0-9
70% rule
A rule of thumb house flippers use to cap what they pay for a property: the purchase price plus the renovation budget should not exceed 70% of the after repair value. The remaining 30% is the margin that covers financing, holding costs, selling costs and profit. Lenders do not underwrite to the rule itself, but a deal that breaks it usually breaks the loan-to-value cap too.
1031 exchange
A tax-deferred exchange under Section 1031 of the Internal Revenue Code that lets an investor sell one investment property and buy another without recognising the capital gain, provided the replacement is identified and closed within strict deadlines through a qualified intermediary. Bridge loans are often used to close the replacement property before the relinquished one has sold.
A
Ability to repay (ATR)
The federal rule that requires a lender making a consumer purpose mortgage to make a good-faith determination that the borrower can repay the loan from income and assets, documented and verified. It applies to owner-occupied and second-home loans, not to business purpose loans, which is the main reason most hard money lenders write business purpose loans only.
Consumer purpose second mortgages guide
After repair value (ARV)
The estimated market value of a property once the planned renovation is complete, supported by comparable sales of finished homes nearby. Fix and flip lenders use it to size the loan and to judge whether the resale can repay the debt, the costs and still leave a profit. It is an opinion of future value, so lenders discount it and cap the loan against it.
ALTA title policy
A lender's title insurance policy written on forms published by the American Land Title Association. It insures the lender against defects in title, undisclosed liens and errors in the public record, and it is a standard closing requirement on hard money loans because the lender's security is only as good as the title behind it.
Appraisal
A licensed appraiser's written opinion of a property's value on a given date, based on comparable sales, the income approach or the cost approach. Most hard money loans require one, though some lenders accept a broker price opinion or a site inspection with comparable sales on smaller, faster loans. The appraisal sets the value that the loan-to-value ratio is measured against.
As-is value
The market value of a property in its current condition, before any renovation. On a fix and flip or construction loan it is the value at closing, and the lender advances against it first; the after repair value only comes into play as rehab funds are released. A low as-is value with a high renovation budget is the classic hard-to-finance deal.
Asset-based loan
A loan approved primarily on the value and quality of the collateral rather than the borrower's income or credit score. Hard money loans are asset-based: the property, the equity behind the loan and the exit strategy drive the decision, while credit and liquidity adjust the price. Asset-based does not mean the borrower is not reviewed; it means the property comes first.
B
Bailout loan
A loan that refinances a borrower out of a distressed position, most often a loan in default, a notice of default already recorded, or a matured loan the current lender will not extend. The new lender is repaid from the equity in the property, so bailouts depend on leverage and a credible plan to sell or refinance again, not on the borrower's recent payment history.
Balloon payment
The lump sum of remaining principal due when a loan matures, typical of interest-only short-term loans where the monthly payments cover interest alone. On a bridge or fix and flip loan the balloon is repaid by the exit: a sale, a refinance into a long-term loan, or funds from another source. Planning the balloon is planning the loan.
Bank statement loan
A mortgage that qualifies a self-employed borrower on the deposits shown in personal or business bank statements over a set period, instead of tax returns and W-2s. It is a consumer or business purpose loan depending on the property's use, and it exists because tax returns often understate what a business owner actually earns.
Blanket loan
One loan secured by two or more properties under a single note and deed of trust, with release provisions that let individual properties be sold and released as portions of the loan are paid down. Investors use blanket loans to consolidate several mortgages, to raise leverage by pledging extra collateral, or to buy a new property before an existing one sells.
Blanket and cross-collateral loans
Bridge loan
A short-term loan that carries a borrower between two events: a purchase and a sale, an acquisition and a permanent loan, or a distressed position and a clean one. Bridge loans are usually interest-only with a balloon at maturity, sized on the property's value and repaid by a defined exit. They trade a higher rate for speed and flexibility.
Broker price opinion (BPO)
A real estate broker's estimate of a property's value based on comparable sales and a drive-by or interior inspection. It is faster and cheaper than an appraisal and some hard money lenders accept one on lower-leverage loans, but it is not an appraisal and cannot be used where a licensed appraisal is required by law or by the lender's investors.
