Definitions
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3-Day Rescission Period
Applies to consumer-purpose residential refinance transactions. After the borrower signs loan documents, there is a mandatory 3-day rescission period, when they can legally cancel the loan. At the conclusion of this period, the loan can fund, record, and disburse.
10-Year Treasury Note
The 10-year Treasury yield is a significant benchmark for tracking the movement of interest rates. A rise in the 10-year yield leads to an increase in borrowing rates, including mortgage rates. Conversely, a decrease in the 10-year yield results in a drop in mortgage rates, which can strengthen the housing market, contributing positively to economic growth. The "10-Year" is one of several factors like unemployment rates, inflation rates, and current housing conditions that can also impact mortgage rates.
11th District Cost of Funds Index
The 11th District Cost of Funds Index (COFI) is a monthly metric that calculates the weighted average of the interest rates paid on checking and savings accounts by financial institutions operating within Arizona, California, and Nevada. (This doesn't apply to hard money loans, but mortgage pros remember the "COFI" being a staple of loans with the World Savings Bank.)
401K Plan (Self-Directed)
A self-directed 401(k) is a type of employer-sponsored retirement savings plan that enables employees to have greater control over their investment choices. It's similar to a traditional 401(k) plan, but it allows for a wider range of investment options. FCTD works both with borrowers who use their self-directed 401(k) plans to acquire investment properties and with trust deed investors who lend money from their self-directed 401K plan.
5/1 Adjustable Rate Mortgage (ARM)
A 5/1 ARM is a common type of adjustable-rate mortgage that adjusts its rate periodically, starting after the 5th year. The "5" refers to the 5-year fixed period of the loan, and the "1" refers to how many times in a year – once – that the interest rate can adjust starting in year six.
1003
The standard residential mortgage application – Form 1003.
1008
The transmittal summary submitted with Application (1003). The 1008 has all the ratios like Loan-To-Value (LTV), Combined Loan-To-Value (CLTV), and Debt-To-Income (DTI).
1031 Exchange
An investing tool that allows an investor to swap an investment property for another, deferring capital gains tax that would otherwise need to be paid from the sale.
A
A/B Lender Structure
Hard money loans will occasionally have an A/B structure, where two or more trust deed investors will receive different rates of return based upon their risk level. For example, a $1 million hard money loan with a 10.00% note rate secured by a $1.5 million property has two trust deed investors: A and B.
- A funds $750,000 (50% LTV) at 8.00%.
- B funds $750,001 to $1 million (66.67% LTV), yielding 16.00%.
In the event of a default, B may have an agreement to buy out A's entire $750,000 position. Or, B will agree to manage and pay all legal fees associated with the defaulted loan.
Ability-to-Repay Rule (ATR)
Applies to most residential mortgage loans. The lender must assess the borrower's ability to successfully make payments using income, assets, employment, credit, and monthly debt payments.
(Business purpose loans don't need to comply with ATR).
Acceleration Clause or Acceleration Covenant
Part of the loan agreement, acceleration clauses or covenants are mostly seen on first trust deeds with a due-on-sale clause or prohibition of a junior lien.
Addendum
An agreement attached to a real estate contract.
Additional Collateral
The second, third, fourth, etc. properties in a cross-collateralized blanket loan, or multi-property loan. The subject property is the primary collateral while the additional collateral is used to give the lender protective equity for the loan.
Adjustable Rate Mortgage (ARM)
A mortgage with a fixed interest rate for a set period (ex. 5 years) followed by a variable interest rate over the next 25 years of the loan. Some hard money loans will have a stair-stepped interest rate where Year 1 will have an interest rate of 8.99% and Year 2 will be 9.99%.
Adjusted Gross Income (AGI)
The income that the IRS uses to calculate income tax liability.
After Repair Value (ARV)
A valuation metric commonly used for fix & flip loans, where the property will be significantly improved leading to an increase in value. A lender will order an appraisal with both AS-IS value and After Repair Value (ARV) to determine the loan amount and rehab amount to be financed.
Allocated Loan Amount
The portion of the principal amount of a cross-collateral blanket loan that is associated with
each individual property in the portfolio.
For example: A $1 million blanket loan secured by 10 properties may allocate $100,000 of
principal balance to each property.
Amortization Schedule
A loan with a level payment over the term, with most of the monthly payments going toward interest and a small amount applied to the principal at the beginning of the loan. The bank is paid their interest first, and the homeowner's principal is second.
Annual Percentage Rate (APR)
The cost of credit expressed as a percentage. Ex: a 12-month bridge loan with a 9.00% interest rate with a cost of 2.5 points may have an APR of 13.43%.
Appraisal
Real estate valuation to determine fair market value, future value, etc.
Appraisal Management Company (AMC)
Third-party provider where lenders place orders for appraisals. Most conventional loans require lenders to order through an AMC, while many hard money and private money loans do not.
Arm's Length Transaction
A transaction where buyers and sellers act independently.
Articles of Incorporation (Corporation)
When setting up a new corporation, the incorporator will submit Articles of Incorporation to the state where they'll be registering the company.
Articles of Organization (LLC)
Limited liability companies file Articles of Organization for the new entity.
Assemblage
A purchase of two or more parcels by one property owner.
Assessed Value
The value of the property as determined by the tax authority, usually where the property is located.
Asset-Based Lending
Hard money loans are considered asset-based loans, where the loan amount is determined solely by the value of the real property.
Asset Depletion Loan
A conventional mortgage type for borrowers who have significant liquid assets but minimal personal income taxes. In asset depletion loans, a lender will qualify a borrower using their total liquid assets divided by 360 (months) to determine their monthly income.
Ex: $5 million assets/360 months = $13,888/mo gross income
Assets Under Management (AUM)
A term used in hard money and private money lending meaning the amount of a mortgage fund. A mortgage fund or family office will use it in the context of "Our fund has $250 million AUM," meaning the mortgage fund is $250 million.
AS-IS Value
The current valuation of the property as it is today.
Assignment
A wholesaler may write a purchase contract as, "ABC Co. and/or Assigns." This allows the buyer to assign the contract to another buyer. On the lender side, a lender may assign the mortgage to another individual or entity if they sell their interest in the debt to another lender.
Assumable Mortgage
A mortgage where the borrower can assign their position to another person. On the residential side, portfolio lenders will allow a mortgage to be assumed after the lender underwrites the new borrower assuming the loan. In commercial loans, it's common to see multi-family loans on apartment buildings be assumed, especially if the underlying mortgage has a 2.50% to 3.50% interest rate when market conditions are closer to 7.00%.
Auction Sale
The offering of real property for sale to the highest bidder, often occurring in a declining market
with limited offer(s) that are much lower than the seller expected.
Auto Mall
A group of retail stores clustered together involved in sales, service, repair, and/or parts for
automobiles.
Auto Repair
Commercially zoned single and/or multi-tenant buildings featuring service and work bays for
auto repair and auto care services.
Average Annual Return (AAR)
Mortgage funds will advertise their AAR.
B
Bad Credit
Not paying bills on time, making it difficult to obtain financing, including a hard money loan.
Bailout Loan
Refinancing a property to bail out the borrower from bankruptcy or foreclosure.
