Must-Know Glossary Terms About Hard Money Real Estate Lending

Investing in real estate can seem tricky for beginners who don’t know all the vocabulary or aren’t fluent in the keywords. We make securing a hard money loan easy, and we believe having background knowledge about loan types and terms is beneficial for all involved. When trying to secure a private hard money loan for income-producing real estate, it’s essential to have a deeper understanding of the most-used terms in the industry.

After skimming through this comprehensive list of the most commonly used real estate investment glossary terms, you’ll be well-versed on all topics hard-money-related.

After Rehab Value (ARV): The market value that the investment property is expected to have after it has been improved or renovated.

Alternative Lender: A private company that operates like conventional institutions by providing real estate loans or specializing in securing a wide range of non-traditional loans (loans that are outside of a traditional bank.)

Apartment Complex: A group of income-producing buildings located in one compact area that have multiple units and are managed by the same company or person.

Appraisal: A professional estimate of how much the property is currently valued or will be worth after improvements or updates.

Acquisition Funding: The funding and capital that one company uses in order to acquire another company, usually a smaller one.

Asset: A physical item, such as a car or home, that someone can use as collateral to secure a loan.

Assumability: S mortgage loan that can be transferred to another person without a change in the terms of the loan.

As-Is Value: The real estate or property value as it exists, as of the appraisal date.

Borrower: Someone who is seeking funding for a real estate project or property with an agreement in place to repay the loan amount.

Bridge Loan: A short-term loan used to bridge the gap between one obligation and the next. Bridge loans are a great way to easily move from one real estate investment to another.

Capital: Wealth in the form of money or other assets owned by a person, entity, or business.

Capitalization Rate: A real estate valuation measure used to compare different real estate investments. It represents the ratio between the net operating income produced by an asset and the original capital cost or its current market value.

Cash Out Loan: A loan that recognizes the property value increases over time and gives the borrower cash in exchange for taking out a larger loan. You borrow more than you owe, and the lender will pay you the difference.

Collateral: An asset that a lender will accept as security for the repayment of a loan such as real estate.
Commercial Banking: A traditional financial institution that accepts deposits, offers various banking accounts, and makes loans. Typically, getting a loan from a commercial bank is a longer, more complex, sometimes difficult process with far more “red tape” than an alternative lender.

Commercial Property Loans: A loan used for commercial property instead of residential use. Commercial loans can cover a variety of uses such as recreational facilities, shopping centers, restaurants, office buildings, etc.

Commercial Use/Space: A property with no residential component that is only used for a business.

Condo/Townhouse: A individually owned residential unit in a complex or building of units.

Construction Loans: Short-term loans used to finance the construction of, building of, or renovation of a residential or commercial real estate project, and could include construction-to-permanent loans, construction-only loans, renovations, owner-builder loans, or others.

Construction Type: Refers to the way the real estate project is built and the intended outcomes for the construction project including residential, industrial, commercial, and other types of building construction.

Conventional Loan/ Lender: see traditional loan/lender

Credit Score (Credit Check): A credit score is a numerical rating based on a person’s credit files that indicate to lenders their capacity to repay a loan. A credit check will determine someone’s creditworthiness based on their assigned credit score.
Cross-Collateralize: A lending technique in which collateral for one loan is also used as collateral for another loan.

Default: The failure, for longer than 30 days, to meet the legal obligations of a loan.

Distressed Properties: Properties that are in poor condition, are near foreclosure, or are already owned by the bank.

Draw Schedule: A detailed payment plan for construction projects. This schedule helps hard money lenders determine when they need to provide funding to borrowers based on the work completed.

Due Diligence: A common investigation, audit, or review that aims to confirm all facts of a potential investment.

Equity: The ownership of any asset after liabilities are cleared. For example, if you have a loan for $100,000 but still owe $40,000, the equity on that loan would be $60,000.

Escrow Account: An account run by a third party that disburses payments based on the loan agreement. The money is typically used to cover property taxes and homeowner’s insurance.

Exit Strategy: The plan or goal regarding how the borrower plans to pay off the loan and reduce liability, the process for how to exit one situation for a better one – example: a best-case scenario, backup, and “last-ditch” plans.

Fix-and-Flip: When an investor purchases, remodels, and resells a property at an increased value than the original purchase price.

Foreclosure: The process through which the lender legally takes control of the property due to the borrower missing or defaulting on loan payments.

Foreign National: An international investor from another country who owns property or invests in real estate in the United States.

Guarantor: The person who promises to pay a borrower’s debt if the borrower defaults on their loan.

Hard Costs: Direct costs relating to the construction or improvement of a building or structure.

Hard Money: A hard money loan is funding from a private, non-traditional lender, often used for real estate properties or investment projects.

Hard Money Loan: Also called a private equity loan or a private money loan, a hard money loan is a specific type of asset-based loan financing – typically through an alternative lender – through which a borrower receives funds secured by real estate property.

Holdback: The portion of a hard money loan that is not paid until the project reaches a certain stage, such as completion of the framing.

Holding Costs: Costs associated with owning a property for a period of time including insurance, taxes, and utilities.

Homestead: A property that is typically used as a primary residence.

HUD-1: A form that lists all the transaction cash flows between the property’s buyer, seller, and lender.

Income-Producing Property: A real estate investment of a commercial or residential property that someone owns in order to make an income.

Industrial/Warehouse: Industrial and warehouse spaces are investment properties used to manufacture goods and/or store goods.

Interest Rate: A percentage of the principal loan amount charged by the lender for use of money. Can be fixed or variable depending on a variety of factors.

International Investor: See Foreign National.

Investment Property: A real estate property or piece of land used to generate income.