Business purpose loan
A loan whose proceeds are used primarily for business or investment purposes: buying or improving a rental, funding a flip, financing a commercial building, or providing working capital for a business. Business purpose loans on investment property fall outside most consumer mortgage regulation, which is why nearly all hard money lending is business purpose.
C
Cap rate
The capitalisation rate: a property's net operating income divided by its price or value, expressed as a percentage. It is the yield a buyer earns on an all-cash purchase and the shorthand investors and lenders use to compare income properties. A higher cap rate means a cheaper price for the same income, and usually more perceived risk.
Cash-out refinance
A refinance that replaces an existing loan with a larger one and pays the difference to the borrower in cash, drawn from the equity in the property. Investors use cash-out refinances to fund the next purchase, pay for renovations or retire more expensive debt. Lenders usually cap cash-out leverage below the cap for a purchase or a rate-and-term refinance.
Combined loan-to-value (CLTV)
All the liens on a property added together and divided by its value. A first mortgage at 50% of value plus a second at 20% is a 70% CLTV. Second mortgage lenders underwrite to CLTV rather than to their own loan alone, because in a foreclosure the first lien is paid in full before the second sees a dollar.
Comparable sales (comps)
Recent sales of similar properties in the same area, adjusted for differences in size, condition and features, used by appraisers, brokers and lenders to estimate what a property is worth today or after repair. Good comps are close, recent and truly similar; a value built on distant or dated comps is the most common reason a loan is cut back in underwriting.
Consumer purpose loan
A loan whose proceeds are used primarily for personal, family or household purposes: buying or refinancing the home you live in, consolidating personal debt, paying for a wedding or a divorce settlement. Consumer purpose loans secured by a dwelling carry the full weight of federal and state mortgage regulation, including ability-to-repay rules and disclosure timelines.
Consumer purpose second mortgages guide
Cross-collateralization
Pledging more than one property as security for a single loan, so the lender can look to any of them if the loan defaults. It is the mechanism behind blanket loans and a common way to make a thin deal work: extra equity from a second property raises the lender's cushion without the borrower bringing more cash to the table.
D
Debt service coverage ratio (DSCR)
A property's net operating income divided by its annual debt payments. A ratio of 1.0 means the rent exactly covers the mortgage; above 1.0 the property carries itself with room to spare; below 1.0 the owner is subsidising it. DSCR loans qualify a rental on this ratio instead of the borrower's personal income.
Deed of trust (DOT)
The recorded instrument that secures a loan against real estate in California and many other states, involving three parties: the borrower (trustor), the lender (beneficiary) and a trustee who holds the power to sell the property if the borrower defaults. Deeds of trust allow non-judicial foreclosure, which is why trust deed lending works the way it does.
Direct lender
A lender that funds loans with its own capital or capital it controls, and makes its own credit decisions, as opposed to a broker who places the loan with someone else's money. The label matters less than the answers to three questions: who makes the decision, how fast, and what the whole cost of the loan is.
Draw
A release of renovation or construction funds from the holdback portion of a loan, paid after the lender confirms that a stage of the work is complete, usually through an inspection and a review of invoices. Draws are how a fix and flip or ground-up loan funds the build in step with progress rather than in one advance at closing.
Dutch interest and non-Dutch interest
Two ways to charge interest on a loan with a holdback. Dutch interest accrues on the full loan amount from day one, including the rehab funds not yet released. Non-Dutch interest accrues only on the balance actually drawn, so the borrower pays for construction money as it is used. Non-Dutch is cheaper for the borrower on any staged project.
E
Equal Housing Lender
The statement and logo a lender uses to affirm compliance with the federal Fair Housing Act and the Equal Credit Opportunity Act, which prohibit discrimination in lending on the basis of race, colour, religion, national origin, sex, disability, familial status and other protected characteristics. The disclosure is standard on consumer mortgage advertising.
Escrow
A neutral third party that holds the documents and funds for a real estate transaction and releases them only when every condition of the agreement is met. In California, escrow companies or title companies handle the closing of most loans: they collect signatures, disburse the lender's funds, pay off existing liens and record the deed of trust.