Balloon Loan
A loan where the balance is due in full within months or a few short years. Hard money loans are often considered 12-month balloon loans.
Balloon Payment
The balloon loan has a final payment, the balloon payment, which is one monthly payment plus the unpaid balance.
Ex: $1 million Loan | 12.00% Rate | $10,000/mo payment for 11 months
Balloon Payment on Month 12 is $1,000,000 + $10,000 = $1,010,000
Bank Statement Loans
Borrowers qualify for a mortgage using the revenue from bank statements (rather than a W2), pay stubs and tax returns. Commonly used by self-employed borrowers whose gross deposits on their bank statements are much higher than their Adjusted Gross Income (AGI).
Bankruptcy
Legal proceedings filed by a debtor to eliminate or restructure their debts.
Bankruptcy Sale
Sale of property that must be liquidated when the owner declares bankruptcy, often ordered by
the bankruptcy court.
Basis Point (BPS)
A measure for interest rates and other finance percentages. One basis point is one-hundredth of a percentage point.
Ex: 50 BPS is 0.50%.
Beneficiary
A person or entity designated to receive the benefits of the property, retirement account, or a deed of trust. In hard money lending, an individual trust deed investor who funded a loan is often called a "private beneficiary."
Big Box Store
A large stand-alone store that specializes in a single line of products, such as home
improvement (Lowe’s and Home Depot), electronics (Best Buy), or office supplies (Staples and
Office Depot).
Blanket Loan
A mortgage encumbering more than one property.
Blended Rate
When there are two mortgages on a property, the blended rate is the effective rate of both loans.
Ex:
1st: $400,000. | 7.50%
2nd: $100,000 | 11.00%
Blended Rate: 8.20%
Borrower Paid Pricing
Conventional and conforming loans have two pricing structures: borrower paid and lender paid. Mortgage Loan Originators (MLO) can offer a borrower both pricing options. For example, during the pandemic, FCTD originated 30-year fixed-rate loans for some investors on their primary residences. The borrower paid pricing was 1% origination fee for a 2.25% rate. Lender-paid pricing was 0% origination fee for a 2.75% rate. All FCTD's clients took the 2.25% rate because of the payment savings over 30 years.
Bridge Loan
Short-term loan used by real estate investors while renovating a property or before securing long-term financing.
Broker Price Opinion (BPO)
Lenders may order a BPO, performed by a real estate agent, to value a property. With BPOs, the agent may get photos of the interior or the property.
Budget
The cost of renovating a property.
Business Purpose Loan
A loan for investment purposes – rental property, ground-up construction on a spec home, or to fix and flip a house.
Business Value Included
A transaction in which the buyer purchases both the real estate and the business. Mortgage
lenders will evaluate the real estate value. Small Business Administration (SBA) lenders can
lend against both the real estate and business.
Buyer's Market
Supply and demand conditions that favor buyers, who have an advantage over sellers in price negotiations.
Bylaws (Corporation)
Corporations will have bylaws that specify the owners, their percentage of ownership, number of outstanding shares, signing authority, and other details.
C
Capital Expenditures
Includes structural improvements, leasing commissions, and tenant improvements (TIs).
Capitalization Rate (Cap Rate)
The capitalization rate, commonly referred to as the cap rate, is a metric used in commercial real estate to signify the anticipated rate of return on a real estate investment property. It's calculated by dividing the Net Operating Income (NOI) by the property's asset value. Essentially, the cap rate conveys the yield of a property over a one-year period, assuming the property is acquired in cash without relying on financing.
Cash-On-Cash Return
Calculates the cash income generated from cash invested. Ex: $100,000 of cash that went into a fix-and-flip project (+ $500,000 hard money loan) generated a profit of $50,000, or a 50% cash-on-cash return.
Cash-Out Refinance
Taking out a new mortgage to pull equity from a property.
Certificate of Occupancy
Issued by the local municipality when construction or improvements (whole buildings or TI's) have been completed.
CMBS – Commercial Mortgage-Backed Security
A mortgage on a commercial property issued by a bank or non-bank lender. After origination, the loan is sold to an investment bank, which places the loan, along with many other similar loans, into a fixed-income investment product sold to multiple investors like insurance companies and pension funds.
Combined Loan-To-Value (CLTV Ratio)
The ratio of all mortgages on a property to the value of the property, commonly seen in situations where there are two or three mortgages.
Commercial Mortgage
An institutional loan on a commercial property.
Comparative Market Analysis (CMA)
Real estate agents may do a CMA for their clients to give a value of their property or a property they’re interested in purchasing.
Condominium
A multi-unit structure (residential, industrial, office, or retail), with owners of single or multiple units sharing joint ownership of commonly used property (land areas, recreational facilities, garages, parking areas, sidewalks, hallways, stairs, lobbies, etc.)
Condominium Conversion
Transforming the use or ownership of property (generally income-producing real estate such as apartments) into condominiums. Conversion may involve remodeling or partitioning and relocating tenants who don’t choose to buy their units.
Conforming Loan
A mortgage that conforms to Fannie Mae or Freddie Mac guidelines and will ultimately be sold to Fannie or Freddie. Most common to see a 30-year fixed conforming loan.
Consumer Purpose Loan
A mortgage against a consumer’s primary residence or second home. Can also be against an investment property if the funds are used for consumer purposes like paying off personal credit cards, personal tax liens, or a vacation.
Construction Loan
Financing to build or renovate a property.
Convenience Store
Known as a C-store. Located in gas stations, strip malls, or stand-alone locations.
Conventional Mortgage
Mortgage funded by a bank or lender that isn’t necessarily a conforming loan. Some examples are jumbo mortgages or a portfolio mortgage from a bank that stays on the books rather than being sold off to investors in the secondary market.
Cooperative or Co-Op
Members of a cooperative or co-op buy shares of stock in the corporation that owns the apartment building(s) and grounds on which they are located. Shares are assigned to each apartment, with the number of shares generally based upon the unit size, with larger units having more shares.
Corporate Housing (Multi-Family)
Fully furnished, short-term lease apartments which companies have contracted for temporary housing.
Corporation
Real estate investors may have a corporation that holds their real estate assets.
Cost Basis
The original price plus improvements to a property for tax purposes.
Court Appointed Sale
An involuntary sale forced by a court action to dispose of property and/or maintain it. Most common examples are bankruptcy and receivership.
Credit Bureaus
There are three primary consumer credit bureaus: Equifax, Experian, and TransUnion. They collect consumer credit information and provide a credit score between 300 and 850.
Credit Rating
Quantifies one’s creditworthiness. The better the credit rating, the more likely a person or entity will be approved for financing.
Credit Report
The details of a consumer’s credit history from the three consumer credit bureaus. Credit reports are used by hard money lenders to evaluate one’s payment history.
Credit Risk
The risk a lender faces when one or many borrowers default. The 2007-2009 Great Recession was an example of credit risk when over six million homeowners defaulted on their mortgages and lost their homes to foreclosure. Several million additional mortgages went into default and were paid off as short sales (houses sold for less than the mortgage balance) or the lenders modified the terms of the loans to mitigate further defaults.
Credit Score
Determined by the credit history – number of open and closed accounts, duration of open accounts, on-time and delinquent payments, etc.
