What Was That? Let’s Define Common Hard Money Loan Terms

What Was That? Let’s Define Common Hard Money Loan Terms

From a Trusted Washington Hard Money Lender

If you invest in real estate – or are thinking about it – you’ve probably heard of hard money loans.

Investors who need fast financing and don’t want to deal with the requirements and paperwork of a conventional lender turn to private money lenders. Asset-based hard money loans are a great hassle-free option for house flippers and rental property investors.

This handy list of loan industry terms is a great reference tool when requesting private financing.

Glossary of 20 Common Hard Money Loan Phrases and Terms

  1. Hard Money Loan: A loan made by a private lender secured by collateral and used for real estate investment transactions.
  2. After Repair Value: A property’s estimated value after all repairs and improvements have been made. Calculated based on average sale price or sale price per square foot.
  3. Appraisal: The statement of a property’s current value assessed by a licensed, credentialed appraiser and determined by property evaluation and surrounding comparable properties.
  4. Escrow: A neutral third party that oversees the loan transaction to ensure all parties are fairly represented and manages and disperses good faith funds.
  5. Equity: The value of a property less the debt or balance owed by the owner. Available equity or collateral is the primary consideration in a hard money loan arrangement.
  6. Fair Market Value: The price a buyer is willing to pay for a property to a willing seller. Appraisals and comparable properties assist in setting the estimated FMV.
  7. Balloon Payment: A large one-time balance due payment at the end of a loan term. Some hard money loans require interest-only monthly payments with balloon payment at end.
  8. Investment Property: A non-owner occupied real estate property purchased with the intention of earning a return through rental income and/or resale.
  9. Lien: The legal right of a lender to claim interest in a property provided as collateral by an owner until a loan is paid off.
  10. Points: Charges assessed by the lender and paid at closing to cover the cost of making a loan. One point (or origination fee) is equal to 1% of the total loan amount.
  11. Refinance: The act of replacing an existing loan or mortgage with a new one, typically with a new balance and more favorable terms.
  12. Late Fees: Charges assessed and paid by a borrower if a loan payment due under contract is not made on time.
  13. Loan to Value Ratio: Used by lenders to determine the risk they are taking on a loan. Divide the amount borrowed on a property by its fair market value and express as a percentage.
  14. Loan Agreement: The written and signed contract that defines the loan terms set by the lender and agreed to by the borrower.
  15. Maturity Date: The contracted date on which the final loan payment and all interest and fees are fully due per the loan agreement.
  16. Mortgage: A loan agreement provided by a lender to finance the purchase of real estate property. Mortgages may be conveyed by banks or private lenders.
  17. Payoff: The act of paying off the amount owed to satisfy a loan in full, including the outstanding principal and all interest and fees.
  18. Principal Balance: The outstanding portion of the original loan amount that remains unpaid, not including accrued interest or fees.
  19. Title Company: Enlisted to verify the authenticity of a property’s title and the legal authority and rights to ownership of the seller and buyer.
  20. Underwriting: Process used by lenders to evaluate a borrower’s credit worthiness and assess the risk of a loan.

Have Questions About Hard Money Loans? Talk to Our Washington Team of Experts

We know a lot about Washington real estate and a lot about financing. Gregory M. Russell has been a trusted hard money lender for over three decades and we can help you meet your investment goals quickly and easily. Call 1-888-477-0444 to learn about our private money loan services or complete our simple online loan request form. We make financing easy to understand and get cash in your hand fast.