Blanket Loan
Also known as a blanket mortgage, this type of loan covers more than one parcel of property. Usually, individual parcels are released or partially released from the blanket loan / mortgage as the debt is paid off.
Hard Money Tip Of The Month
Foreclosure
Obtaining a Hard money loan can prevent a foreclosure. These loans are
the type that bring out the best and the worst in hard money
lenders. If you are facing foreclosure on a property (either one that
you own or one that you want to purchase before it forecloses) hard
money lenders may be your only
resource for sufficient cash in a timely manner.
A mortgage loan in which the principal, in addition to the interest payment is paid via periodic installments during the loan's term.
Anticipation
Paying the amount one owes before it is due. Although this can result in a savings on interest charges, it can result. a Prepayment Penalty.
Appraisal
An expert's opinion of a property's market value. This term can also refer to the process by which this opinion of value is obtained.
Assignment
The written transfer of an interest in a lease or mortgage. The lessee (assignor) transfers the remainder of the term and the assignee becomes liable to the original lessor for the rent. Based on the terms of the original contract or assignment, the assignor may retain secondary liability for payments on the lease.
Blanket Loan
Also known as a blanket mortgage, this type of loan covers more than one parcel of property. Usually, individual parcels are released or partially released from the blanket loan / mortgage as the debt is paid off.
Bridge Loan
Bridge loans are loans intended to be used for a short period of time between the initial requirement for funds and a permanent, usually less costly, financial solution. Bridge loans are typically funded by collateralized real estate. There are typically very few limitations on the uses of funds for a bridge loan, although lenders will review the use to insure that payback can be met.
Broker
A broker is an intermediary who negotiates rates, handles paperwork, forms & legal items and serves the borrower.
Brokers in hard money generally take between 1 and 4 'points' off the loan's total value in exchange for their services, although some brokers will instead charge a flat rate.
Capitalization Rate
The interest rate that is thought to be an acceptable return on an investment.
Closing
The process of finalizing the sale of property that includes the transfer of title from the seller to the buyer. All requirements, such as mortgages, are signed or delivered.
Collateral
A security for the repayment of a loan. In the case of real estate, a piece of property is collateral to ensure the borrower's ability to repay what is owed.
Commercial Conduit Lenders
Conduit lenders are relatively new to the lending industry. These conglomerates attempt to pool assets from different types and classes and sell them to other lenders or investors, thus creating an intermediary to achieve massive funding based on the equity in an entire estate or large group of unique collateral. Hedging in the secondary market helps to mitigate the risk assumed by these lenders, thus driving down the rates and making conduit lending a competitive alternative.
Commercial Lender
Commercial lenders offer a variety of mortgage-backed loans for commercial property. Each commercial lender sets economic, demographic and geographic criteria.
Commercial Raw Land Loans
Of note: Avatar Financial CANNOT lend on raw land, however, here are some criteria to think about if you have a hard money deal on raw land.
Hard money loans for raw land are a little different than obtaining hard money for improved real estate. Raw land can be collateralized at a rate of about 50% LTV (loan to value). Improved commercial properties command 65% or even 70% LTV loans in some instances. When determining "value" in "loan to value", for either type of property – improved or raw land, the following rules apply:
Purchase of a property: ‘value’ = the purchase price of the property
Refinance of a property: ‘value’ = the purchase price of the property until the property has been owned for at least one year or significant capital improvements have been added to the property
Refinance after 1 year: ‘value’ = value per a written real estate (not business) appraisal of the property
Hard money loans for raw land are commercial loans. Rates and points range from 10% to more than double that figure, depending on the lender and the property assets. The most advantageous raw land is an urban or suburban lot with clear building or usage prospects. Proceeds from raw land loans can be used to develop the land or any other business purpose, including the purchase of additional land.
If you are purchasing raw land and require a hard money loan to do so, expect to be able to collateralize a subject property with reasonable prospects at 50% LTV. If you require more cash to make the purchase, consider collateralizing additional raw land or improved real estate properties to make up the shortfall. Hard money lenders will want you to have at least 20% equity in the project in order to fund your loan. Collateralizing additional real estate can often satisfy this requirement.
Default
The failure, for whatever reason, to make a payment or fulfill a commitment.
Down payment
A borrower pays this amount at the time a loan is closed. The down payment is a percentage of the value of what a loan is going towards, and this amount is deducted from the amount of the loan.
Due Dilligence
The process of investigating the condition and legal status of assets.
Equity
The difference between the market value of a property and the claims held against it.
Estoppel Certificate
A legal clause that can be taken out by a mortgage borrower. The certificate verifies the major points of an existing lease between a landlord & tenant.
Fed Rate
The overnight lending rate between banks as set by the United States' Federal Reserve Bank.
The overnight lending rate influences the interest charged by banks to lend to one another and is used by the Federal Reserve to regulate inflation during economic growth (by raising the rate) and encourage investment during recession (by lowering the rate).