Cross-Collateralized Loan
Another way of saying blanket loan. A cross-collateralized loan is one mortgage that encumbers two or more properties.
D
Data Center
An industrial warehouse designed for data storage and managing the flow of information. In Central Oregon, many technology companies own data centers due to the low, stable cost of electricity generated by the dams on the Columbia and Snake rivers.
Debt Assumption
A buyer purchases an indebted property and accepts liability for the existing debt. Many commercial loans have debt assumption provisions that allow the building to be sold with the existing debt remaining in place.
Debt Consolidation Loan
Refinances a mortgage to consolidate other debts into one new loan.
Debt Fund
A debt fund is an investment pool that promises investors a fixed return on their money. Many private money lenders are debt funds.
Debt Service Coverage Ratio (DSCR)
DSCR measures the cash flow available to pay debt obligations.
Debt-to-Income Ratio (DTI)
The debt ratio is the percentage of gross income that goes to paying monthly debt payments.
Debt Yield Ratio
DYR is a measure of the property's ability to cover its debt payments based on its net operating income. Debt Yield Ratio = NOI/Total Loan Amount
Deed
A legal document that transfers ownership to a new owner.
Deed in Lieu of Foreclosure (DIL)
A property owner with a mortgage may sign the property back to the lender, in a transaction known as a deed in lieu. If a property has junior liens, those secured debts will need to be negotiated before the lender doing the DIL can record.
Deed of Reconveyance
Issued to borrowers and recorded on title in the county where the property is located when a mortgage has been paid off.
Deed of Release
A document that removes a previous claim against a property. This releases the party from the obligation.
Default
Failure to comply with the terms and conditions of a loan. A loan is considered in default when the payment is 30 days delinquent or past due.
Default Fees
If a borrower is delinquent on their monthly payment, they may have to pay default fees, which are commonly 10% of the monthly payment.
Default Interest Rate
Hard money loans may have a default interest rate that goes into effect after a borrower is delinquent for a certain number of days.
Delinquency
A loan payment that is at least 30 days past due. Usually when the loan is more than 90 days delinquent, the lender has the right to begin foreclosure proceedings.
Deleveraging
When a company or person attempts to reduce their debts.
Distress Sale
A property sold due to circumstances outside the control of the owner, such as a pending foreclosure, bankruptcy, or death, resulting in a below-market sale price.
Distressed Real Estate
A property that is in default, usually on the mortgage, or if the owner is delinquent on property taxes or has incurred significant charges for code violations.
Document Number
The reference number that corresponds to the grant deed, warranty deed or conveying instrument at a county recorder's office.
Double Escrow
A property sale from Party A to Party B, who simultaneously places the property in escrow to Party C. Typically the buyer, under a sale agreement, arranges to sell the property to another for a profit before the first deal is complete. The second transaction then closes immediately upon completion of the first deal. Party B typically never even takes possession of the property. It’s common to see double escrows where a wholesaler ties up a property and sells it to a house flipper.
Down Payment
The amount of a borrower’s capital used to acquire a property.
Downside Risk
Investors calculate downside risk. Borrowers will calculate what can go wrong with the property while lenders will underwrite loans calculating the worst-case scenario if the borrower defaults and the lender has to initiate foreclosure proceedings.
Draw Schedule
A payment schedule for construction or fix & flip loans. The value of work completed is used to determine when the lender will disburse funds to the borrower.
Due Diligence
Investor analysis prior to the transaction.
Dutch Interest
Commonly used in a construction loan, the lender charges interest only on funds the borrower draws to cover construction costs. Ex: $1 million construction loan at 10.00% would have a full payment of $8,333/mo. However, at origination, the lender issues only $200,000 to the borrower. The borrower’s “Dutch Interest” monthly payment is $1,667/mo.
E
Earnest Money Deposit (EMD)
A deposit the buyer makes to the seller representing their commitment to complete the transaction. EMD gives the buyer a specified amount of time to conduct due diligence and obtain financing.
Effective Gross Income
This is the total income generated after adding other income, if any, and deducting for vacancy and collection loss.
Effective Rent
The average rent a tenant pays over the term, adjusted downward for concessions paid for by the landlord (such as free rent, moving expenses, or other allowances), and upward for costs that are the responsibility of the tenant (such as operating expense pass-throughs).
Estate Sale (Probate Sale)
The sale of property left in an estate/trust by a deceased person. The seller is the executor of the estate/trust, typically named by the owner(s) of the estate/trust when it was created.
Employer Identification Number (EIN)
Entities such as corporations or limited liability companies will have an EIN, also referred to as a Federal Employer Identification Number (FEIN).
Encumbrance
A claim against the title to a property. A mortgage is a common encumbrance along with leases, liens, and easements.
Entity
A business entity, like a corporation or limited liability company. Real estate investors often hold title to property in an entity.
Equity
The amount of money that a property owner would have if they sold the property, after paying off any mortgages or other liens.
Equity Partner
An equity partner is the person or entity who provides the down payment to acquire a property. It’s common to see a real estate developer team up with an equity partner or investor to obtain the loan for a construction project. The developer works on the real estate while the equity partner provides the liquidity and is paid a return on the use of their capital.
Escrow
A neutral third party that carries out a financial transaction, like a property sale or mortgage, on behalf of the parties involved.
Escrow Account
A type of legal holding account for items that cannot be delivered until a specific action has been completed or fulfilled.
Ex. An Earnest Money Deposit (EMD) may be held in escrow until loan contingencies have been removed. The EMD can then be legally released to the seller.
Exchange (see 1031 Exchange)
Also known as a tax deferred exchange, the Internal Revenue Code Section 1031 provides that no gain or loss will be recognized (taxed) on the exchange of any type of business use or investment property for any other business use or investment property. Buyers and sellers must work with a qualified intermediary who specializes in section 1031 tax deferred exchanges to ensure strict compliance with IRS regulations.
Exchange Accommodator
Also called a qualified intermediary, an independent person or company that holds the proceeds from the sale of the relinquished property and prepares the documents to carry out a 1031 Exchange.
Excess Land
A portion of a site that can be sold off as a separate, legal lot, considered excess by the seller. It may or may not have improvements, will typically have separate access, and will possibly have a different use when sold.
Exercise of Option
Executing a right granted under a real estate agreement in which the buyer had an option to purchase the property and is now exercising that option. The date that the option price was established is important in relation to the date of sale.
Exit Strategy
Hard money lenders always want to know how the borrower will repay the loan, called the exit strategy, which is accomplished through either selling or refinancing the property.
F
Fair Market Value (FMV)
An accurate valuation of the price a property will sell for on the open market.
Family Office
High-net-worth families often have an office that manages their investment portfolio, which can consist of real estate, mortgage lending (trust deed investing), or companies the family owns.
Fannie Mae
The largest buyer of conforming mortgages in the United States. Fannie Mae buys mortgages from lenders and packages them into securities to investors. This gives lenders the ability to make new loans rather than portfolio the mortgages on their balance sheet for thirty years.
Fast Food Restaurant
A restaurant that provides drive-thru and/or walk-up window service and may also have sit-down dining.
Features
A list of additional characteristics of the building.
Fee Simple
Absolute ownership of real property. The owner has the right of disposition without limitation for the duration of their life. After death, the property passes to the owner-designated heirs.
