A voluntary payment made above the required monthly amount that reduces the outstanding principal balance directly, decreasing the total interest paid over the life of the loan.
A projected estimate of what a property will be worth once planned renovation or rehabilitation work is complete. Widely used in fix-and-flip lending to determine the maximum loan a lender will fund relative to the finished value.
The structured repayment of a loan's principal balance through regularly scheduled payments over a defined period, with each payment covering a portion of both principal and accrued interest.
A complete payment-by-payment table showing how each installment is split between principal and interest, along with the remaining balance after every payment.
The true yearly cost of borrowing expressed as a single percentage, incorporating both the interest rate and lender fees such as points and origination charges. APR provides a more accurate basis for loan comparisons than the stated interest rate alone.
A charge collected by a lender at the time a borrower submits a formal loan application, typically covering initial processing and underwriting costs.
A licensed professional's written valuation of a property based on comparable sales, physical condition, location, and other market factors. Most lenders require an appraisal before committing to fund a loan.
An independent third-party firm that coordinates the appraisal process on a lender's behalf, assigning orders to licensed appraisers and maintaining separation between the originating party and the valuation process.
Past-due amounts on a loan resulting from missed payments. A borrower is considered in arrears beginning on the date of the first payment that was not made as scheduled.
The current market value of a property in its present physical condition, without factoring in any planned improvements or repairs. Used alongside ARV to establish a lender's baseline position and calculate the initial loan advance on a rehab or construction project.
A legal instrument that transfers one party's rights, interests, or obligations in a property, contract, or loan to another party.
An electronic network used to transfer funds directly between bank accounts. Commonly used for loan payments and other recurring financial transactions.
A provision in a non-recourse loan that converts the debt to full personal recourse if the borrower engages in prohibited conduct such as fraud, intentional property damage, unauthorized encumbrances, or misappropriation of funds.
A short-term loan that does not fully amortize over its term, resulting in a large lump-sum principal payment due at maturity. Common in private, bridge, and hard money lending.
A federal legal process allowing individuals or businesses to seek protection from creditors when unable to meet their debt obligations, either by liquidating assets or restructuring repayment under court supervision.
A unit of measurement equal to one one-hundredth of one percentage point (0.01%), commonly used to express changes in interest rates, loan costs, or yield spreads with precision.
A short-term commitment from a title insurance company to issue a full title policy, providing interim coverage from the time of contract through closing.
Short-term financing used to bridge a timing gap — such as between the acquisition of a new property and the sale of an existing one, or between purchase and a long-term refinance. Bridge loans typically run 6 to 24 months and are a core product in private and hard money lending.
A property value estimate prepared by a licensed real estate broker or agent, based on current market data and comparable sales. Often used as a faster, lower-cost alternative to a full appraisal in certain lending scenarios.
A loan originated for investment or business purposes rather than personal residential use. The majority of private and hard money lending involves business-purpose transactions, which are generally subject to less consumer regulatory oversight than owner-occupied residential mortgages.
The maximum interest rate that can be applied to an adjustable-rate loan, either per adjustment period or over the full life of the loan, protecting borrowers from unlimited rate increases.
Funds used to acquire, improve, or extend the useful life of long-term assets such as real property or equipment, as distinct from routine operating expenses.
The net income remaining from a rental property after all operating costs, vacancy, and debt service have been subtracted from gross revenue. Positive cash flow indicates the property generates more income than it costs to hold.
A bankruptcy reorganization available to individuals with regular income that allows them to repay all or part of their debts over a three- to five-year plan while retaining assets, including real property.
A liquidation bankruptcy that discharges most unsecured debts but may require the debtor to surrender non-exempt property. Carries significant and long-lasting consequences for credit standing.
The moment in a real estate transaction when all parties have fulfilled their obligations, funds have been disbursed, documents have been recorded, and ownership officially transfers.
The final step in completing a real estate loan or purchase transaction, where all required documents are executed, funds change hands, and the transaction is legally recorded.
The aggregate of fees and expenses due at or before closing, which may include origination charges, title insurance, attorney fees, recording fees, prepaid interest, and required escrow deposits.