Exit strategy
The plan for repaying a short-term loan at or before maturity: selling the property, refinancing into a long-term loan, or paying it off from another source. Lenders underwrite the exit as carefully as the property, because a loan with no realistic exit becomes a foreclosure with extra steps. Bring evidence for the exit, not just an intention.
F
FICO score
The credit score most lenders use, produced by the Fair Isaac Corporation from the information in a borrower's credit reports. Hard money lenders check it, but they use it to price and structure the loan rather than to decide it; some programs publish a minimum, others accept bad credit when the equity and the exit are strong.
Do hard money lenders check credit?
First, second and third lien position
The order in which recorded loans are repaid if a property is sold or foreclosed. The first lien is paid in full before the second, and the second before the third. A junior position is riskier for the lender because a decline in value hits it first, so second and third mortgages carry higher rates and lower combined leverage than a first.
Fix and flip loan
A short-term loan that funds the purchase and renovation of a property the borrower intends to resell, with the rehab budget held back and released in draws as work is completed. It is sized on both the as-is value and the after repair value, and it is repaid from the sale, or from a refinance if the borrower decides to hold the property instead.
Foreclosure auction (trustee's sale)
The public sale of a property by the trustee under a deed of trust after the borrower defaults and the statutory notice periods run. In California the sale is non-judicial, the winning bidder pays in full with certified funds, and the property is bought as-is with no contingencies, which is why investors arrange hard money before they bid.
Foreign national loan
A loan to a borrower who is not a United States citizen or permanent resident and typically has no domestic credit history. Business purpose hard money loans suit foreign nationals because they are approved on the property and the equity; some lenders also require a domestic bank account, an ITIN, or a larger down payment.
G
Gap funding
Money that fills the space between what the senior lender will advance and what the deal needs, usually the down payment, closing costs or a budget overrun on a flip. It arrives as a second lien, an equity partner or seller financing. Most hard money lenders limit or refuse gap funding behind their own loan because it removes the borrower's own money from the deal.
H
Hard money loan
A short-term real estate loan from a private source, approved on the value of the property and the strength of the exit rather than the borrower's income or credit, and priced above bank loans in exchange for speed, leverage and flexibility. Bridge, fix and flip, construction and second mortgages are the common forms.
HELOC (business purpose)
A home equity line of credit written for business or investment use, secured by a second deed of trust and drawn down as needed rather than advanced in one sum. A private money version gives an investor revolving access to equity in a rental or a primary residence used for business purposes, with interest charged only on the balance outstanding.
Business purpose second mortgages guide
Holdback
The portion of a loan that the lender keeps back at closing to fund renovation or construction, released in draws as the work is completed and inspected. The holdback protects the lender from funding work that never happens and gives the borrower a budget that is committed before the project starts.
Hybrid loan
A commercial or multifamily loan that is fixed for an initial period, commonly three, five, seven or ten years, and then adjusts to a market index for the remainder of a longer amortisation. Investors choose the fixed period to match their business plan and hold horizon rather than paying for a fixed rate they will never use.
I
Interest guarantee
A requirement that the borrower pay a minimum number of months of interest even if the loan is repaid earlier, used by some lenders in place of a prepayment penalty. It protects the lender's investors from a loan that pays off before the cost of making it has been recovered. Ask whether a quote carries one before comparing rates.
Interest reserve
An amount set aside from the loan proceeds at closing to make the monthly interest payments for a period, so a property with no income during renovation or lease-up does not have to be carried from the borrower's cash. The reserve is part of the loan and is repaid at the exit like the rest of the principal.
Interest-only payment
A monthly payment that covers the interest accrued that month and none of the principal, leaving the full loan balance to be repaid at maturity. Most short-term hard money loans are interest-only, which keeps the carrying cost low while a property is being renovated, leased up or sold, and puts the principal repayment on the exit.
ITIN mortgage
A home or investment loan made to a borrower who files taxes with an Individual Taxpayer Identification Number rather than a Social Security number. ITIN programs sit in the non-QM space and rely on alternative documentation; for investment property, a business purpose hard money loan is often the simpler route because it is approved on the asset.