Flex Building
A type of building(s) designed to be versatile, which may be used in combination with office (corporate headquarters), research and development, quasi-retail sales, and including but not limited to industrial, warehouse, and distribution uses. At least half of the rentable area of the building must be used as office space. Flex buildings typically have ceiling heights under 18', with light industrial zoning.
Flex Space
This type of space is only found in flex buildings. It can be used as office, medical, industrial, warehouse, distribution, quasi-retail, or research and development space.
FICO Score
The measure of a consumer’s credit history, including payment history, current debt level, type of credit used, credit length, and new accounts.
First Mortgage
The senior debt on title to a property. First mortgages are paid off first before any other claims on the title.
Fix-and-Flip Loan
A private money or hard money loan used to finance the acquisition and renovation of a fixer-upper property whereby the borrower will sell the property for a profit within a 3-12 month period.
Fixed-Rate Mortgage
A mortgage where the interest rate stays the same for a certain period of time. Ex: A 30-year fixed-rate mortgage has a 6.00% interest rate for all 30 years.
Flex Space
This type of space is only found in flex buildings. It can be used as office, medical, industrial, warehouse, distribution, quasi-retail, or research and development space.
Flex Building
A type of building(s) designed to be versatile, which may be used in combination with office (corporate headquarters), research and development, quasi-retail sales, and including but not limited to industrial, warehouse, and distribution uses. At least half of the rentable area of the building must be used as office space. Flex buildings typically have ceiling heights under 18', with light industrial zoning.
Forbearance
When a borrower and lender agree to temporarily postpone payments on a loan. At the outset of the COVID-19 pandemic, lenders provided borrowers with forbearance plans, allowing relief from debt service requirements when incomes slowed significantly during the shutdown of the economy.
Foreclosure
A legal process where a lender takes possession of a property when the loan is in default and attempts to sell it to recover the amount of their loan.
Foreclosure Auction
Conducted at the county courthouse where lenders put the property from their defaulted loan up for auction, and members of the public can bid to acquire the property.
Freddie Mac
The other government-backed company that buys conforming mortgages from lenders, similar to Fannie Mae.
Front-End Debt Ratio (Front-End DTI)
Front-end DTI is the percentage of housing expenses on the subject property against gross income.
Full Document Loan (Full Docs)
A mortgage where the borrower’s entire financial profile is underwritten. Conforming loans are always "full docs" loans, whereas conventional loans can be full or partial docs.
Full Renovation
A building under full renovation would be completely restored so that the existing space becomes "new" space again.
Fund Manager
A fund manager runs private money lenders that are considered investment pools or mortgage funds.
Floating Interest Rate
Also called adjustable or variable interest rate, the interest rate fluctuates over the duration of the loan.
G
Gap Funding
High-volume house flippers may take out a second mortgage to cover the down payment and renovation costs on a project. This "gap funding" can be from an equity partner who records a lien on title in second position behind the first mortgage.
General Partner (GP)
One of two or more investors who own a business and manage the daily activities of the business on behalf of the Limited Partner or Partners (LP). GPs are common with commercial real estate investments, where the GP has specialized knowledge in developing and managing real estate projects.
Gift Letter
A gift letter is a legal statement that the funds for a down payment are a gift, and not required to be repaid. It's commonly used when a family member provides a monetary gift as a down payment on a home.
Global Cash Flow
Commercial lenders may underwrite a mortgage based on the borrower's global cash flow of their entire portfolio of properties if the subject property doesn't have sufficient cash flow to service the debt.
Good Credit
A borrower with good credit has a higher probability of repaying their mortgage and therefore a higher probability of being approved for a new mortgage.
Good Faith Estimate (GFE)
Estimated costs and terms of a mortgage offering for non-conforming loans.
Golf Course
The property may be adjacent or near a golf course. In some cases tenants in a nearby building may have rights to play at a particular golf course.
Gross Building Area
All the space in a building.
Grace Period
The period after a mortgage due date when late fees are not charged. Conventional mortgages usually have a 15-day grace period, whereas hard money loans are usually 10 days.
Grant Deed
A legal document transferring ownership of real estate.
Grantor
An owner (grantor) transfers ownership to another person (grantee).
Grantee
The recipient of a grant deed in a real estate transaction.
Great Recession
Started in December 2007 and officially ended in June 2009. The Great Recession was triggered by massive losses in the United States mortgage market, which spread to the entire economy.
Ground Lease
A lease agreement where the land owner (lessor) agrees to lease their land for a set period of time. Depending on the contents of the agreement, the lessor can stipulate what the lessee can and cannot do with the property. The lease term is typically 20 years or more, with many up to 99 years.
Guaranteed Interest
Commercial loans often have a guaranteed interest clause negotiated into the terms. A 5-year term at 5.00% may have a 54-month (4.5-year) guaranteed interest clause.
Guarantor
A guarantor is an individual who promises to repay the debt. A guarantor can be the borrower or an additional person or entity added to the loan agreement to strengthen the loan submission.
H
Hard Asset
Real estate is considered a hard asset, or a physical asset.
Hard Costs
Anything related to physical development costs, including material and interior furnishings.
Hard Money Loan
A private loan against a hard asset. Hard money loans only consider the value of the hard asset (real estate) to determine the loan amount, whereas a private money loan considers the value of the hard asset and the borrower's creditworthiness.
Hard Money Lender
Also known as a private money lender or bridge lender. Hard money lenders provide short-term financing to real estate investors to acquire or renovate commercial or residential properties that may not qualify for bank financing.
Hazard Insurance
Insurance coverage that protects the owner from damage from fire, storms, or natural events. Hard money lenders require hazard insurance.
High-Net-Worth Individuals (HNWI)
HNWIs often invest their money into private money loans. Many of FCTD's trust deed investors are HNWIs, with a background in real estate, finance, law, and entertainment.
Holding Costs
Also called carrying costs. The costs associated with maintaining an investment property, which includes taxes, insurance, utilities, and maintenance.
Home Inspection
Evaluation of the property's condition.
Home-Equity Loan or Home-Equity Line of Credit (HELOC)
Home-equity loans or HELOCs are primarily adjustable-rate bank loans with 10-year draw periods and 15-year repayment periods. FCTD works with a couple of mortgage funds that will do hard money HELOCs in California and a few other West Coast states.
Homeowners Association (HOA)
HOAs are a group of homeowners who set rules and regulations for a specific neighborhood. Also, a great way to learn that some of your neighbors have nothing better to do with their time than complain about every trivial thing that bothers them throughout the day!
Homeowners Insurance
Insurance that covers the owner of a home from loss to their actual property, their possessions on the property, and expenses related to someone's injury on the property. If your golf clubs are stolen from your car – your homeowners insurance will pay for their replacement.
Horizontal Construction
Construction of the street, sewer, and utilities for a new development. Vertical construction is the ground-up construction of the buildings or homes.
House Poor
A person with minimal liquid assets, with most of their net worth in the equity of their home.
Housing Bubble
Often in reference to the run-up in home values from 2002-2006 that was fueled by low interest rates and loose lending standards from mortgage lenders. It's a complicated story but can be easily understood by watching the 2015 movie, "The Big Short."
HUD-1 Form
The final closing statement in a consumer loan transaction.
