Lending Glossary

The estimated value of a property after all renovations are complete. Used to determine the profitability of fix & flip projects and maximum loan amounts.

The process of paying off a loan through regular scheduled payments of principal and interest over a set period.

Short-term financing used to bridge the gap between purchasing a property and obtaining permanent financing or selling the property.

The total amount of cash a borrower needs at closing, including down payment, origination fees, and third-party closing costs.

A disbursement of loan funds during the construction process, typically released after inspection of completed work at each project milestone.

The ratio of a property's net operating income to its total debt service payments. A DSCR above 1.0 means the property generates enough income to cover its debt.

The portion of the purchase price paid upfront by the borrower at closing. Private lenders typically require 10-25% down.

A predetermined plan outlining when and how much money will be released during a construction project, tied to completion milestones.

The borrower's plan to repay the loan, such as selling the property (fix & flip) or refinancing into a long-term mortgage (DSCR rental).

An investment strategy where an investor purchases a property, renovates it, and sells it for profit within a short time frame (typically 6-18 months).

Building a new structure from scratch on vacant land or after demolishing an existing structure. Requires specialized construction financing.

A short-term, asset-based loan secured by real estate. Funded by private lenders rather than banks, with approval based primarily on the property's value.

Monthly expenses incurred while owning a property, including loan interest, property taxes, insurance, utilities, and maintenance.

A payment structure where the borrower pays only the interest on the loan each month, with the principal due at maturity. Common in short-term private loans.

The ratio of the loan amount to the total project cost (purchase price + renovation budget). A 90% LTC means the lender finances 90% of the total cost.

The ratio of the loan amount to the property's current market value or purchase price, whichever is lower. Used to assess lending risk.

A property's total income minus operating expenses (taxes, insurance, management, maintenance), excluding mortgage payments. Key metric for DSCR calculations.

A fee charged by the lender at closing, expressed as a percentage (points) of the loan amount. Covers the cost of processing and underwriting the loan.

A fee equal to 1% of the loan amount. For example, 2 points on a $300,000 loan equals $6,000. Charged as an origination fee at closing.

An initial assessment of a borrower's eligibility for a loan, based on self-reported information. Not a commitment to lend but indicates likely approval.

A non-bank entity that provides real estate financing, typically with faster approval, more flexible terms, and higher rates than conventional lenders.

The estimated total cost of renovating a property, including materials, labor, permits, and a contingency reserve (typically 15-20%).

The percentage return on capital invested. For fix & flip, ROI = Net Profit / Total Cash Invested x 100.

A detailed document listing all renovation tasks, materials, and costs for a fix & flip or construction project. Required for loan approval.

A document outlining the proposed loan terms including rate, LTV, fees, and conditions. Issued after initial review, before full underwriting.

Insurance that protects the lender and borrower against claims of ownership or liens on the property. Required at closing.

The process of evaluating a loan application by analyzing the property value, borrower experience, project feasibility, and exit strategy.

The percentage of time a rental property is expected to be unoccupied. Typically 5-10% for residential rentals, used in DSCR calculations.