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Private Money & 

Additional Principal Payment

A payment by a borrower of more than the scheduled principal amount or more than the minimum payment due in order to reduce the remaining balance on the loan.

Adjustable Rate Mortgage (ARM)

An ARM is a mortgage with an interest rate that can be increased or decreased from time to time, depending on various factors.

After Repair Value (ARV)

The After-Repair Value estimates the future value of a renovation property after it’s been repaired. ARV is not a property’s current value when purchased but rather the estimated value of the property once improvements are made. ARV is commonly associated with fix & flips.


The gradual reduction of a loan balance, generally made in regular payments over a specified period of time. Payments are typically made to cover interest and principal. Many private money loans will typically be interest only because they are for a shorter duration than bank loans.

Amortization Schedule

A table showing the breakdown of amortized loan payments into principal and interest portions as well as the remaining loan balance after each payment.

Annual Percentage Rate (APR)

The cost of credit, including points and fees, on a yearly basis, expressed as a percentage.

Application Fee

A loan application fee is a fee charged to a potential borrower for processing an application for a loan. Loan application fees can be required for all types of loans and are intended to pay for the costs of the process of loan approval.


A written professional opinion and analysis of the estimated market value of real estate which will be used as collateral for the mortgage loan.

Appraisal Management Company (AMC)

An independent 3rd party entity through which mortgage lenders order residential real estate valuation services for properties on which they are considering extending loans to homebuyers.

Appraiser Independence Requirements

An appraiser must be licensed or certified by the state in which property to be appraised is located. No employee, director, officer, or agent of the Seller, or any other third party acting as joint venture partner, independent contractor, appraisal company, appraisal management company, or partner on behalf of the Seller, shall influence or attempt to influence the development, reporting, result, or review of an appraisal through coercion, extortion, collusion, compensation, inducement, intimidation, bribery, or in any other manner.

Arrears (or arrearage)

A legal term for the part of a debt that is overdue after missing one or more required payments. The amount of the arrears is the amount accrued from the date on which the first missed payment was due.


Person to whom rights to a property, title or other interest are transferred.


Document transferring rights to a property, title or other interest from one party to another.

Automated Clearing House (ACH)

A term for a technology service that uses mathematical modeling combined with databases of existing properties and transactions to calculate real estate value estimates. Most AVMs compare values of similar properties at the same point in time. The product of AVM technology comes from analysis of public record data and computer decision logic combined to provide a calculated property value estimate.

Automated Valuation Model (AVM)

A term for a technology service that uses mathematical modeling combined with databases of existing properties and transactions to calculate real estate value estimates. Most AVMs compare values of similar properties at the same point in time. The product of AVM technology comes from analysis of public record data and computer decision logic combined to provide a calculated property value estimate.

Bad Boy Clause

A common name given to fraud indemnity and guarantee clauses in a loan agreement.

Balloon Loan

A balloon loan is a type of loan that does not fully amortize over its term. Considering it does not fully amortize, a balloon payment is required at the end of the term to repay the remaining principle balance of the loan.

Balloon Payment

A balloon payment is a larger-than-usual one-time payment, typically required at the end of a loan term. Generally, a balloon payment is more than two times the loan's average monthly payment. A majority of balloon loans require one large payment that pays off the remaining principle balance at the end of the loan term.


Bankruptcy is the legal proceeding involving a person or business that is unable to repay outstanding debts. The bankruptcy process begins with a petition filed by the debtor, which is most common, or on behalf of creditors, which is less common. All the debtor's assets are measured and evaluated, and the assets may be used to repay a portion of outstanding debt.

Basis Point (BPS)

A common unit of measure for interest rates and other percentages in finance. One basis point is equal to 1/100th of 1%, or 0.01%, or 0.0001, and is used to denote the percentage change in a financial instrument. The relationship between percentage changes and basis points can be summarized as follows: 1% change = 100 basis points and 0.01% = 1 basis point.

Beneficiary Demand

Document detailing the requirements for a borrower to be released from a debt.

Beneficiary Statement

Statement of the remaining principal balance and other information about a loan.

Binder Title Policy

An offer to insure title on a property which will be resold in a short period of time (e.g. a few years). Binder policies are typically a small percentage over the original policy price and is substantially less expensive than purchasing a policy when a property is purchased and later resold.

Bridge Loan

Short-term financing which bridges the gap of other financing and is typically for a term of less than one year. This is sometimes called a swing loan or bridge financing.

