hese 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
ARV:-
After repair value – often used as a basis for lending on rehab loans and construction or construction completion loans.
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.