I
Impaired Credit Occurs when there are one or more derogatory items on a person's or entity's credit report. A borrower with impaired credit may face additional challenges when applying for new credit, even with a hard money loan application.
Impound Account
Individual Retirement Account (IRA)
Long-term retirement savings plan that allows individuals to defer taxes while the investment grows. Some real estate investors will acquire a property inside their self-directed IRA or self-directed 401K plan. FCTD also works with several trust deed investors who fund loans through a self-directed IRA or self-directed 401K plan.
Industrial Building
A type of building used for assembly lines, processing, and/or manufacturing products from raw materials or fabricated parts.
Installment Debt
Mortgages and auto loans are forms of installment debt, where the loan has a set number of payments.
Insurance Premium
The annual or monthly amount a policyholder must pay to keep the insurance policy in force. When doing a 12-month hard money loan, the lender will require the insurance premium to be paid in full prior to or through the close of escrow.
Intercreditor Agreement
An agreement between the senior lienholder and one or many junior lienholders. This allows information to flow between parties, allowing them to protect their security interests in the property. If the second lienholder is filing a Notice of Default, they will inform the senior lienholder of their intention.
Interest Guarantee (IG)
A hard money lender may do a 12-month bridge loan with a 2-month interest guarantee. This simply means that the lender wants to be paid at least two interest payments. If the borrower pays off the bridge loan after making the first payment, the payoff demand from the lender will have the loan balance, plus the second monthly interest payment, which was part of the interest guarantee.
Interest Rate
The amount of interest a lender charges on a loan. The interest rate is often called the note rate.
Interest Rate Risk
Banks holding low-interest rate mortgages in their portfolio are susceptible to interest rate risks when interest rates rise rapidly and the value of their mortgage portfolio falls. Ex: A bank with $1 billion of mortgages or mortgage bonds yielding 2% will lose money on those assets when rates rise and they have to pay depositors 4% on savings accounts.
Interest Reserve
An interest reserve is a predetermined amount set aside at loan origination to cover interest payments over a specified period of time. A 12-month hard money bridge loan may have a 6-month interest reserve, which sets aside six months of payments to service the debt. After the six months, the borrower will need to make on-time monthly payments.
Interest-Only Mortgage
A mortgage that requires monthly interest payments until the final mortgage payment, or balloon payment, which includes the principal balance, is due in full. Hard money loans are almost always interest-only loans.
Internal Rate of Return (IRR)
The measure of an investment’s rate of return over a specific time period, taking into account both the time value of money and the investment’s cash flows.
J
Joint Tenancy or Joint Tenants
Legal relationship to a property of two or more people with right of survivorship.
Judgment
A court decision that may require monetary compensation. In real estate and lending, FCTD will see judgments recorded on title to a property. Judgments must be paid off when selling or refinancing a property.
Judicial Foreclosure
A foreclosure action where the lender must go through the courts to foreclose on a property that secured the mortgage.
Jumbo Mortgage
A mortgage that exceeds the loan limits set forth by Fannie Mae and Freddie Mac.
Junior Lien
A mortgage or debt that is junior to the first mortgage or to a senior lien on the property title.
K
Know Your Client (KYC)
Know your client mostly refers to banking relationships. However, in private money lending, many underwriters will run background and credit checks, verifying previous transactions, and sourcing large deposits as parts of KYC.
L
Land
Land is categorized as residential, commercial, or industrial use based on its potential for development in any condition. Land can be for sale or lease.
Land Area
The total area of a land parcel, which may be expressed in square feet or acres.
Land Contract
A purchase agreement whereby a property is used and paid for in installments, with the deed transferring when paid in full.
Land Value
The value of the land along with any improvements, including streets, sewers, and running utilities to the land.
Landlord
A real estate investor who rents properties to tenants.
Late Fee
Late fees are mostly incurred after a borrower is 10 days late on a hard money loan or 15 days for a conventional mortgage.
Lease
A written document in which the rights for use and occupancy are transferred by the owner (or lessee in the case of a sublease) to another for a specified period of time in return for a specified rent.
Lease Option
A lease option is an agreement that gives a renter the option to buy the property. FCTD has worked with several buyers who had a two-to-five year lease option they needed to exercise using a hard money loan. In a rising market, a lease option can be advantageous to a buyer who may have locked in a purchase price at $500,000 with the fair market value at $700,000. However, in a falling market, the buyer who locked in at $500,000 may want to let the lease option expire if the property value fell to $400,000.
Leaseback
A property owner may sell and lease back the property from the new owner. Businesses do this all the time when they realize that they could invest the capital from the sale of the property into new business opportunities.
Leasehold Interest
The lessee's interest or position in a lease consisting of the lessee's use and enjoyment of a property or space for the term of the lease during the life of the lease.
Legal Description
Every parcel of land that is sold, leased, or mortgaged must be properly identified or described.
Lender
In hard money lending, a lender can be an individual trust deed investor, multiple trust deed investor, family office, real estate office, mortgage fund, or conduit mortgage lender that originates loans and sells them to investors in the secondary mortgage market.
Lender Paid Pricing
Also see Borrower Paid Pricing above. Lender-paid pricing gives the borrower a lower origination fee in exchange for a higher interest rate. The originator is paid a commission by the spread from par to the note rate. If par is 2.25%, then 2.75% might pay the originator 1% of the loan amount in commission.
Letter of Intent (LOI)
A term sheet issued by a mortgage broker or lender to a loan applicant.
Liability Insurance
Part of the property insurance policy that provides the maximum amount of coverage for the owner's liability.
Lien
A legal claim against property. A mortgage is a legal claim against real estate.
Lien Release
Some liens recorded on the title have been paid off, but the creditor did not file a reconveyance. When this happens during the sale or refinance of a home, the owner or their mortgage lender will need to work with the satisfied creditor to send a lien release to the escrow officer to record the reconveyance.
Limited Liability Company (LLC)
A common type of entity for real estate investors to own property.
Limited Partner or Partners (LP)
LPs invest in General Partnerships, which are run by a General Partner. This structure is found in commercial real estate investments.
Liquid Assets/Liquidity
The amount of money in a checking, savings, or money market fund, which a borrower can easily convert to cash. Real estate is the opposite of liquidity as it requires time and effort to convert the value of real estate into cash.
Lis Pendens
A public notice that a lawsuit has been filed involving a claim to a property.
LIBOR
London InterBank Offered Rate – a daily reference rate based on the interest rates at which banks borrow unsecured funds from other banks in the London wholesale money market.
Lifestyle Center
An upscale, specialty retail, main street concept shopping center.
Loan Extension
Hard money loans can be extended past the balloon payment or maturity date. Most lenders will charge an extension fee to the borrower to extend for 3, 6, 9, or 12 months.
Loan Modification
When a lender changes the terms of the loan. During the Great Recession, lenders modified millions of mortgages, lowering payments or rolling the defaulted interest to the back of the loan to help borrowers stay in their homes.
Loan Servicer (Mortgage Servicer)
Institution acting for the benefit of the private beneficiaries, owners, or investors of the mortgage or in a mortgage-backed security. Duties include collecting payment and distributing proceeds to beneficiaries, reporting to the trustee, advancing funds for delinquent loans, executing loan extensions and modifications on behalf of the lender, and taking defaulted properties through the foreclosure process.