Broker Price Opinion (BPO)

A property inspection by a licensed real estate broker which results in a written evaluation of the property and the estimated sale price and value estimate.


A cap, also known as an interest rate cap, is a provision of a loan agreement that limits the amount that an interest rate can change in an adjustment interval or over the term of the loan.

Capital Expenditure (CapEx)

Funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, land, technology, or equipment.

Cash Flow

Cash flow is the net amount of cash and cash-equivalents being transferred into and out of a business. At the most fundamental level, a company's ability to create value for shareholders is determined by its ability to generate positive cash flows, or more specifically, maximize long-term free cash flow.

Chapter 13 Bankruptcy

Also called a wage earner's plan. It enables individuals with regular income to develop a plan to repay all or part of their debts. Under this chapter, debtors propose a repayment plan to make installments to creditors over three to five years.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy protection allows debtors to get rid of most of their debts and start over with a clean slate. However, it also has drawbacks, including the loss of property and a depressed consumer credit score. Chapter 7 BK, also called "Liquidation" or "Straight Bankruptcy," is the process by which a debtor's assets are sold, creditors receive payment, and you are then free from your debts.

Close of Escrow

A real estate transaction has been completed and the sale is final.


The "closing" is the period in which a loan transaction is finalized.

Closing Costs

Fees paid at closing for loan origination and processing, including attorneys' fees, fees for preparing and filing a mortgage, fees for title search, taxes and insurance.


For real estate loans, the collateral is the real property used to secure repayment of a loan.


A loan goes into collection when payment on a loan is delinquent and efforts are made to collect the amount due. This is also the stage at which the lender files the papers necessary to prepare to proceed with foreclosure. Collection is typically handled by the loan servicer. Hard money lenders will be more aggressive than banks at collecting on loans because their private money investor clients keep a more watchful eye on the loans than do government sponsored agencies and/or banks. In addition, the banks do not want to make "headlines" by foreclosing too quickly.

Combined Loan to Value (CLTV)

The sum of all liens on the property divided by the value of the property. CLTV is typically used when there's more than one lien and LTV when there is only one lien.

Conditional Personal Guarantee

A conditional personal guarantee is a provision a lender puts in a loan agreement that requires the borrower to be personally responsible for their debt in the event of default.


Another person alongside the borrower who signs the loan and assumes responsibility for the payments and the liability.

Credit Bureau

An organization that collects and researches individual credit information and sells it for a fee to creditors so they can make a decision on granting loans.

Credit Report

Information collected by credit bureaus about an individual's credit history, including a list of credit accounts, their balances, and monthly payments along with collection accounts and public record information such as liens and bankruptcies.

Credit Score

Your credit score is a three-digit number that relates to how likely you are to repay debt. Banks and lenders use it to decide whether they'll approve you for a credit card or loan.


A person or business from whom you borrow or to whom you owe money.

Debt Consolidation

It refers to the act of taking out a new loan to pay off other liabilities, mortgages or consumer debt. In mortgage-lending, this is refinancing one or more existing debts into one secured loan against a property.

Debt Service Coverage Ratio (DSCR)

Net operating income divided by total debt service.

Debt-to-income Ratio

A personal finance measure that compares an individual's monthly debt payment to his or her monthly gross income. Your gross income is your pay before taxes and other deductions are taken out. The debt-to-income ratio is the percentage of your gross monthly income that goes to paying your monthly debt payments.


Default on a loan is when a borrower fails to comply with any of the terms of an agreed-upon loan, including timely repayment.

Default Interest Rate

An increased interest rate imposed if there is a breach of the loan terms.


Loss of value in real property brought about by age, physical deterioration, market decline or functional/economical obsolescence.


Typically issued in the form of documents, disclosures provide borrowers with key information designed to inform them about the costs associated with obtaining a loan, as well as their rights as a consumer, both on a federal level, as well as any applicable state laws, rules, and regulations.

Discount Rate

Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal Reserve Bank through the discount window loan process, and second, the discount rate refers to the interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.

Equal Credit Opportunity Act (ECOA)

The Equal Credit Opportunity Act (ECOA) is a federal law that prohibits lenders from discrimination on the basis of race, color, religion, national origin, age, sex, marital status, or receipt of income from public assistance programs or the exercise of certain consumer rights.


The difference between the fair market value (appraised value) of real property and any outstanding loans, liens and encumbrances. Hard money lenders require substantially more equity than banks on their loans because their private money investors are not insured by the government and therefore require more protection.