L
Letter of intent (LOI)
The lender's written summary of the proposed loan, covering amount, rate, term, points, fees, leverage and conditions, which the borrower signs to move the file into processing. It is not a commitment to lend; it is the agreed shape of the deal and the point at which third-party reports are ordered. Signing the LOI is step three of Loan Goat's process.
Loan servicing
The administration of a loan after it closes: collecting payments, managing the interest reserve and draws, sending statements and payoff demands, and handling defaults. Private loans are often serviced by a specialist servicing company on the lender's or investor's behalf, so the borrower deals with the servicer for payments and the lender for decisions.
Loan-to-cost (LTC)
The loan amount divided by the total cost of the project, meaning the purchase price plus the renovation or construction budget. LTC measures how much of the deal the borrower is funding from equity. Lenders use it alongside loan-to-value on any project that adds value, and the loan is sized to whichever ratio produces the smaller number.
Loan-to-value (LTV)
The loan amount divided by the appraised value of the property, expressed as a percentage. It is the single most important number in hard money: it measures the equity cushion between the loan and a loss, drives the rate and the points, and sets the ceiling for every program. A lower LTV is the surest route to a better price.
M
Matured loan
A loan that has reached the end of its term with a balance still owing, typically the balloon on a short-term loan whose exit ran late. The current lender may extend it, charge default interest, or begin foreclosure. Refinancing a matured loan with a new lender is a common bailout scenario when the equity supports it.
Mezzanine debt
Financing that sits between the senior mortgage and the owner's equity in a commercial capital stack, secured by a pledge of the ownership interest in the borrowing entity rather than by a lien on the property. It raises total leverage at a higher cost than the first mortgage and is repaid after the senior lender but before the equity.
Mortgage broker
A licensed intermediary who arranges a loan between a borrower and a lender and is paid a fee for placing it. Brokers reach capital the borrower cannot reach alone and package the file for the lender's underwriting. In California, brokers who arrange private money loans are licensed by the Department of Real Estate.
N
Net operating income (NOI)
A property's income from rent and other sources minus its operating expenses (taxes, insurance, management, maintenance, utilities), before debt service, depreciation and income tax. NOI is the number that cap rates and debt service coverage ratios are built on, so a lender's view of NOI decides the size of a commercial or rental loan.
NMLS
The Nationwide Multistate Licensing System, the registry through which mortgage companies and individual loan originators are licensed and tracked across states. Every licensed originator and company has an NMLS number that consumers can look up on NMLS Consumer Access. Loan Goat's company and branch numbers are printed in the footer of this site.
Non-QM loan
A mortgage that does not meet the federal definition of a qualified mortgage, usually because income is documented through bank statements, a profit and loss statement, rental income or assets rather than tax returns. Non-QM loans are long-term, amortising loans priced above conventional mortgages and are the usual exit from a hard money loan on a property the borrower keeps.
Non-recourse and recourse
A recourse loan lets the lender pursue the borrower personally for any shortfall after the collateral is sold; a non-recourse loan limits the lender to the property, except for bad-boy carve-outs such as fraud or waste. Most hard money loans are recourse and are backed by a personal guaranty from the principal of the borrowing entity.
Non-warrantable condo
A condominium unit in a project that fails the eligibility rules of the government-sponsored agencies, for reasons such as a high share of rentals or investor owners, litigation, a single owner holding many units, or a commercial component that is too large. Conventional lenders decline them; DSCR and hard money lenders finance them on the unit's value and income.
Notice of default (NOD)
The recorded notice that starts the non-judicial foreclosure process under a deed of trust in California, filed after the borrower misses payments and the lender elects to proceed. The borrower has a statutory period to cure the default before a notice of sale can be recorded. A recorded NOD is public, and lenders who refinance out of one price for the risk.
O
Origination fee (points)
The fee a lender charges for making the loan, expressed in points, each point equal to one percent of the loan amount, and paid at closing from the proceeds. Points move with the same risk factors as the rate. They are part of the total cost of the loan and should always be compared alongside the rate, the fees and any prepayment terms.
P
P&L loan
A mortgage that qualifies a business owner on a profit and loss statement for the business, often prepared or reviewed by a tax professional, rather than on tax returns or bank statements. It is a non-QM product built for borrowers whose returns show heavy write-offs, and it applies to owner-occupied and investment property alike.
