Private lending has its own language. This glossary explains common terms to help you navigate the financing process with confidence.
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A summary of the public records relating to the ownership of a particular piece of land.
A loan provision that allows the lender to demand immediate repayment of the outstanding balance upon default.
A loan used to purchase an investment property, often paired with rehab or bridge financing.
A mortgage with an interest rate that can change periodically based on an index.
A sworn written statement used as evidence in court or for legal processes in real estate.
The estimated market value of a property after renovations are completed.
The process of paying down a loan over time through scheduled principal and interest payments.
The yearly cost of a loan expressed as a percentage, including interest and fees.
A detailed report that provides an objective assessment by a third-party, of the actual value of a property. An appraisal considers a variety of factors, such as location, comparable sales, finishes in the property, and repairs needed.
The difference between the purchase price and the appraised value of a property.
The increase in a property’s value over time due to market conditions or improvements.
A limit on how much the payment can increase on an adjustable rate loan during a specific period.
The yearly cost of a loan expressed as a percentage, including interest and fees.
A detailed report that provides an objective assessment by a third-party, of the actual value of a property. An appraisal considers a variety of factors, such as location, comparable sales, finishes in the property, and repairs needed.
The difference between the purchase price and the appraised value of a property.
The increase in a property’s value over time due to market conditions or improvements.
The steps a lender takes to assess and approve a loan application.
Financing primarily underwritten on property value rather than borrower income or credit.
The transfer of rights or property from one party to another.
The transfer of a mortgage from the original lender to a new lender.
A loan that permits the buyer to take over the seller’s mortgage under the existing terms.
A property sold through a public or online bidding process, often requiring fast financing.
A large final loan payment due at the end of a short-term or interest-only loan.
A reference interest rate used to set rates on variable loans.
The entity entitled to receive benefits from a trust or loan collateral.
Criteria used to evaluate a borrower’s ability to repay a loan.
Cash reserves a borrower must maintain to qualify for a loan.
Short-term financing used to “bridge” the gap between purchase and refinance or sale.
Buy, Rehab, Rent, Refinance, Repeat — a popular rental portfolio growth strategy.
An investment strategy of purchasing a property and holding it for long-term rental or appreciation.
A measure of return calculated as net operating income divided by property value.
Net income remaining after operating expenses and debt service are paid.
Liquid assets retained by a borrower as required for loan qualification or as cushion during ownership.
Refinancing a property that results in a larger loan amount than the existing mortgage, with the cash proceeds going directly to the borrower.
A document certifying that a property is habitable and compliant with building codes.
The sequence of historical transfers of title to a property.
Fees and expenses paid at loan closing, including title, appraisal, and lender fees.
The property pledged to secure a loan.
The property pledged to secure a loan.
The ratio of all loans on a property to its value.
A charge paid to lock in a lender’s offer or available funds for a period of time.
A formal offer from a lender to provide financing under specified terms.
Short-term financing used to fund the building of a new property.
A loan that converts from construction financing to a permanent mortgage once construction is complete.
A proviso in a contract that must be met for the deal to proceed.
Funds set aside to cover unknown costs during a project.
An adjustable mortgage that can be converted to a fixed rate under certain conditions (“Convertible ARM”).
A report of an individual’s credit history used by lenders for underwriting.
A numerical representation of a borrower’s creditworthiness.
Total annual principal and interest payments on a loan.
A metric expressing cash yield of a property relative to the loan amount.
A ratio measuring whether rental income covers loan payments.
A measure of a borrower’s monthly debt payments relative to monthly income.
A legal document that conveys ownership of real property.
A document in some states securing a loan with property, involving a trustee.
Failure by the borrower to repay the loan as per the agreed-upon terms.
Failure to make scheduled loan payments on time.
Funds paid upfront to demonstrate commitment to a purchase or loan.
Implied inverse of appreciation – property loses value over time.
Fees paid to permanently lower the interest rate on a loan.
The sale or transfer of an investment asset.
Cash paid upfront toward the purchase of a property.
Payment reimbursement for expenses related to rehab or remodeling a property based on work completed, deposits paid and materials ordered.
The process of investigating and evaluating the potential risks and benefits of a loan before making a decision to invest.
A deposit made to demonstrate sincerity of a buyer’s offer.
The difference between a property’s value and the loan balance.
A strategy of reducing a borrower’s equity to avoid foreclosure claims.
A provision that automatically increases a variable interest rate or price under certain conditions.
A third-party account holding funds for taxes, insurance, or closing costs until disbursed.
A document used in lending that confirms the terms of an agreement or outstanding amounts.
The borrower’s plan to repay the loan, typically via sale or refinance.
Fair Market Value: The price a willing buyer and seller agree upon in an open market.