Fixed Installment
The regular payments (usually monthly) due on a mortgage loan. This includes payment of both principal and interest.
Foreclosure
A legal term referring to the failure of a mortgagee to pay the amounts specified in the terms of the mortgage contract. In foreclosure, legal proceedings often determine that the lender on the property gains control of it, barring a 'foreclosure sale'.
GSE Lenders
GSE - Government Sponsored Enterprises.
These are lenders who focus exclusively on properties backed by government programs. These can include multi-family properties, senior citizen properties, etc.
Guarantor
A person who pledges collateral for the contract of another or who guarantees the performance of another.
Hard Money
Real estate is the primary collateralized asset for a hard money loan. Hard money refers specifically to the asset used to guarantee repayment. In the event of a default, hard money is repaid by the borrower with the collateralized property.
Hard Money Lender
A lender who offers loan funding based on real estate as the primary collateral asset.
Hard Money Loan
A Hard Money Loan is a loan in which real estate serves as the collateral asset.
Hypothecate
To give property as security without relinquishing ownership of said property. A mortgage is a good example of a hypothecation.
Income Property
Property which produces income from rentals and profits.
Letter of Intent
A non-binding agreement between parties involved in a contract to move forward with negotiations or complete a project.
LIBOR
The BBA LIBOR is the most widely used benchmark or reference rate for short term interest rates. LIBOR stands for the London Interbank Offered Rate and is the rate of interest at which banks borrow funds from other banks, in marketable size, in the London interbank market.
Lien
A charge upon property for the satisfaction or discharge of a debt.
Loan Origination Fee
A loan origination fee is the free charged by a broker for the broker's expertise in knowing which lender is likely to fund your loan and, in some instances, assisting you to prepare the documents required to close the loan efficiently.
Loan Originator
A loan originator is a broker who charges the service of locating borrowers and putting them together with an appropriate lender. The broker's (aka loan originator) fees are charged to the borrower at the time of closing in the form of points on the loan. Usual and customary fees for a loan originator is 1-3 points.
Loan to Value Ratio
Shown as a percentage, this is the relationship between the mortgage loan and the appraised value of the property.
LTV - Loan to Value
The ratio of a loan amount against the value of the property being used as collateral. A property valued at $100,000 with a loan request against the asset of $50,000 would have a loan-to-value ratio of 50%.
Market Price
Tha actual selling price of the property or land involved in a deal.
Market Value
The written, estimated value obtained by factoring in location, assets, demand & supply. Estimates for market value are typically provided by a licensed appraiser for hard money deals.
Marketable Title
Also known as a merchantable title, this is a title that is free from liens. It enables an owner to sell property freely and without complication.
Mortgage
A legal document that pledges a property to the lender as security for payment of a debt.
Net Worth
Assets minus liabilities of a company or individual. Here, assets include cash. Also referred to as shareholders' equity.
Non-Conforming Loan
A non-conforming loan refers to a type of loan that does not meet bank standards for funding.
Reasons can be as diverse as lack of sufficient credit to the unorthodox nature of the use of funds or the collateral backing it. In many cases, non-conforming loans can be funded by hard money lenders like Avatar Financial.
The flexibility of private money (of which hard money is a niche market) can allow for a much wider range of projects to be funded, although additional collateral and documentation may be required by the lender.
Notary Public
A public officer who is authorized by the state government through a certification process to witness and verify certain documents (i.e., contracts, deeds, mortgages). Official affidavits may be sworn before a notary public.
Origination Fee
A fee that a lender charges to perform credit checks, put together loan documents and inspect property.
Prepayment Penalty
A charge, usually given as a percentage, that is listed in the terms of a loan. Pre-payment fees are common in lending because without them, the lender does not make the return on investment that was anticipated from interest payments.
Principal
The amount borrowed or remaining unpaid. The part of the monthly payment that reduces the remaining balance of a mortgage.
Principal Balance
The outstanding balance of principal on a mortgage not including interest or any other charges.
Promissory Note
Signed by the borrower, this legally binding document promises repayment of the loan, listing, among other things, the terms of how the loan must be repayed and when it must be repayed by.
Raw Land
Land that has had no man-made improvements or alterations made to it. Man-made alterations include all structures, such as sewers and streets, as well as buildings.
REIT
REIT - Real Estate Investment Trust. Many hard money lenders are formed as a REIT, with either private individual investors or institutions funding the loans the company makes.
SBA
The Small Business Administration, managing financial, legal and business issues for small business in America. The SBA is a government organization under federal authority. For more information, visit their site - www.sba.com.
Title
The ownership rights.
Valuation
Estimated price or value for a property. Officially this can be given only by a licensed appraiser.
Zoning Ordinance
A law by local or regional authority (government) that sets parameters for the uses of a property.
Financial Terms