Hard Money Glossary

An estimate of the value of a property after it has been repaired and renovated. This is a critical number for fix & flip loans, as it helps determine the potential profitability of a flipping project and the loan amount.

An appraisal prediction on the future value of the property after the construction project is finished.

A lump sum paid at the end of a loan term to settle the outstanding balance, which is a common feature of many hard money loans.

A short-term financing option used to bridge the gap between immediate funding requirements and long-term financing. This is ideal for investors needing quick capital on their investment opportunity prior to securing permanent financing or selling the property.

A short-term loan intended to finance the building of a real estate project, where the loan amount is based not on the completed project's value, but on the cost of construction. Funds are typically disbursed in a series of draws as construction progresses.

A loan that starts as a construction loan to cover the cost of building a property, which then converts into a long-term, permanent mortgage once construction is completed.

An extra amount of money included in the budget and loan amount to cover unexpected costs during the construction process.

The use of additional properties as collateral for a hard money loan in addition to the primary property being financed. This can help a borrower get approved for a larger loan amount or better terms.

An arrangement where legal title to real property is transferred to a trustee, which holds it as security for a loan between a borrower and lender.

The failure to fulfill the legal obligations of a loan contract, such as regular payments. In hard money lending, a default can lead to a quicker foreclosure process compared to traditional bank loans.

A detailed payment plan for construction loans where funds are released ('drawn') at various stages of the construction process upon completion of predetermined phases of the project.

The process of research and analysis that takes place before agreeing to a financial transaction, such as a loan. Due diligence in hard money lending includes assessing the value of the property, the credibility of the borrower, and the feasibility of the investment plan.

A specified period before finalizing a loan where the borrower performs thorough research to confirm the property's value, title, and sustainability for the intended construction project.

The interest of a borrower in a property under a contract for deed or an installment contract, where the borrower does not hold full legal title until the total loan amount is paid.

The difference between the current market value of a property and the amount the owner still owes on the mortgage. Equity increases as the mortgage is paid down and/or as the property value appreciates.

The borrower's planned method of paying off a loan at or before the term's end. In real estate investing, common exit strategies include selling the property, refinancing, or renting it out.

A type of hard money financing for real estate investors looking to purchase properties in need of repairs or renovation with the intent to sell them for a profit. This loan covers the purchase and renovation costs and is known for its quick funding and flexibility.

The process by which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments by forcing the sale of the asset used as collateral for the loan.

A loan primarily used in real estate investing, where funds are secured by real property and provided by private investors or companies instead of banks. It is characterized by short-term durations, higher interest rates, and fast approval times.

A portion of a loan set aside to cover interest payments during the term of the loan. This particularly applies to construction and rehab loans, where the borrower might not have sufficient cash flow to make interest payments during the project development phase.

A specifically designated account from which interest payments are made during the term of a construction loan so the borrower doesn't have to make interest payments out of pocket.

A loan used by developers to buy raw land and finance the making of improvements; utility connections, roads, or leveling the land. These improvements are used for future construction or sales.

A document from contractors, subcontractors, or suppliers stating that they have received payment and waive any future lien rights to the property for the amount paid.

A ratio that compares the amount of the construction loan to the total cost of the project, which includes land, labor, materials, and other related costs.

A financial term that expresses the ratio of a loan to the value of an asset purchased. In hard money lending, a lower LTV often means a more secure loan for the lender.

A security interest granted over a property to builders, contractors, or construction firms that have provided labor or materials to improve the property.

A form of pre-paid interest, where "one point" equals 1% of the loan amount. These fees are typically charged upfront by hard money lenders as part of the closing costs.

Similar to a fix & flip loan, a rehab loan provides funds for the purchase and improvement of a property. Rehab loans focus on major renovations and are suited for properties that require extensive repairs to become habitable or market-ready.

Another term for Bridge Loan, typically used to provide temporary financing until longer-term financing can be secured.

A loan with a set duration for repayment, typically with a fixed interest rate, which can be used for real estate construction in certain circumstances.

The process by which a lender evaluates the risk of lending money to a borrower, particularly in assessing the feasibility of a construction project and the ability of the borrower to repay the loan.