Escrow is a separate account where money and/or documents are held by a third party until agreed upon terms and conditions are met. Escrows serve as a neutral third party upon which lenders, borrowers, investors and loan originators may rely.

Escrow Company

Oversees the execution of real estate transactions to include closing documents, disbursement of funds, and the recording of documents at the county offices. Also known as a Settlement Services Company.

Estoppel Certificate

A form used in real estate to verify facts on a property regarding rents, leases, mortgage balances, monthly payments, etc.

Fair Credit Reporting Act

A federal law that regulates the collection of consumers' credit information and access to their credit reports. The law was created to address the fairness, accuracy, and privacy of the personal information contained in the files of the credit reporting agencies.

Fair Market Value

Price an asset would sell for on the open market when certain conditions are met. For example: All parties involved are aware of all facts, are acting in their own interest, are free from undue pressure, and have ample time to make informed decisions.

FICO Score

a three-digit number based on the information in your credit report. It helps lenders determine how likely you are to repay a loan. This, in turn, can affect how much you can borrow, how many months you have to repay, and how much it will cost. (the interest rate)

Finance Charge

The total amount of interest and loan charges a borrower will pay over the entire life of the loan.

Finder's Fee or Referral Fee

A commission paid to a person or entity that facilitated a deal by connecting a potential customer with an opportunity.

Fixed-Rate Loan

A fixed-rate loan is one in which the interest rate or scheduled principal and interest payment amount does not change during the course of the loan.

Forced Place Insurance

Lien holders will put forced place insurance onto a mortgaged property in cases where the borrower allows the coverage they were required to purchase to lapse. Lapses may be due to non-payment of premium, filing false claims, or other reasons. Forced place insurance will protect the property, the homeowner, and the lien holder.


The legal process by which lender takes control of a property, evicts the homeowner and sells the home after a homeowner is unable to make full principal and interest payments on his or her mortgage, as stipulated in the mortgage contract.

Foreclosure Fees

Costs incurred by a lender to foreclose on a property. These costs are typically added to the balance of the loan.

Fractionalized Loan

A single loan funded by two or more different investors.

Full Recourse Loan

A loan in which the lender is entitled to pursue the borrower's other assets owned if the debt is not fully satisfied by the collateral.

General Contractor (GC)

General contractors are responsible for providing all of the material, labor, equipment, and services necessary for the construction of the project.

Gross Margin

Revenue less direct costs.

Hard Money Lender

A lender that makes private money loans. Funds are typically from the lender's personal account or raised from a private investor.

Homeowners Association (HOA)

An organization in a subdivision, planned community or condominium development that makes and enforces rules for properties and their residents. Properties having an HOA typically incur a monthly and or annual fee.


A benchmark interest rate that reflects general, current market conditions, and the corresponding margin is a number set by a lender when a borrower applies for a loan. The index and margin are added together to generate a specific interest rate on a loan application.

Individual Taxpayer Identification Number (ITIN)

An Individual Taxpayer Identification Number is a United States tax processing number issued by the Internal Revenue Service (IRS)

Interest Only

The borrower only pays the interest on the mortgage through monthly payments for a term that is fixed on an interest-only mortgage loan. The payment does not include any amount towards the principal.

Interest Rate

The percentage rate that lenders charge for use of their money.


An acronym for Interest + Taxes + Insurance + Homeowners Association dues. ITIA is often used to calculate the debt service ratio for a property.

Junior Lien

A lien against a property not in first priority or position.

Late Fee

Paid by a borrower if a loan payment is not made on time.


An individual, a public or private group, or a financial institution that makes funds available to another with the expectation that the funds will be repaid. Repayment can also include the payment of any interest and/or fees.

Letter of Intent (LOI)

A document outlining the general plans of an agreement between two or more parties before a legal agreement, such as a contract is finalized and signed.


London InterBank Offered Rate - is a benchmark interest rate at which major global banks lend to one another in the international interbank market for short-term loans.


A legal claim on real property generally for the payment of a debt or obligation.

Limited Personal Guarantee

A guarantee by a borrower to a lender for the entire outstanding loan amount plus legal fees, accrued interest, and costs associated with collecting the loan. The guarantee entitles the lender to look to the borrower's personal assets to recover any unrealized balance due in which foreclosure and re-sale of the asset does not satisfy the debt but sets a dollar or some other limit on the amount of liability. Many limited personal guarantees contain conversion clauses that state if fraud is involved in the transaction the guarantee converts to an unlimited personal guarantee.


