underwrite a loan, typically expressed as a percentage of the loan amount.
Passive Income:
Income generated from rental properties or investments with minimal active management.
Prepayment Penalty:
A fee charged for paying off a loan before the agreed-upon term.
Private Money Loan:
A real estate loan provided by an individual investor rather than a traditional lender.
Proof of Funds (POF):
A document showing a buyer has the necessary capital available to complete a purchase.
S - Z
Scope of Work (SOW):
A detailed breakdown of renovations or construction work planned for a property.
Seasoning Period:
The required amount of time a borrower must own a property before refinancing or selling it.
Seller Financing:
A financing arrangement where the seller acts as the lender, allowing the buyer to make payments over time.
Short Sale:
A property sale where the lender agrees to accept less than the outstanding mortgage balance to avoid foreclosure.
Seller Financing:
A financing arrangement where the seller acts as the lender, allowing the buyer to make payments over time.
Title Insurance:
A policy protecting against legal claims or issues with property ownership.
Transactional Funding:
A very short-term loan used by wholesalers to facilitate back-to-back closings.
Underwriting:
The process lenders use to assess risk and determine loan approval.
Wholesale Deal:
A strategy where an investor secures a contract on a property and assigns it to another buyer for a fee.
Zoning Laws:
Local regulations that dictate how a property can be used (residential, commercial, industrial, etc.).
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