Hard money terms

Amortization – paying off an amount owed over time, in equal incremental payments of principal plus interest. If a loan is amoritized over 30 years, it means it will take the borrower will make monthly payments in shares of three hundred and sixty months.

 APR – stands for ‘annual percentage rate’ – which is the interest rate you will pay every year for borrowing the money. Note that many hard money lenders will tell you the cost of lending monthly – to portray a ‘lower’ interest rate. Make sure to. compare APR when shopping for a hard money loan.

 Appraisal – the property value assigned by a licensed professional. Banks will usually require an appraisal before approving a loan to a borrower. Hard money lenders usually do not require an appraisal done.

Ballon Payment – the final payment discharging the debt – which is much bigger than the monthly payment.

 Bridge Loan – a temporary loan, measured in months, not in years. It is usually given to borrowers who are expecting to receive money from another transaction in the near future, but in need of capital right away.

Closing of Escrow – completing the purchase and sale transaction between buyer and seller. The property changes hands from the seller to the buyer.

Co-Burrower – an person who with the borrower, assumes full responsibility for the loan. Meaning the lender has full recourse against both borrowers. Legally speaking, there is no difference between the borrower and co-borrower.

 Deed of Trust – a legal instrument used to secure a loan on a property – conveying title to another party until the note is fully paid by the borrower. Some states require a deed of trust instead of a mortgage.

Down Payment – the amount equal to the purchase price minus loan principal. The borrower usually pays the down payment out of his/her own pocket.

Equity – net amount of ownership in property, calculated by the current value of the asset minus all debts on the property.

 Escrow – a process by which a third party facilitates the sale between buyer and seller, assumes responsibility of exchanging paperwork, and making sure the. transaction is completed without complication or fraud.

Homeowner Association/HOA – a resident organization, usually in. a condo building or large neighborhoods, that are responsible for common area maintenance and services. Residents are required to pay a monthly fee for the HOA. Those organizations are usually protected by title and weild significant power.

 Interest – what the borrower owes to the lender for furnishing the loan. It is a percentage of the principal and it reflects the risk profile the loan. The riskier the loan, the higher the rate will be.

 Loan to Value – LTV – amount of total debt owed on the property divided by the value of the property. It is a measure to see the financial health of the borrower. A lower LTV means higher equity, which means the risk is lower.

Net Income – calculated by gross income minus all expenses. In evaluating properties, net income is used to calculate Cap Rates.

Pre Approval – the median stage between application and approval. If the borrower can confirm all the information on the application, you will reach final approval. Different lenders have different meanings for pre-approval so it is always better to ask!

Preliminary Title Report – a report prepared by a company prior to issuing title insurance that shows ownership and incumbencies on the real estate in question. It is a required step during escrow.

Primary Residence – the place where the borrower lives most of the time.

Principal – the amount owed back by the borrower to the lender, before interest.

Quit Claim Deed – legal instruments relinquishing interest in real property to another person. It contains no warranties or covenants on the condition of the property.

Reconveyance – transferring legal title from from the trustee to trustor after the deed of trust was pain in full.

Refinancing – paying off an existing loan with a new loan, often with better terms and interest rate.

Renovation – restoring a property to former glory, or renewing it with a new vision. Known to add value if done correctly.

Tenant – person or company that rents/leases an interest in land from the landlord, for monthly payment. Leases longer than 1 year need to be in writing to be enforceable.

Title – document that showed proof of ownership in a property

Title Insurance – issued by a specialized company that insures the seller and buyer from errors in title search.

Trustee – the one that hold legal title. We can find trustees in times where a 3rd party has to oversee title for the benefit of another. A trustee has legal obligations towards the beneficiaries.

Underwriting – the process in which the lender examines the risk factors associated with lending money to the borrower.