Top 100 Real Estate Loan Terms and Definitions

Private Money Loan Terms

1. Private Money Loan: A Loan funded by private individuals or small groups rather than institutions.
2. Equity-Based Loan: Underwritten primarily on collateral value, not borrower credit.
3. Lien Position: Lender’s priority for repayment in case of default (1st, 2nd, etc.).
4. Promissory Note: Legal contract outlining borrower repayment terms.
5. Deed of Trust: A Security instrument placing a lien on the property in trust for the lender.
6. Loan-to-Value (LTV): Loan amount divided by the property’s value.
7. Loan-to-Cost (LTC): Loan amount divided by total project cost.
8. Funding Fee: A fee paid to the private lender or broker for funding the loan.
9. Extension Fee: Charge for extending the loan past its maturity date.
10. Maturity Date: Date the full loan balance is due.

Bridge Loan Terms

1. Bridge Loan: Short-term financing used until permanent or longer-term funding is secured.
2. Bridge-to-Perm: A bridge loan designed to convert into permanent financing.
3. Interest-Only Bridge Loan: Borrower pays only interest during the loan term.
4. Cross-Collateralization: Using multiple properties as security for one bridge loan.
5. As-Is Value: Current market value of a property without improvements.
6. Stabilized Value: Expected value once the property is leased, repaired, or operational.
7. Exit Strategy: Planned payoff method (sale, refinance, etc.).
8. Carry Cost: Monthly cost of holding the property: loan payment, taxes, insurance, etc.
9. Front-End Underwriting: Fast evaluation focusing on asset value and liquidity.
10. Payoff Letter: Document from the lender outlining the final amount owed at the bridge loan payoff.

Hard Money Loan Terms

1. Hard Money Loan: Asset-based financing with faster approval and higher rates.
2. Hard Money Lender: Private or non-bank entity providing short-term real estate loans.
3. Points: Upfront lender fees, expressed as a percentage of the loan (1 point = 1%).
4. Origination Fee: Lender fee charged for creating the loan.
5. Underwriting Fee: Charge for evaluating the loan application and collateral.
6. Yield Spread: Profit margin created by interest rate differences.
7. Prepayment Penalty: Fee for paying a loan off early.
8. Default Interest: A Higher interest rate is applied when the borrower breaches the loan terms.
9. Foreclosure: Legal process of a lender taking ownership due to nonpayment.
10. Non-Recourse Loan: Lender cannot pursue the borrower personally if the loan defaults.

Fix and Flip Loan Terms

1. Fix & Flip Loan: Short-term loan used to acquire and renovate property for resale.
2. After-Repair Value (ARV): Expected market value once rehab is complete.
3. Rehab Budget: Breakdown of renovation expenses.
4. Draw Schedule: Staged funding releases based on completed rehab milestones.
5. Scope of Work (SOW): Detailed renovation plan, materials, timeline, and costs.
6. Contingency Budget: Extra funds reserved for unforeseen repairs.
7. Cost Overruns: Expenses exceeding the renovation budget.
8. Value-Add Project: Property improvements that increase market value.
9. Hold Time: Length of time investor plans to own the property.
10. Quick Sale Price: Reduced price used for fast disposal in distressed situations.

Commercial Loan Terms

1. Commercial Real Estate (CRE): Property used for business purposes (multi-family, retail, office, etc.).
2. Debt-Service Coverage Ratio (DSCR): Net operating income ÷ debt payments; measures ability to repay.
3. Capitalization Rate (Cap Rate): NOI ÷ property value; measures investment return.
4. Net Operating Income (NOI): Income minus operating expenses, excluding debt service.
5. Operating Expenses: Costs of running a property (maintenance, utilities, management).
6. Triple Net Lease (NNN): Tenant pays taxes, insurance, and maintenance.
7. Gross Lease: Landlord covers most property expenses.
8. Vacancy Rate: Percentage of a property or market area that is unoccupied.
9. Rent Roll: Summary of tenant leases, rents, deposits, and occupancy.
10. Tenant Improvement (TI): Lender or landlord allowances for tenant build-out.