Personal guaranty
A promise by the principal of a borrowing entity to repay the loan personally if the entity does not. Hard money lenders lending to an LLC almost always require one, because it keeps the person behind the deal accountable for the outcome. The guaranty is what makes a loan recourse in practice.
Prepayment penalty
A charge for repaying a loan before an agreed date, designed to give the lender's investors a minimum return. Short-term hard money loans often carry none, since the lender expects an early payoff, while some carry an interest guarantee instead. Long-term rental loans may carry a step-down penalty in the early years. Read the note before you assume.
Private money loan
A real estate loan funded by a private individual, family office or fund rather than a bank, underwritten around the property and the relationship with the borrower. The term overlaps almost entirely with hard money; where a distinction is drawn, private money is priced more on the borrower and hard money more on the asset.
Proof of funds
Documentation, usually recent bank or brokerage statements, showing that the borrower holds the cash needed for the down payment, closing costs, reserves and any renovation contribution. It is one of the three documents Loan Goat's fix and flip program lists at application, alongside the application itself and the schedule of real estate owned.
Q
Qualified intermediary
The independent party that holds the sale proceeds during a 1031 exchange so the investor never takes possession of the cash, which would trigger the tax. The intermediary receives the funds at the sale, holds them through the identification period and pays them to the closing of the replacement property. The exchange fails without one.
R
Rehab budget
The itemised cost of the renovation on a fix and flip or value-add project, usually broken down by trade and supported by contractor bids. The lender uses it to size the holdback, to schedule draws and to judge whether the after repair value is realistic. A budget without a contingency line is the first thing an underwriter questions.
Rent roll
A schedule of every unit in an income property with the tenant, lease dates, monthly rent and any deposits or arrears. Together with the operating expenses it produces net operating income, so lenders on multifamily, mixed-use and portfolio loans ask for it early and check it against the leases and the bank deposits.
REO
Real estate owned: property a lender has taken back through foreclosure and now holds on its books. Banks and servicers sell REO through agents and online auction platforms, often at prices that reward buyers who can close quickly with financing already arranged.
Reverse 1031 exchange
A 1031 exchange in which the replacement property is bought before the relinquished property is sold, with an exchange accommodation titleholder parking one of the properties until the sale closes. Because the investor's equity is still tied up in the property being sold, the purchase usually needs bridge financing.
S
Schedule of real estate owned (SREO)
A list of every property the borrower owns or has an interest in, with the address, the value, the loans against it, the monthly payment and the rent. It shows the lender the borrower's experience, leverage and cash flow at a glance, and it is a standard application document on hard money and investor loans.
Seasoning
The length of time a borrower has owned a property, held a loan, or had funds in an account. Lenders apply seasoning rules to cash-out refinances (how long since purchase before the new value is accepted), to bank deposits (how long before large deposits count) and to payment history. Hard money programs tend to require less seasoning than banks.
Stage funding
Funding a construction or renovation loan in stages tied to completed work, foundation, framing, roof and so on, rather than advancing the full budget at closing. Each stage is verified before the next release. Stage funding is the practical form that a holdback and draw schedule takes on a ground-up build.
T
Term sheet
The lender's one or two page summary of a proposed loan: amount, rate, term, points, fees, leverage, prepayment terms, reserves and the conditions to close. It is the document to compare between lenders, because it shows the whole cost and structure rather than a headline rate. A term sheet becomes a letter of intent once both sides sign it.
Title insurance
An insurance policy that protects an owner or a lender against losses from defects in the title to a property, such as undisclosed liens, forged documents or errors in the public record. A lender's policy is required on virtually every real estate loan and is paid for once at closing.
Trust deed investing
Lending private capital on real estate loans secured by a recorded deed of trust, in exchange for the monthly interest the borrower pays. The investor is the lender of record or a fractional holder of the note, the property is the security, and a broker or fund originates, underwrites, documents and services the loan.
Trustee
The neutral third party named in a deed of trust who holds the power of sale and conducts the foreclosure auction if the borrower defaults, then reconveys the deed when the loan is repaid. The trustee is usually a title company or a specialist trustee company, acting under the instructions of the beneficiary within the statutory process.