Loan Servicing
After a loan closes, the loan is sent to loan servicing. Some lenders have their own servicing department, while others will outsource it to a third-party servicer.
Loan-to-Value Ratio (LTV)
LTV is the ratio calculated by dividing the amount of the mortgage by the property value. It is commonly used by lenders to assess the risk of a loan and determine the maximum loan amount they are willing to offer.
Loss Payee
The loss payee for a property insurance policy refers to the lender, who is additionally insured to be paid by the insurance company in the event of a loss.
M
Market
Geographic boundaries that delineate core areas that are competitive with each other and constitute a generally accepted primary competitive set of areas.
Market Rent
The rental income that a property can likely command in the open market.
Maturity Date
Private money bridge loans often have a 12-month maturity date, which is often referred to as a balloon payment.
Maturity Default
A maturity default occurs when the borrower under a mortgage loan fails to pay the lender the balloon payment, or principal balance, when due at the maturity of the loan. Hard money bridge loans often have a 12-month term, with the balloon payment due on the twelfth payment. If the borrower is unable to satisfy the debt, the loan would be considered a maturity default even though the monthly payments had been paid on time for the previous 11 months.
Mezzanine Debt
In commercial financing, mezzanine debt is the junior lien, subordinate to the senior lienholder. In construction projects, the equity partner (the money partner) may record a junior lien behind the construction financing to secure their interest in the property. You won't hear mezzanine debt being discussed in residential real estate.
Medical Building
Special purpose facility with more than 50% of occupants involved in medical practices such as general practice, dental, surgical, etc.
Mixed-Use
A property that is used for residential, commercial, and/or office space.
Modification
Restructuring the existing mortgage by extending the term period, resetting balloon payments, lowering the interest rate, or in some cases, reducing the principal amount.
Motel
A building or group of buildings located on or near a highway, designed to serve the needs of car travelers with lodging and parking. Many motels also provide guests with food and beverages, meeting and banquet rooms, fitness centers, and swimming pools and spas.
Mortgage
A loan structured against real estate.
Mortgage Backed Securities (MBS)
Mortgage lenders originate loans and sell them to investment banks, who bundle them into large securities they sell to investors for the right to the cashflow streams from these mortgages.
Mortgage Broker
A licensed independent broker that can originate loans through several different lenders and funding sources.
Mortgage Loan Originator (MLO)
Mortgage brokers, loan officers, salespeople, mortgage consultants, etc. are all called MLOs under the Nationwide Multistate Licensing System.
Mortgagee
The lender.
Mortgagor
The borrower.
MSA
Stands for Metropolitan Statistical Area, a geographic area with a large population hub that can include adjacent counties that have a high degree of economic and social integration with that nucleus.
Multi-Family (Apartments)
Building that has five or more dwelling units.
Multi-Lender Loan
Mortgage brokers like FCTD may originate a loan for a borrower funded by multiple trust deed investors, known as a Multi-Lender Loan.
Multiple Listing Service (MLS)
A database of properties listed for sale. It is used by real estate agents and brokers to share information about properties available on the market.
N
National Association of Realtors
Realtor trade association that will always find data to support the phrase, "It's a great time to buy a home."
Negative Amortization Loan
Popular during the 2003-2007 housing bubble, but have disappeared largely due to legislation banning "neg am" loans and because of the losses incurred by lenders and mortgage-backed securities investors from these loans.
Negative Equity
When the balance of the mortgage exceeds the value of the property. Borrowers can be considered upside down or underwater.
Net Liquid Assets
Borrowers can take out margin loans against their investments. Their account statements will show the gross liquid assets minus the margin loan, equaling the net liquid assets.
Net Operating Income (NOI)
A calculation used in real estate, NOI equals all revenue minus operating expenses.
NINJA Loan
NINJA stands for No Income No Job or Assets and was popular in the toxic housing bubble years from 2005-2007. Lenders reduced underwriting standards to keep mortgage volume high, despite skyrocketing home values and rising interest rates, which naturally cause loan volumes to plummet. NINJA loans have since been legislated out of existence in the conventional lending space.
NNN
The tenant has a Triple Net Lease, which means they’re responsible for all expenses related to their occupancy of the building.
Non-Arms Length Sale
Typically a sale between related parties, which often does not reflect market value.
Non-Performing Loan
A loan that is not receiving payments on time or as stipulated by the Note, Deed of Trust, or Mortgage Agreement.
Non-Qualified Mortgages (NonQM)
NonQM loans are conventional mortgages not considered "qualified mortgages" and don't conform to Fannie Mae and Freddie Mac requirements. NonQM loans include Asset Depletion, 12-24 Month Bank Statements, DSCR, Foreign National, Second Mortgages, and W2 & Paystubs (no tax returns). NonQM loans are originated and sold to private investors on the secondary mortgage market. Many of FCTD's real estate investor clients use NonQM loans to finance their residential investment properties and primary residences.
Nonrecourse Loan
Loans not guaranteed by any individual. Nonrecourse loans are a common feature of commercial property loans, where an LLC owned by many investors borrows money for a loan underwritten by the cash flow of the property rather than the personal finances of one or all the members of the LLC. In hard money, nonrecourse loans appear every so often. You'll see it on a loan where the borrower is a self-directed IRA or self-directed 401k, which due to tax laws, forbid the plan's owner from guaranteeing the debt through the self-directed plan.
Notice of Default
The first step in the foreclosure process, usually after the payment is 90 days late, is when a lender files a Notice of Default.
Note Purchase
When a buyer gains an ownership position by purchasing the Note (loan).
O
Occupancy Rate
The percentage of units or space rented in a building.
Office Property
A building primarily used to house employees of companies that produce a product or service.
Open-End Mortgage
A loan that allows a borrower to pull money out over several years. A HELOC is an open-end mortgage.
Operating Agreement (LLC)
An LLC will have an Operating Agreement, specifying ownership, shares, signing authority, etc.
Origination Date
The date when the loan is funded.
Origination Fee
A charge from the originating broker and/or lender at the time of mortgage closing.
Other Real Estate Owned (OREO)
When applying for a mortgage on one property, the borrower will need to list other real estate owned.
Owner Occupied
In commercial real estate, the building's owner must occupy at least 75% of the rentable space in the building to be considered owner occupied. For residential real estate, owner occupied refers to a consumer’s primary residence.
Owner-Occupied Mortgage
A loan against a consumer's primary residence.
P
Pandemic Housing Bubble
Refers to the increased value of residential real estate from 2020-2022, when properties increased 25-45% in many markets as a result of increased demand from record-low interest rates and a pivot to work-from-home jobs.
Parcel Number
A Parcel Number or an Assessor's Parcel Number (APN) is an identifying set of numbers and/or letters for a parcel of land, which is assigned by the controlling government authority, typically a county.
Par
A wholesale lender's floor pricing is called "par." Ex: A mortgage broker can increase the interest rate from 5.00% (PAR) to 5.50% (100 basis points) which pays the broker a 1% commission on the mortgage amount.
Parking Per Unit (Multi-Family)
The number of parking spaces provided for each unit.
