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.
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.
A personal guarantee is a legally binding promise by an individual to repay a business debt if the business entity defaults, exposing the guarantor's personal assets to the loan obligation.
A policy loan allows a policyholder to borrow money directly from the cash value of a permanent life insurance policy, using the policy itself as collateral. Unlike traditional loans, it doesn't require credit checks and has flexible repayment terms, making it a unique financing option for real estate investors.
A portfolio lender is a financial institution that originates and holds loans on its own balance sheet, providing flexible underwriting and customized terms for real estate investors, particularly for complex or non-conforming properties.
A portfolio loan is a mortgage originated and held by the lender on its own balance sheet, offering flexible underwriting for unique real estate investment properties that don't fit conventional lending criteria.
A period after a homeowner defaults on their mortgage but before the property is officially repossessed by the lender, offering a critical window for resolution or investment opportunities.
Preferred equity is a hybrid financing instrument in real estate that provides investors with a preferential claim on a property's cash flow and sale proceeds, typically paid before common equity but after senior debt.
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