Stated Income Loan Terms

1. Stated-Income Loan: Borrower’s income is stated, not fully documented through tax returns.
2. Bank Statement Loan: Income verified using bank deposits instead of tax filings.
3. DSCR Loan (Investment): Qualification based on rental income covering loan payments.
4. No-Ratio Loan: No income disclosed; emphasis on credit and down payment.
5. Alternative Documentation (Alt-Doc): Nontraditional proof of income for loan approval.
6. 1099 Borrower Program: A Loan program using 1099 forms for income validation.
7. Self-Employed Borrower: Borrower owning a business or freelancing.
8. P&L Only Loan: Income verified through accountant-prepared profit & loss statement.
9. Seasoning Requirement: Required time borrower must hold funds or property title.
10. Employment Verification: Confirmation of job or business activity, minimal in stated-income programs.

General Lending and Credit Terms

1. Credit Score: Numerical rating of borrower risk.
2. Debt-to-Income Ratio (DTI): Monthly debt divided by gross monthly income.
3. Reserves: Cash or assets needed post-closing to cover multiple months of mortgage payments.
4. Liquidity: Available cash or easily converted assets.
5. Appraisal: Professional valuation of a property.
6. BPO (Broker Price Opinion): Less detailed valuation performed by a broker.
7. Title Insurance: Protects against title defects or ownership disputes.
8. Escrow Account: Neutral third party holding funds during transaction.
9. Closing Costs: Fees paid at settlement: title, recording, taxes, lender fees.
10. HUD-1 / Closing Disclosure: Legal form summarizing loan terms and closing charges.

Investment and Project Analysis Terms

1. Return on Investment (ROI): Profit compared to project cost.
2. Cash-on-Cash Return: Annual cash flow ÷ cash invested.
3. Internal Rate of Return (IRR): Annualized return accounting for the time value of money.
4. Equity: Property value minus debt.
5. Leverage: Using borrowed funds to increase investment potential.
6. Exit Cap Rate: Cap rate used when estimating property resale price.
7. Sensitivity Analysis: Testing financial outcomes under different assumptions.
8. Pro Forma: Financial forecast based on projected income and expenses.
9. Capital Stack: Breakdown of all financing sources: debt, mezzanine, equity.
10. Stabilization Period:  Time required for the property to reach full occupancy/income.

Legal and Compliance Terms

1. Due Diligence: Investigation before purchase or lending.
2. Title Search: Review of ownership history and liens.
3. Lien: Legal claim on property securing repayment.
4. Subordination Agreement: Lowers the priority of one lien to another.
5. Right of Redemption: Borrower’s ability to reclaim property after foreclosure (state-specific).
6. Loan Covenants: Obligations borrower must follow (insurance, maintenance, etc.).
7. Personal Guarantee: Borrower is personally liable for the loan.
8. Environmental Report (Phase I): A Study revealing environmental risks on a property.
9. Zoning Compliance: Verification that property use aligns with zoning laws.
10. Mechanic’s Lien: Contractor’s claim for unpaid labor or materials.

Loan Structure and Payment Terms

1. Balloon Payment: Large payoff required at the end of the loan.
2. Amortization: Schedule of loan payoff over time.
3. Fixed Rate: An Interest rate that stays the same for the entire loan.
4. Variable Rate: Rate changes based on index or lender terms.
5. ARM (Adjustable Rate Mortgage): A Loan with periodically adjusting rates.
6. Interest Reserve: Funds set aside to cover loan payments during construction.
7. Recasting: Restructuring loan payments using the new principal balance.
8. Acceleration Clause: Allows the lender to demand full payment after default.
9. Substitution of Collateral: Replacing one collateral property with another (lender-approved).
10. Par Rate: Interest rate where no discount points or premium points apply.