Passive Income
A myth. Real estate requires a lot of attention by the owner, even if they've hired a property manager. If an investor wants passive income, we recommend investing in a REIT, or as a Limited Partner (LP) in a debt fund or real estate venture where a General Partner (GP) manages the investment.
Pension Fund
A fund established by an employer to facilitate and organize the investment of employees' retirement funds contributed by the employer and employees. Pension funds often invest in mortgages, including whole loans and mortgage-backed securities.
Performing Loan
A loan that is currently up-to-date on payments made by the borrower.
Personal Financial Statement (PFS)
A PFS is a ledger of a borrower's assets and liabilities, which can accompany a mortgage application.
Personal Guaranty
Most hard money loans have a personal guaranty where one or more of the borrowers guarantees the loan will be repaid in full, even if they're taking out the loan through their corporation or entity.
Personal Property
In real estate, personal property is anything that can be moved, as opposed to real property, which is bolted or nailed into the structure. For cannabis loans, greenhouses are considered personal property, not real estate.
Plat Maps
Plat maps are assessor parcel maps that are drawn for every piece of property within a county. These maps are prepared by a registered civil engineer or licensed land surveyor, showing the location of streets and property lines.
Point
1 Point = 1% of the loan amount.
Portfolio Loan (Cross-Collateral or Blanket Loan)
A single mortgage collateralized by more than one property with the same owner.
Portfolio Loan (Bank)
A mortgage made by a bank that stays on the books, or in their loan portfolio (as opposed to being sold.)
Portfolio Lender
Private money mortgage funds are considered portfolio lenders as they hold the loans in their portfolio. FCTD also works with portfolio bank lenders that offer real estate investors greater flexibility in comparison to conforming lenders that sell loans to Fannie Mae and Freddie Mac.
Prepayment
A whole or partial prepayment by the borrower greater than and/or earlier than a scheduled payment on a mortgage loan.
Prepayment Penalty
A loan may be written with a prepayment penalty clause. NonQM loans, like DSCR programs on rental properties, will be a 30-year fixed rate loan with a three-year prepayment penalty, calculated as 80% of 6 months interest. Other loans will have a sliding scale prepayment penalty (54321) over the first five years. Five percent of the loan balance is the penalty if the loan is paid off in the first year.
Price Per Acre (Land)
The sale price or appraised price divided by the total acres of land area.
Price Per Square Foot
The sale price divided by the rentable square feet of the building.
Principal & Interest (PI)
PI loans amortize, paying both principal and interest each month.
Principal, Interest, Taxes, and Insurance (PITI)
Traditional mortgages will require borrowers to pay all their expenses with their mortgage. This gives the lender control of property taxes and homeowners insurance payments.
Private Beneficiary
Individual trust deed investors are referred to as private beneficiaries.
Private Money Loan
Also called a hard money loan. A person or company that lends money to real estate investors to acquire or renovate investment properties.
Protective Equity
The amount of equity between the balance of the mortgage(s) and the fair market value (FMV) of the property. Hard money lenders have generally made loans based on the protective equity in the property as opposed to private money lenders, who factor in protective equity plus the borrower’s credit, experience, liquidity, and more.
Promissory Note
The debt instrument that has the loan amount, interest rate, term, payments, maturity, prepayment penalty or guaranteed interest clause, and other terms of the loan.
Property Tax
Must be paid.
Proof of Funds (POF)
Real estate investors will submit a Letter of Interest/Letter of Intent from a hard money lender with the purchase offer on a property.
Purchase Money Mortgage
The loan used to buy a property.
Q
Qualified Intermediary Also known as an Exchange Accommodator, they hold proceeds from a relinquished property and create the appropriate documents for an investor to successfully complete a 1031 Exchange.
Qualified Mortgage A qualified mortgage meets requirements that were established by the Dodd-Frank Act that set new standards for mortgages in the aftermath of the Great Recession.
R
Rate & Term Refinance
Borrowers will refinance their mortgage when interest rates decline.
Real Estate Agent
Represents buyers and sellers in real estate transactions.
Real Estate Investment Trust (REIT)
Pooled funds that buy real estate or make loans against real estate. Some hard money funds are set up as REITs. Most are publicly traded, with shares that can be purchased through investment providers or online investment accounts.
Real Estate Owned (REO)
A borrower’s real estate holdings. Most people see REO and associate it with a foreclosed home taken back by the lender and now available to purchase at a discount. Real estate offices during the Great Recession had signs in the window, “REO Lists Here!”
Real Estate Rich
Similar to “House Poor” above. Real estate rich means the majority of a person’s wealth is tied up in their real estate and they have minimal liquidity. Many real estate investors are real estate rich and need to use hard money cross-collateralized blanket loans to acquire new properties since they don’t have sufficient down payment funds on hand to get approved for financing.
Real Property
The land and everything attached to it, including all improvements like structures, driveways, and utilities providing services to and from the property.
Recording Date
The date the grant deed, warranty deed or other conveying instrument (trust deed or mortgage) was recorded at the County Recorder's office.
Redevelopment
Redevelopment is the process of converting a property to its highest and best use. This may require demolishing the existing improvements and constructing new improvements on the site.
Redevelopment Project
The sale of property that is within a redevelopment project.
Recapitalization
In lending terms, a commercial loan may come due during a period of rapidly rising interest rates. In order to refinance the debt, the sponsor may need to recapitalize by bringing money into closing on a loan with a lower principal balance than the previous loan that came due.
Recourse Loan
Most hard money loans on residential property are recourse loans, meaning that the borrower signed a personal guaranty to repay the balance in full.
Refinance
Paying off an existing mortgage with a new loan.
Registered Investment Advisor (RIA)
RIA platforms like Charles Schwab and Fidelity will carry fixed income investment opportunities to invest in a private money debt fund. FCTD works with a few hard money lenders that raise money on RIA platforms.
Rent
The amount a landlord prices their space per square foot, per year, for lease for a listing. Rents will vary depending upon the services provided.
Rentable Building Area (RBA)
Expressed in square feet, this area includes the usable area and its associated share of the common areas.
Rental Rates
Rental rates are defined as the annual rental costs for a particular space quoted on a per-square-foot basis.
Residential Purchase Agreement (RPA)
The standard form for residential real estate transactions in California.
Retail Property
A retail property's primary intended use is to promote, distribute or sell products and services to the general public.
Reverse Mortgage
A mortgage for borrowers who are at least 62 years old on their primary residence that allows them to defer payments, have a line of credit, or a combination of the two.
Revolving Debt or Revolving Credit
An open-ended credit facility or line of credit, like a HELOC or a credit card.
S
Secured Creditor
A secured creditor has a claim against collateral. A mortgage lender is a secured creditor with a secured interest in a property.
Securitization
Most 30-year conventional mortgages are securitized, which means they are sold to an investment bank to create a security out of thousands of mortgages that will be sold to investors or directly to an end-user investor like a life insurance company. Hard money loans can also be securitized. Conduit lenders will originate and sell their loans either to an investment bank or into a securitization entity where investors have already sent their money.
Seller Financing
A seller of a property may carryback a Note and Deed of Trust to the buyer. FCTD works with borrowers who need to pay off a seller financing loan two to five years after acquisition.
Sale Leaseback
The sale of a property by its owner to another party and the subsequent leasing back of the property by the seller. This tactic allows a property owner to convert his property ownership (equity) into cash while still occupying the property. Seller (now tenant) lease term must be two or more years.