The primary claim on a property ahead of other liens.
Short-term financing for purchasing and renovating a property to resell.
A temporary reduction or suspension of loan payments granted by the lender.
A property repossessed by a lender due to borrower default.
A public sale of property after foreclosure proceedings.
Practices to detect and prevent fraud in lending transactions.
Implicit concept: property with no liens or mortgages against it.
A loan where the borrower is personally liable beyond the collateral.
A charge to cover loan processing and funding costs.
Money given to a borrower by someone else to assist with down payment or closing costs.
An estimate of closing costs provided to the borrower early in the loan process.
A financial services corporation created by Congress to enhance the flow of credit to specific sectors, e.g. Fannie Mae and Freddie Mac.
A loan with low initial payments that increase over time.
Total rental income before expenses.
Financing used to build a property from the ground up.
A person who promises to pay the debt owed by the borrower if the borrower defaults.
Insurance protecting against damage to property from hazards such as fire or storms.
Expenses incurred while owning a property, such as interest, taxes, and insurance.
A standardized form itemizing all charges for closing a real estate transaction.
A method of valuing property based on expected rental income.
A provision where one party agrees to compensate another for certain losses or damages.
A benchmark interest rate that adjusts the rate on an ARM.
The introductory rate charged on an adjustable rate mortgage.
The percentage rate charged on a loan, typically higher on hard or private money given added risk.
A loan where payments cover interest only during the term.
A form of co-ownership where the surviving tenant inherits the interest of a deceased tenant.
A loan that exceeds conventional conforming loan limits.
A subordinate claim on a property after the first lien.
A fee imposed for missing a loan payment by its due date.
An arrangement that grants the tenant the right to buy the property during or at the end of the lease period.
A detailed description of property that identifies its precise location and boundaries.
Using borrowed capital to increase investment returns.
The London Interbank Offered Rate, used as a benchmark for adjustable interest rates.
A legal claim against a property to secure debt repayment.
A document by which a lien claimant waives the right to future liens against a property.
Implicit concept: the total period over which a loan is amortized.
The date on which loan proceeds are disbursed to the borrower or seller.
A change made to the loan terms to accommodate a borrower’s financial difficulties.
The process of creating a new loan, including underwriting, documentation, and funding.
The entity responsible for collecting payments and managing a loan after closing.
The process of collecting loan payments, managing the loan account, and maintaining records of payments and balances.
The length of time the borrower has to repay the loan.
Loan amount divided by total project cost.
Loan amount divided by property value or ARV. If expressed as “Ratio” in some references, the definition applies equally.
The timeframe during which a loan commitment or interest rate is guaranteed.
Actions taken to prevent foreclosure, such as loan modification or repayment plans.
The typical rental rate for comparable properties in an area.
The estimated price a property would sell for in an open market.
The date when the final payment on a loan is due and the loan must be repaid in full.
A loan secured by real estate.
The lender in a mortgage agreement.
The borrower in a mortgage agreement.
When loan payments do not cover all the interest due, causing the principal balance to increase.
Income remaining after operating expenses, before debt service.
The stated interest rate on a loan without taking compounding into account.
Property not used as the borrower’s primary residence.
A loan where the lender’s recovery is limited to the property collateral.
A legal document obligating a borrower to repay a loan at specified terms.
A formal notice given to a borrower that they are in default and foreclosure proceedings may start.
Related concept: period before foreclosure or call of loan
Costs required to operate a property, excluding loan payments.
A charge by a lender for processing a new loan application.
The abrupt increase in payment amount when refinancing or adjusting to a new loan.
A pledge to ensure satisfactory completion of a project or loan obligations.
A personal promise to repay the loan if the business or borrower fails to do so.
The four components of a monthly mortgage payment.
Upfront fees paid to a lender, expressed as a percentage of the loan amount (also: “Discount Points” where the fee lowers the interest rate).
An initial evaluation of a potential borrower’s ability to obtain a loan.
A fee charged for paying off a loan early.
The main home where a person resides, often eligible for favorable loan terms.
The amount of debt still owed on a loan, excluding interest.
An individual or organization that provides hard money loans to borrowers.
Financing provided by private individuals or private lending firms.
Insurance required on conventional loans when the down payment is less than 20%.
A written promise to repay a specified sum under specified terms.
An examination of a property’s condition, often required before lending or purchasing.
A contract outlining the terms and conditions of a property sale.
Designated areas offering tax incentives for investment.
A measure of how much mortgage payment a borrower can reasonably make relative to their income.
A deed conveying whatever interest the grantor has without warranty of title.
An agreement that guarantees a specified interest rate provided the loan closes within a set period.
Property owned by a lender after foreclosure and failed resale at auction.
Land and anything permanently attached to it, including buildings and rights.