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These are a number of hard money terms
and definitions that you may run into with hard money loans.
Appraisal
An independent and expert opinion on the
value of a property
Balloon
A loan that carries a fixed rate and/or
payment for a defined period of time, followed by either a change in
rate or the loan being due and payable in full.
Cash to Close
The amount of cash needed by the borrower
to close a transaction.
Closing Costs
Costs of the transaction, these fees
include points, title and escrow fees, processing fees, recording fees
and other fees associated with a real estate transaction.
Conventional Financing
Standard institutional or bank financing.
Credit Report
Report provided by the credit bureaus
which shows the history, current status, and profile of an individual.
Debt Ratios
Ratio of debt to pretax income, often
expressed as a front (housing payment only) or back (all debt) ratios.
Ex- $5000 monthly income, $1400 housing payment, $1700 total debt would
equal ratios of 28%/34%.
Down Payment
Amount of money needed to cover the
difference between the loan amount and the purchase price.
Earnest Money
Funds deposited to an escrow company with
a purchase agreement to show the buyers commitment to the transaction.
Funds held in Escrow
Usually for construction or rehab loans,
these are funds held in escrow to be used for construction or repairs to
the subject property.
Hazard Insurance
Insurance which covers damage or loss to
the property.
HUD-I (Settlement statement)
Final accounting prepared by title
company at closing which shows where all of the funds in the
transaction was coming from and going to.
Loan-to-Value (LTV)
Ratio of the loan amount to the value of
the property. For hard money purposes, this typically needs to be
in the 50-60% range. For example, a property worth $200,000 with a
loan amount of $100,000 would be at a 50% LTV.
Note
Document signed at closing promising to
repay the loan.
Points
The base cost of a loan. Hard money
loans can range from 3 points to 10 or more, depending on the
transaction. These points are typically paid to the broker and/or
investor
Pre Payment Penalty
A period of time, during which there is a
financial penalty for paying more than 20% of the principal balance of
the loan off.
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