The measure of an individual or entity to convert assets to cash without significant loss or time delay.

Loan-to-Value Ratio

A number lenders use to determine how much risk they're taking on with a secured loan. The amount of outstanding debt on real property divided by the fair market property value.

Mortgage (Deed of Trust)

A pledge of collateral as security. In some states, the term mortgage also describes the document signed to show that the lender is granted a lien on a property.

Mortgage Loan Originator

A loan originator is a representative of a bank, credit union, or other financial institution who finds and assists borrowers in acquiring loans. Loan officers can work with a wide variety of lending products for both consumers and businesses. They must have a comprehensive awareness of lending products as well as banking industry rules, regulations, and required documentation.

Net Operating Income (NOI)

The result of gross operating income less operating costs. NOI typically excludes deductions for debt service, depreciation and income taxes.

Non-Recourse Loan

A loan in which the lender is not entitled to pursue the borrower's other assets owned if the debt is not fully satisfied by the collateral in the event of foreclosure and re-sale of the property.


An abbreviation for “promissory note”. A signed document containing a written promise to pay a stated sum at specific interest rate by a specified date.


The act of paying off a loan by paying the outstanding principal amount and any additional interest and/or costs due to completely satisfy the loan obligation.

Payoff Statement

A statement or quote prepared by a lender providing a payoff amount to pay the entire loan balance. The statement balance includes all unpaid interest, applicable fees and principal balance of the loan.

Personal Guarantee

A guarantee by a borrower to a lender for the entire outstanding loan amount plus legal fees, accrued interest, and costs associated with collecting the loan. This type of guarantee entitles the lender to look to the borrower's personal assets to recover any unrealized balance due in which foreclosure and re-sale of the asset does not satisfy the debt. There are different types of personal guarantees. See "Conditional Personal Guarantee", "Limited Personal Guarantee", and "Unlimited Personal Guarantee".


Points are a measurement used to express finance charges (form of compensation to a lender for providing the funds or extending credit) paid at closing. Each point equals 1% of the loan amount. For example, 1 point on a $100,000 loan is the equivalent to $1,000.

Power of Attorney

A legal document giving one person (the agent or attorney-in-fact) the power to act for another person (the principal). The agent can have broad or limited legal authority to make legal decision about the principal's property, finances or medical care. In mortgage lending it is used when the principal cannot be present to sign necessary legal documents for financial transactions.

Prepayment Penalty

A lender may impose a prepayment penalty if a loan is paid off before it is due. This is usually because the lender incurs costs when making a loan and will build these costs into the borrower's payments over the life of the loan. When a borrower pays the loan off early, the lender tries to recoup some of its costs through a prepayment penalty. Hard money loans frequently incorporate this penalty because the private investor wants a commitment from the lender and borrower that the funds provided will be used over a specified period of time.

Principal Balance

The outstanding balance of principal on a loan which does not include interest or other charges.

Prior to Doc (PTD) Conditions

These conditions are a part of the internal underwriter review process and include documentation needed to qualify for a loan.

Prior to Funding (PTF) Conditions

These are conditions that are requested later in the loan process and must be satisfied in order to approve the dispersement of funds.

Private Money Lender (PML)

A highly specialized entrepreneur in the business of originating real estate loans that require non-traditional sources of funding. To find a private money lender, view our directory of lenders.

Prohibited Transactions

The term is frequently used in connection with a transaction which is not allowed by the Internal Revenue Service (IRS) in conjunction with a retirement account. Conducting a prohibited transaction could lead to the retirement plan being disqualified.

Promissory Note

A financial instrument that contains a written promise by one party to pay another party a definite sum of money, either on demand or at a specified future date. A promissory note typically contains all the terms pertaining to the indebtedness, such as the principle amount, interest rate, maturity date, date and place of issuance, and issuer's signature.

Referral Fee

A commission paid to an intermediary or the facilitator of a transaction. The referral fee is rewarded because the intermediary discovered the deal and brought it to the attention of interested parties.


A transaction in which an existing obligation that was subject to a secured lien on residential real property is satisfied and replaced by a new obligation undertaken by the same borrower and with the same or a new lender.

Reinstatement Statement

A statement for borrowers in default on their loan which provides information on the amount of money needed to reinstate the loan to a performing status including past due payments, late fees, and any other costs.

Relief of Stay

Court granted relief from the automatic stay of collection actions against a debtor in a bankruptcy filing. This allows a creditor to proceed with collection and/or foreclosure actions.