A person who joins the primary borrower on a loan application and assumes equal legal responsibility for repayment. A co-borrower's income and credit are considered during underwriting.
An asset pledged to secure a loan obligation. In real estate lending, the subject property serves as collateral, giving the lender the right to foreclose if the borrower fails to repay.
The stage reached when a borrower's account is sufficiently delinquent that the lender or servicer initiates formal recovery efforts, which may include demand notices, servicer escalation, or initiation of foreclosure proceedings.
A ratio calculated by dividing the total balance of all loans secured by a property by the property's current value. Used when a borrower carries both a first and second mortgage on the same asset.
A guarantee that holds a borrower personally responsible for loan repayment only upon the occurrence of specified triggering events, such as default, fraud, or other defined breaches.
Financing used to fund the construction of a new building or major development project. Funds are typically disbursed in stages tied to completed construction milestones rather than released in full at closing.
One of the three major agencies — Equifax, Experian, or TransUnion — that compile consumer credit histories and generate reports used by lenders to evaluate a borrower's creditworthiness.
A detailed record of a borrower's credit accounts, payment history, outstanding balances, public records, and credit inquiries. Reviewed by lenders as part of the underwriting process.
A numerical score typically ranging from 300 to 850 that represents a borrower's overall credit risk based on payment history, amounts owed, credit history length, account mix, and recent inquiries. Higher scores translate to better loan terms.
Any individual, institution, or entity to whom a debt is owed.
The use of multiple properties as collateral for a single loan, or the pledging of one asset as security for more than one loan. Gives lenders broader security across a borrower's portfolio and is common in blanket loan structures.
The process of combining multiple existing debts into a single new loan, typically with the goal of securing a lower interest rate, reducing monthly payments, or simplifying repayment management.
A measurement of a property's ability to service its debt, calculated by dividing net operating income by total annual principal and interest payments. A DSCR above 1.0 means the property generates more income than needed to cover debt obligations.
The percentage of a borrower's gross monthly income that goes toward paying monthly debt obligations. Lenders use DTI to assess whether a borrower can take on additional debt.
A borrower's failure to fulfill loan obligations per the agreed terms — most commonly by missing scheduled payments — which triggers lender remedies such as late fees, default interest, or foreclosure.
A higher interest rate specified in the loan documents that automatically applies to the outstanding balance after a borrower defaults, increasing the cost of the debt during the default period.
A reduction in an asset's value over time due to age, wear, obsolescence, or adverse market conditions. Real estate investors also use depreciation as a non-cash tax deduction against income-producing property.
Mandatory written documents provided to borrowers before closing, detailing loan terms, total costs, APR, and the borrower's rights under applicable federal and state law.
The interest rate used to determine the present value of future cash flows in investment analysis, or the rate the Federal Reserve charges member banks for short-term borrowing.
A predetermined disbursement plan for a construction or rehab loan that ties funding releases to completed project milestones. Draws are typically approved after a lender inspection confirms the corresponding work has been completed.
A rental property loan underwritten primarily based on the subject property's debt service coverage ratio rather than the borrower's personal income. Widely used by real estate investors who own multiple properties and prefer not to qualify using personal tax returns.
The investigative process conducted by a lender, buyer, or investor before committing to a transaction, including review of the property condition, title, borrower financials, existing leases, permits, and any other relevant documentation.
The ownership value in a property, calculated as the current market value minus all outstanding liens and loans secured against it. Greater equity generally provides more borrowing power and better loan options.
A neutral holding arrangement in which funds or legal documents are held by a disinterested third party until all conditions of a transaction are satisfied, protecting both buyers and sellers.
A licensed third-party firm that manages the escrow process, holds transaction funds, ensures that all conditions are met, and disburses money at closing.
A signed document in which a tenant or borrower certifies the current status of a lease or loan — including the outstanding balance, rent amount, and any known disputes — typically required during due diligence or a property sale.
An agreement to extend a loan's maturity date beyond its original term, typically for an additional 3, 6, or 12 months. Extensions are common in bridge lending when a project or sale takes longer than anticipated, and an extension fee is usually charged.
