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 (38 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.
The Asset Coverage Ratio (ACR) is a financial metric that assesses a company's or an investor's ability to cover its liabilities with its assets, providing insight into solvency and debt capacity, particularly crucial for real estate investment firms and large portfolios.
The BRRRR Method is an advanced real estate investment strategy (Buy, Rehab, Rent, Refinance, Repeat) designed to build a scalable rental property portfolio by leveraging forced appreciation to recycle initial capital for subsequent investments.
A Bank Statement Loan is a non-qualified mortgage (Non-QM) product designed for self-employed individuals and real estate investors who cannot easily document their income through traditional tax returns, instead relying on 12-24 months of business or personal bank statements for income verification.
A Bermuda Mortgage Prepayment Option grants the borrower the right, but not the obligation, to prepay their mortgage principal on specific, predetermined dates throughout the loan's term, offering flexibility beyond a standard European option but less than an American option.
A bid bond is a financial guarantee provided by a surety company to a project owner, ensuring that a bidder will enter into a contract if awarded, and provide the required performance and payment bonds. It protects the owner from financial loss if the winning bidder defaults on these obligations.
A Bill of Exchange is a legally binding written order from one party (the drawer) to another (the drawee) to pay a specified sum of money to a third party (the payee) on demand or at a predetermined future date, serving as a negotiable instrument in sophisticated financial transactions, including real estate.
A borrowing base is a dynamic calculation used in asset-based lending (ABL) to determine the maximum amount a borrower can draw from a credit facility, based on the value of eligible collateral assets, primarily real estate in investment contexts.
A Commercial Mortgage-Backed Security (CMBS) loan is a form of commercial real estate financing where multiple commercial mortgages are pooled, securitized into bonds, and sold to investors, offering non-recourse debt for large-scale properties.
The capital stack is the hierarchical structure of all debt and equity financing used to fund a real estate investment, defining the priority of payment, risk, and return for each capital source.
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.
A cash flow hedge is a derivative instrument used to offset the variability in future cash flows attributable to a particular risk, such as interest rate fluctuations or foreign currency exchange rate changes, thereby stabilizing an entity's financial performance.
A convertible security is a type of investment that can be converted into a predetermined number of common shares of the issuing company or partnership at a specified conversion price or ratio, offering investors both income potential and equity upside.
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