Investment Rehab: When investors purchase a property, complete renovations, and then sell it for a profit, investment rehab loans combine multiple funds for investment properties into one single loan.

Lease Assignment: An agreement between the commercial property owner and the lender that assigns lease payments directly to the lender.

Lien: A legal form filed by a lender showing possession of property belonging to a borrower until the debt is paid off.

Liquidity: How quickly an individual or firm can purchase or sell a property due to having cash on hand.

Loan: A loan is a sum of money borrowed that is expected to be paid back with interest.

Loan Limit: The total amount of money that someone can borrow.

Loan Officer: Person who evaluates, authorizes, or recommends the approval of loan applications.

Loan Points: An origination fee; one point is equal to one percent of the loan’s principal amount. Two points on a $100,000 loan would be $2,000. Most private money/hard money loans fall between 2 and 5 points.

Loan Term: The terms and conditions when borrowing money.

Loan Type: The kind of loan a borrower takes out from a lender.

Loan to Cost (LTC) Ratio: Compares the financing amount of a commercial real estate project to its costs, calculated by taking the loan amount and dividing it by the construction cost.

Loan-to-Value (LTV) Ratio: Compares the proposed loan amount to the appraised value of the completed project. (Essentially, the loan amount is divided by the appraised value).

Maturity: The date the final payment of a loan is due.

Medical Office/Condo: A commercial establishment with several medical offices or a shared suite where multiple medical practitioners of various disciplines meet with patients.

Mixed-Use Property: A commercial real estate property that blends and includes both commercial and residential spaces.

Mortgage: An official agreement between a borrower and a lender, typically used to buy a piece of real estate, for which that property then serves as collateral.
Mortgage Broker: An independent contractor who brings borrowers and lenders together but does not use their own funds to produce a loan.

Multi-Family Rentals: Buildings in a complex that contains various residential units that house multiple families at a time.

Net-Operating-Income (NOI): A formula used in real estate to analyze the profitability of income-producing real estate projects. NOI is all revenue from the property minus all necessary operating expenses.

Non-Conventional Loan: Loans that are designed to help individuals that require a low or no down payment. Non-Conventional loans are best for people who have low credit scores or a history of bankruptcy.

Non-Homestead: Any property that is not a primary homestead, such as second homes, residential and commercial properties, raw land, and multi-use properties.

Non-QM Loan: A non-qualified mortgage loan (Non-QM) is a type of loan that is not required to meet agency requirements as outlined by the Consumer Financial Protection Bureau.

Office: a building or property investment type in which the functions of business are performed that holds a set of rooms for commercial or professional purposes.

Owner-Occupied: a property type where the owner lives in the house, apartment, or property they own.

Points (Loan Discount Points): points are essentially lender “credits” that let borrowers make tradeoffs in how a mortgage and closing costs are paid for.

Primary Residence: Also known as a principal residence, this property type is essentially the main home of a borrower, whether it’s a house, condo, or townhome.

Principal: The primary amount of money lent that is put towards a real estate investment; essentially the money that the borrower originally agreed to pay back.

Private Lenders: Individuals or companies that lend money to real estate investors, individuals, business owners, and developers but are not tied to any traditional bank or credit union.

Private Real Estate Loan: An alternative loan – typically a hard money loan – financed through a private source of funds rather than a traditional lender or conventional bank.

Proof of Funds: A document or bank statement proving that a person has the necessary financial ability to purchase a property or perform an investment transaction.

Real Estate Broker: Someone who acts as an intermediary to facilitate real estate transactions by gathering important information from the borrower such as income, employment documentation, and credit reports to assess how much the borrower can afford.

Real Estate Investor: Someone who purchases, renovates, and invests in properties and real estate projects with the goal of making a profit, either through rehabbing, renting, or reselling.

Real Property: Fixed property, usually buildings, businesses, or land.

Refinance: Replacing an old loan with a new one where the borrower can take advantage of a lower interest rate or more favorable terms, but can also refinance when an old loan becomes due.

Rehab Loan: A rehab loan that allows a borrower to purchase or refinance a property and combines that with the costs of home renovation into the form of a loan.

Redevelopment: The construction or renovation of new buildings added to previously occupied land or renovations to existing land or structures, especially in urban areas.

Retail Property: Property used for selling goods or services to the general public.

Return On Investment (ROI): ROI is a measurement that analyzes the profitability that one has made from an investment.

Scope of Work: An outline of all the renovations or work that is scheduled to be completed before a property is built or sold, including the deadlines, dates, details, and estimated costs.

Short Sale: A situation when a seller sells their property for less than they owe on their loan. A bank or lender must approve the sale at a lower price.

Short Term Loan: A limited time loan – typically a year or less time and sometimes weeks or months – used when someone needs capital for investments and typically given with little to no collateral.

Soft Costs: Non-construction-related costs such as legal, financing, architects, etc. that are required to begin or complete the project.

Title: Proof of ownership on a real estate investment property.

Traditional Loan/Lender: Structured loans where a borrower has a fixed interest rate in which they make payments until the loan is paid off, typically secured from a conventional bank.

Turnaround Time: The amount of time from when an investment property is first purchased to when it is finally sold.

Underwriting/Underwriter: the process through which an individual or institution takes on financial risk for a fee. Underwriters assess the degree of risk for a real estate investment loan and verify the borrower’s income, assets, debt, and property details before approving funding.

Whether you need a hard money loan for an income-producing residential property, a commercial property, a fix-and-flip, or more, Community Capital Holdings is well capitalized and well versed in vocabulary, with a team full of experienced, knowledgeable, and nimble professionals who understand Florida’s real estate investment market.

Learn More About Hard Money Loans With Community Capital.