A credit scoring model developed by Fair Isaac Corporation, widely used by lenders to evaluate borrower risk. Scores range from 300 to 850, with higher scores indicating a stronger credit profile.
The price a property would reasonably sell for between a willing buyer and seller in an open market, with neither party under duress and both having access to relevant information.
Compensation paid to a person or company for introducing parties to a transaction — such as a borrower to a lender — that results in a completed deal.
Short-term financing for investors who purchase, renovate, and resell residential or mixed-use properties for profit. Loan amounts are typically based on both the current as-is value and the projected after-repair value (ARV) of the property.
A loan on which the interest rate and scheduled principal-and-interest payment remain unchanged for the full term of the loan, providing predictable payment obligations for the borrower.
The legal process by which a lender takes possession of a property securing a defaulted loan, typically for the purpose of selling it to recover the outstanding debt.
Legal, administrative, and court costs incurred by a lender during the foreclosure process. These fees are typically added to the borrower's outstanding debt balance.
A single real estate loan funded by two or more investors, each holding a fractional ownership interest in the note and entitled to a proportional share of principal and interest payments.
A loan in which the lender may pursue the borrower's personal assets — beyond the collateral property — to satisfy the debt if the property's value is insufficient to cover the outstanding balance upon default.
A supplemental loan that covers the difference between a primary lender's maximum advance and the total capital needed to complete a transaction. In fix-and-flip and construction deals, a gap funder typically takes a second position lien and finances the shortfall between what the first lien lender will fund and the full acquisition plus rehab cost.
The profit realized from a property sale after subtracting acquisition cost, renovation expenses, and carrying costs, before accounting for taxes, overhead, and financing costs.
Financing for the development of a new structure built from raw or improved land, covering the full project from site preparation through completion. Funds are disbursed in draws as construction milestones are met.
A broker who specializes in originating asset-based real estate loans — typically bridge, fix-and-flip, construction, or investment property deals — and placing them with private or institutional hard money lenders.
An asset-based real estate loan funded by a private lender or hard money fund, typically short-term and collateralized primarily by the property value rather than the borrower's personal income or credit profile. Interest rates and fees are generally higher than conventional financing in exchange for faster approvals and more flexible underwriting.
A governing body in a planned community, condominium, or townhome development that establishes community rules, maintains shared amenities, and collects dues from property owners to fund ongoing operations.
A tax processing number issued by the IRS to individuals who need a U.S. tax identification number but are not eligible to obtain a Social Security number. Used in some lending programs for foreign nationals and non-resident borrowers.
A loan payment structure in which monthly installments cover only the accrued interest, leaving the full principal balance untouched. The principal becomes due in a lump sum at maturity or requires a refinance.
The annual percentage charged by a lender on the outstanding principal balance of a loan. Interest accrues on the remaining balance and is typically paid as part of each scheduled payment.
An acronym for Interest, Taxes, Insurance, and Association dues — the recurring ownership costs used when calculating net operating income or DSCR for rental properties.
A mortgage or loan secured by a property that is subordinate in priority to an existing first lien on the same asset. In a foreclosure, junior lien holders are paid only after all senior lien obligations are satisfied.
A penalty assessed when a loan payment is not received by the due date specified in the promissory note. Late fees are typically defined as a percentage of the overdue payment or a flat dollar amount and are applied after a short grace period.
An individual, fund, financial institution, or other capital source that provides loan funds for real estate acquisition or rehabilitation in exchange for repayment with interest under agreed-upon terms.
A written document summarizing the proposed key terms of a transaction before a binding agreement is executed. Generally non-binding, but signals serious intent and establishes a framework for negotiation.
The London Interbank Offered Rate, a global benchmark formerly used to set interest rates on adjustable-rate loans. It was discontinued at the end of 2022 and has been replaced by SOFR (Secured Overnight Financing Rate).
A legal claim recorded against a property that secures a debt obligation. A lien must generally be paid off or released before title can transfer cleanly, giving the lienholder leverage to compel repayment.
