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.
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.
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.
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.
Overleveraging occurs when an investor uses an excessive amount of borrowed capital to finance a real estate investment, significantly increasing financial risk and vulnerability to market downturns or unexpected expenses.
An owner-occupied multi-unit property is a residential building with two to four units where the owner lives in one unit and rents out the others, leveraging rental income to offset mortgage payments and build equity.
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.
PITI stands for Principal, Interest, Taxes, and Insurance, representing the four main components of a monthly mortgage payment for real estate investors and homeowners. It is a critical metric for budgeting, loan qualification, and assessing the true cost of property ownership.
A partial release is a clause in a mortgage or deed of trust that allows a borrower to obtain a release of a portion of the collateral from the lien, typically upon payment of a specified amount.
A payment bond is a type of surety bond that guarantees subcontractors and suppliers will be paid for their work and materials on a construction project, protecting them from non-payment by the general contractor.
Payment history is a record of how consistently and on-time you pay your debts, serving as a key indicator of your financial reliability to lenders, especially for real estate financing.
Payment shock refers to a significant and unexpected increase in a borrower's monthly mortgage payment, often due to an adjustable-rate mortgage (ARM) resetting, or changes in property taxes and insurance premiums held in escrow.
Peer-to-Peer (P2P) lending connects individual investors directly with borrowers, often facilitated by online platforms, bypassing traditional financial institutions. In real estate, it provides alternative financing for projects and allows investors to fund loans for properties.
Permanent financing is a long-term real estate loan, typically 5-30 years, used for stabilized properties or to replace short-term construction/bridge loans, characterized by amortization and predictable debt service.
A permanent rate buydown is a mortgage financing strategy where a borrower or seller pays an upfront fee, known as discount points, to reduce the interest rate on a loan for its entire term, resulting in lower monthly payments.
A Personal Financial Statement (PFS) is a document that summarizes an individual's financial position at a specific point in time, detailing assets, liabilities, and net worth. It is a critical tool for real estate investors seeking financing or evaluating their financial health.
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