Renewal Fee

A fee paid by a borrower to renew an existing loan for an additional term.

Right of Rescission

The right of rescission is a right, set forth by the Truth in Lending Act (TILA) under U.S federal law, of a borrower to cancel a home equity loan or line of credit with a new lender, or to cancel a refinance transaction done with another lender other than the current mortgagee, within three days of closing. The right is provided on a no-questions-asked basis, and the lender must give up its claim to the property and refund all fees within 20 days of exercising the right of rescission.

Second Mortgage

A second mortgage is a type of subordinate mortgage made while an original mortgage is still in effect. Also referred to as a junior lien.

Secured Loan

A secured loan is one in which the borrower offers up something of value as collateral for the loan. In a private money lending context, the security is real estate.

Security Interest

An enforceable legal claim or lien on collateral that has been pledged, usually to obtain a loan. The borrower provides the lender with a security interest in certain assets, which gives the lender the right to repossess all or part of the property if the borrower stops making loan payments. The lender can then sell the repossessed collateral to pay off the loan.

Self-directed IRA

An individual retirement account in which a custodian handles alternative investments at the direction of the account owner. This arrangement enables private money investors to make hard money loans from their retirement accounts.


A servicer is a company that handles all payment-related transactions with borrowers including accepting monthly payments, issuing monthly statements, providing year-end tax statements and paying property taxes and insurance when due.

Settlement Services Company

Oversees the execution of real estate transactions to include closing documents, disbursement of funds, tslint:disable-next-line:max-line-length and the recording of documents at the county offices. Settlement services are provided by closing attorneys and Escrow Companies.

Single Family Residence (SFR)

- An independent single-family dwelling unit. SFRs can be either detached or attached. Detached SFRs are the most common and typically have no shared walls with open space on all sides. Attached SFRs typically share one or two commons walls. Attached and detached designations are based on local governmental zoning ordinances.


The automatic prohibition of collection actions against a debtor in a bankruptcy filing.

Takeout Loan

a long term loan replacing a short term or bridge loan (e.g. a construction loan).

The Nationwide Mortgage Licensing System (NMLS)

The legal system of record for mortgage licensing in all participating states, the District of Columbia, and U.S. Territories. In these jurisdictions, NMLS is the official and sole system for companies and individuals seeking to apply for, amend, renew, and surrender licenses managed in the NMLS on behalf of the jurisdiction’s governmental agencies. NMLS itself does not grant or deny license authority.

Time Value of Money

A core finance principle stating money is worth more the sooner it is received.


The evidence of the right to ownership of real property.

Title Binder

Also known as an interim binder, is NOT a title insurance policy. It is a commitment to issue a title insurance policy within a short period of time (e.g. up to 24 months). When you purchase a title binder up front, it can save an investor several hundreds of dollars in title fees because it allows the purchaser of real property to resell the same property and have a policy of title issued to his/her buyer at a fraction of the cost.

Title Company

Searches county and public records for liens and encumbrances against a subject property and the borrower. Provides a preliminary title report and an offer of title insurance based on the report. Issues title insurance at transaction settlement.

Title Insurance

An indemnity policy that insures an owner and/or lender against loss due to title defects, liens, or other matters.

Trust Deed or Deed of Trust

A representation of a type of secured real estate transaction. It is a document that comes into play when one party has taken out a loan from another party to purchase a property. The trust deed represents an agreement between the borrower and a lender to have the property held in trust by a neutral and independent third party until the loan is paid off.

Truth in-Lending Act

A federal law that mandates borrowers receive written disclosures about important terms credit from the creditor before they are legally bound to pay the loan. These important terms include the annual percentage rate, finance charge, amount financed, and total sum of all payments made.


Underwriting is the process lenders use to determine the risks involved in any given loan.

Unlimited Personal Guarantee

A guarantee by a borrower to a lender for the entire outstanding loan amount plus legal fees, accrued interest, and costs associated with collecting the loan. This type of guarantee entitles the lender to look to the borrower's personal assets to recover any unrealized balance due in which foreclosure and re-sale of the asset does not satisfy the debt.


Refers to a rate of interest that is considered to be higher as compared to prevailing market interest rates. They are often associated with unsecured consumer loans.

Variable Rate

Often associated with a loan, a variable rate is an interest rate that changes periodically as market interest rates changes as a whole. The interest charged on a variable interest rate loan is linked to an underlying benchmark or index.