A guarantee that caps the borrower's personal liability at a defined dollar amount or percentage of the loan, rather than requiring the borrower to cover the full outstanding balance in the event of default.
A measure of how quickly and easily an asset can be converted to cash without significantly affecting its market price. Cash is the most liquid asset; real estate is considered relatively illiquid due to transaction time and costs.
The outstanding loan balance divided by the property's appraised or purchase value, expressed as a percentage. Lower LTV ratios represent less lender risk and typically result in more favorable loan terms.
The date on which a loan's final payment is due. On a balloon loan or bridge loan, the maturity date marks the deadline by which the borrower must pay off the outstanding balance, refinance into a new loan, or request an extension.
A form of subordinate debt that sits between senior secured debt and equity in the capital stack. In commercial real estate, mezzanine loans are typically secured by a pledge of the borrower's ownership interest in the entity holding the property rather than a direct property lien.
A loan instrument secured by real property, in which the lender holds a security interest until the borrower fully repays principal and interest. In states using a deed of trust structure, a neutral trustee holds title on behalf of the lender until the loan is paid off.
A licensed professional who takes loan applications, works with borrowers to collect required information, and guides transactions from initial inquiry through closing.
A property's total rental or operating revenue minus all operating expenses, before debt service and income taxes. NOI is a primary metric for evaluating a property's income-producing potential.
A loan in which the lender's only remedy upon default is the collateral property itself. If the property's value is insufficient to cover the outstanding debt, the lender cannot pursue the borrower's other personal assets — unless a bad boy clause has been triggered.
A legally binding written promise to repay a loan at a specified interest rate on an agreed-upon schedule. Also called a promissory note. The note is the primary debt instrument in a real estate loan.
The end-to-end process of creating a new loan, from initial application and credit review through underwriting, document preparation, and funding. Origination fees compensate the lender for the cost of this process.
The full satisfaction of a loan by repaying the outstanding principal, all accrued interest, and any applicable fees. Upon payoff, the lender releases its lien on the property.
A lender-issued document specifying the exact total amount required to fully satisfy a loan as of a given date, including principal, accrued interest, and any outstanding fees or prepayment charges.
A commitment by an individual — typically a principal or majority owner of the borrowing entity — to be personally liable for repayment of a business loan if the entity defaults. May be structured as unlimited, limited, or conditional depending on the loan agreement.
Upfront fees charged by a lender at closing, expressed as a percentage of the loan amount. One point equals 1% of the loan. Points may function as origination fees or as prepaid interest used to lower the loan's ongoing rate.
A legal document that authorizes one individual to act on another's behalf for financial, legal, or medical decisions, including signing loan documents at closing.
A fee charged when a borrower pays off a loan before its scheduled maturity date, compensating the lender for interest income lost due to early repayment. Can be structured as a flat fee, a percentage of the remaining balance, or a step-down schedule.
A prepayment penalty structure in which the penalty percentage decreases incrementally each year over a set period. Common on rental and DSCR loan products, often structured over three to five years.
The remaining amount of borrowed funds that has not yet been repaid, exclusive of any accrued interest or fees.
Underwriter-specified requirements that must be satisfied before loan documents can be drawn. PTD conditions are cleared during the underwriting phase, prior to the borrower signing final documents.
Requirements that must be completed after documents are signed but before the lender releases funds. PTF conditions ensure all outstanding items are resolved at the final stage of the transaction.
A professional who facilitates private money and hard money real estate loans by connecting borrowers with suitable lenders, managing the origination process, and coordinating the loan file from application through closing.
A non-bank individual or entity that originates real estate loans using private capital rather than deposits or institutional funding. PMLs typically focus on non-owner-occupied, investment, and business-purpose transactions.
A signed written instrument in which a borrower unconditionally promises to repay a specific loan amount under defined terms and conditions. See also: Note.
A lender's legal right to pursue a borrower's personal assets beyond the collateral property to satisfy a debt obligation. Full recourse loans allow pursuit of all personal assets; limited or non-recourse structures restrict or eliminate this right.