Senior Housing
A community in which residents must be over 55 years of age to live.
Shopping Center
A shopping center is primarily a group of retail stores that are planned, developed, owned, and managed as a single property, with on-site parking provided.
Short Sale
Selling a property for less than the amount owed on the mortgage, usually when the mortgage is in default.
Short-Term Debt
Hard money bridge loans are considered short-term debt as most loans have a 12-month duration.
Short-Term Rental (STR)
Investors are increasingly managing short-term rentals through software portals like Airbnb and Vrbo. Other investors turn the day-to-day management over to professional property managers.
Single Tenant
A building occupied by one tenant only.
Soft Costs
Soft costs include engineering, permits, marketing, and project management expenses. Construction loans will account for soft costs paid by the borrower, adding them to the overall costs of the project.
Soil Contamination Issue
The introduction of a hazardous material into the ground.
Special Servicer
Some loans may be sent to a separate special servicer, who is responsible for managing loans that are at risk of default due to nonpayment, maturity default, violations of loan covenants, or other risks.
Strip Center
A strip center, or strip mall, is an attached row of stores or service outlets managed as a coherent retail entity, with on-site parking usually located in front of the stores.
Student Housing
Housing targeted towards college and university students, on or near a college campus.
Sublease
A sublease, or sublet, occurs when an existing tenant leases the property to another tenant, often negotiated by a real estate broker.
Sublet Space
Space that is being marketed or vacated by a tenant whose lease with the building owner has not yet expired. The tenant will attempt to find a subtenant to resume the remaining term of the lease.
Subject Property
The property being financed.
Submarket
Submarkets are defined by specific geographic boundaries that serve to delineate core areas that are competitive with each other and constitute a generally accepted primary competitive set of areas.
Subordinated Debt
An existing loan on title where the lender agrees to subordinate their position to a new lender in a senior position.
T
Take-Out Loan
A long-term loan that replaces short-term bridge financing. Ex: An investor uses a 12-month hard money loan to acquire a vacant office building, renovating and leasing up the property before obtaining a take-out loan from an institutional lender, amortized for 25 or 30 years.
Tax-Deductible Interest
Some of the interest on a mortgage can be deducted from an individual's income taxes.
Tax Lien
The US Treasury, state, county, or city tax authority may file a tax lien on property for payment of personal or business income taxes.
Term
The length of the contract, whether in a mortgage, lease, or other.
Term Sheet
A pricing summary of loan terms.
Time On Market
The length of time a currently listed property has been marketed for sale or lease.
Title Insurance
Insures owners and lenders from defects in title to a property.
Transaction Costs and Transaction Fees
Each mortgage transaction has standard costs including lender's title insurance, escrow or settlement fee, recording fees for the deed of trust, along with other charges.
Triple Net (NNN)
A lease in which a tenant is responsible for all expenses associated with their proportional share of building occupancy.
Trust Deed
Also known as a Deed of Trust (DOT), the agreement between borrower and lender to have property held in a trust by a trustee until the loan is repaid in full.
Trustee's Deed
A trustee's deed is issued by the trustee under a deed of trust when a property is sold at a trustee's sale (foreclosure sale on the courthouse steps). This deed conveys title to the successful bidder but does not contain any warranties, covenants or guarantees as to any other encumbrances that might exist of record against the property.
U
Underwater Mortgage
A loan that is higher than the value of the property.
Underwriter
A mortgage professional who assesses the level of risk, collecting and analyzing borrower and property information to determine if the application will be approved, and the pricing level of the new loan.
Unimproved Property
Land is considered unimproved property when no plans have been made to develop the land.
Unpaid Balance (UPB)
The outstanding balance on a mortgage.
Unsecured Debt
Credit that is not secured to a physical asset, like a credit card.
Usable Building Area
This consists of the space that the tenant will actually occupy in a building.
Utilities
Gas, electric, sewer, telephone, and water.
V
VA Loan
The Veterans Administration offers eligible service members mortgages.
Vacancy
An empty property unoccupied by the owner or tenants.
Vacation Rental Home
Vacation rentals are becoming more popular as Short-Term Rentals (STR).
Valuation
In real estate, a valuation can be in the form of an Appraisal, Broker Price Opinion (BPO), or Comparative Market Analysis (CMA).
Value-Add
Fix-and-flip hard money lenders like calling the renovations or improvements the borrower makes a "value-add." It simply means improving the property.
Variable Interest Rate
Most commonly known as an Adjustable-Rate Mortgage (ARM). The rate is fixed for a certain period before becoming variable for the remainder of the loan. For borrowers who took out a 5-year ARM in 2005-2007, their loan became variable at a time when interest rates plummeted in 2010-2012. These borrowers saw their interest rate and monthly payments fall.
Vertical Construction
Ground-up construction of a property - going vertical.
Vesting
How an interested party holds title to the property. A borrower may vest in the name of an LLC while a lender will have a specific vesting on title.
W
Warehouse
A type of industrial building generally used for storage and/or distribution.
Warehouse Mortgage Lending
A warehouse lender will provide a credit facility to a retail or wholesale mortgage lender to originate loans and sell to a secondary market investor. Some hard money conduit lenders fund loans from a warehouse line.
Warranty Deed
A legal document that protects the buyer and ensures the seller holds clear title to the property with no liens outstanding at the time of closing.
Whole Loan Investing
Trust deed investors may prefer to fund an entire loan rather than being in a fractionalized loan with other investors.
Wholesale Mortgage Lender
A lender that works exclusively with retail mortgage brokers who interact with the public.
Working Capital Loan
Business owners sometimes seek out a private money mortgage or hard money loan against their building to serve as a working capital loan.
Wraparound Mortgage
A cross-collateralized blanket loan, or wraparound mortgage, is used to finance the acquisition of a new property before the existing property has sold, using both properties as collateral. In a residential purchase transaction, a homeowner may own a property valued at $1 million with a balance of $400,000. They want to buy a new home for $1.5 million but can't close until they sell their existing property. A lender may do a $1.5 million wraparound loan in first position on the new home and in second position (behind the $400,000 loan) on their current home. When the existing home sells, the $400,000 mortgage is paid off and the $600,000 is applied to the principal balance on the $1.5 million loan, taking it down to $900,000.
X
Y
Year Built
The year an existing building was completed.
Year Renovated
The year a home or building's last renovation was completed. In a home, it’s common to see the year built and year renovated on the listing.
Year-Over-Year (YOY)
Home sales are measured and reported in the media as YOY. Sometimes it's relevant, while other times it's merely noise.
Year-To-Date (YTD)
Measuring up to a certain point for the current calendar or fiscal year.
Yield Maintenance
Institutional commercial loans will have a yield maintenance requirement. A 5-year fixed rate loan amortization over 25 years may have a 54-month (4.5-year) yield maintenance period.
Yield Spread Premium
On loans where the MLO is compensated using lender paid pricing, the MLO receives their commission from the Yield Spread Premium. This means the interest rate is higher than par, which provides the spread to pay the originator.
Z
Zoning
Local laws and regulations that determine how real estate can be developed – or not developed. Each local government determines the land use for each area and parcel of land.