A payment made to an individual or firm whose introduction of a borrower, property, or deal resulted in a completed transaction. Also called a finder's fee.
The process of paying off an existing loan by replacing it with a new one, often to obtain a lower interest rate, access equity, extend the repayment term, or transition to a different lender or loan structure.
A court order that permits a creditor to proceed with foreclosure, repossession, or other collection actions against a borrower who has filed for bankruptcy protection, which would otherwise pause such proceedings automatically.
A fee charged when a loan reaches its maturity date with an outstanding balance and the parties agree to extend the term rather than require immediate payoff or refinance. Rate and fee terms may change based on current market conditions.
A schedule listing all tenants in an income-producing property, along with their unit, lease term, monthly rent, and any outstanding balances. Lenders use the rent roll during underwriting to evaluate current occupancy and income stability.
A federally protected right that allows a borrower to cancel certain refinance transactions — on their primary residence — within three business days of signing the final loan documents, without penalty.
A detailed written description of the planned renovation or construction work on a property, including itemized tasks, materials, and cost estimates. Required by most lenders on fix-and-flip and rehab files to validate the proposed budget before funding.
A loan backed by a pledged asset — typically real property — that the lender may seize and sell to recover funds if the borrower defaults on the obligation.
A retirement account that allows the account holder to invest in a broader range of assets than traditional IRAs, including private real estate loans, notes, and other alternative investments, with the account custodian taking direction from the owner.
The primary mortgage or loan secured against a property, which takes priority over all other liens in the event of foreclosure or sale. Senior lienholders are paid first from any proceeds, before junior or subordinate lien holders.
A third-party company that manages the ongoing administration of a loan after it is funded, handling payment collection, escrow distributions, borrower statements, and delinquency management on the lender's behalf.
An attorney's office, escrow company, or title company that prepares and reviews closing documents, holds and distributes funds, and records the completed transaction with the appropriate government authority.
The Secured Overnight Financing Rate — a benchmark interest rate based on overnight U.S. Treasury repurchase agreement transactions, adopted as the standard replacement for LIBOR following its discontinuation at the end of 2022.
A preliminary document outlining the key proposed terms of a loan, including loan amount, interest rate, term, fees, and major conditions. Non-binding, but used to align expectations between borrower and lender before formal underwriting begins.
A foundational finance concept stating that a dollar available today is worth more than the same dollar received at a future date, because the current dollar can be invested immediately to generate a return.
A commitment issued by a title insurance company to provide a title policy on a specific property within a defined period. In some transactions, a binder can be transferred to a new buyer at a reduced cost.
An insurance policy protecting the lender, buyer, or both against financial loss resulting from title defects, undisclosed liens, boundary disputes, or other ownership issues that surface after closing.
A review of public land records tracing a property's ownership history, identifying any outstanding liens, encumbrances, judgments, or easements, and confirming that the seller or transferring party holds clear, marketable title.
A three-party security instrument used in many states as an alternative to a traditional mortgage. The borrower (trustor) conveys title to a neutral third party (trustee) to hold in trust on behalf of the lender (beneficiary) until the loan is fully repaid.
A federal law requiring lenders to provide standardized written disclosures of loan terms, costs, and APR before a borrower becomes legally obligated under a credit agreement, enabling informed comparison shopping.
The lender's process of evaluating the risk of a proposed loan by analyzing borrower creditworthiness, property value, deal structure, cash flow, and supporting documentation before issuing an approval or denial.
A guarantee under which a borrower is personally liable for the entire outstanding loan balance with no cap, giving the lender the right to pursue all of the borrower's personal assets in the event of default.
The practice of charging interest rates that exceed the maximum permitted by state law. Usury regulations vary significantly by state and by loan type, and violations can result in penalties or loan unenforceability.
An interest rate that fluctuates over the life of a loan in response to changes in a specified benchmark index or broader market conditions, causing monthly payment amounts to rise or fall accordingly.
The predetermined order in which proceeds from a property sale, refinance, or investment are distributed among parties. In private lending, a waterfall typically requires full lender payoff — including principal, interest, and fees — before any remaining proceeds flow to the borrower or equity holders.