If you’re new to real estate investing or just interested in exploring alternative funding options, you will need to make sure you are knowledgable in the terminology associated with the mortgage process in general, in addition to private money specifics.
You should understand the differences in them before entering the real estate business of any kind. Most are self-explanatory, but just in case, knowledge is always powerful.
• Non-Owner Occupied Residential – 1 to 4-unit investment properties where the owner does not reside in one of the units.
• Multi-Family Home – Single home units that have been turned into two or more units, such as a duplex, triplex, or four-plex.
• Multi-Family Residence – Multiple separate residential units which are contained in the same building or several buildings in a complex, such as apartment buildings. Anything larger than a four-plex is considered a commercial property.
• Retail – Commercial buildings wherein retail goods are sold to the public, such as retail stores and shopping malls.
• Office – Commercial buildings used for conducting business, including single-tenant properties, professional office buildings, and multi-tenant properties up to and including skyscrapers.
• Industrial – These buildings range from smaller buildings to warehouse and “big box” buildings. Industrial properties contain defining characteristics such as Clear Height – the actual height from the floor to the steel girders in the interior of the building, and number of docks.
• Vacant Buildings – Buildings not currently occupied by residents or tenants.
• Entitled Land – Land, commercial or residential, that has been through all the processes of obtaining the necessary approvals and permits to begin building.
You will also need to understand Hard Money Lending Loan Criteria before getting started.
Mortgage Process- Loan Criteria
• Interest Rates – The proportion of the loan that is charged as interest to the borrower. Interest rates are based upon several factors such as LTV and term, which can range from loan to loan.
• Origination Fee – The upfront fee charged by the lender for processing the new loan. Our origination fee varies based on the length of the term of the loan.
-These are also referred to as ‘points’.
• Loan Maturities – The point in time when your loan is due to be repaid. Our loan maturities range from 3 to 12 months, with no prepayment penalty. We also offer extensions to applicable loans.
• Loan to Value (LTV) – LTV is the ratio used to calculate the ratio of a loan to the value of the asset purchased with said loan. In real estate, it is the amount of the mortgage lien divided by the appraised value for the property expressed as a percentage. We loan up to 70% LTV.
• 1st Deed Only – In real estate, when you close on your home, one of the papers you sign is a trust deed. This usually lists three people: you, the mortgage company and the trustee – which is usually the title company who holds the property in trust as security for your loan. This is considered a first trust deed. If you were to take out a second mortgage against the property, this would be a second trust deed, etc. The first trust takes priority over all other deeds. Some lenders only provide for first trust deeds.
• Closing Costs – The expenses in addition to the cost of the property being purchased. These include loan origination fees, discount points, appraisal fees, title searches, title insurance, escrow, surveys, taxes, and other fees.
Knowing these basic concepts and definitions behind hard money loans will put you on the right path as you begin your fun new adventure. You can also refer to our Loan Approval Process & Criteria portion of our website for more details.
And, as always, if you’re still unclear about something, please contact one of our agents and we will be happy to help you to better understand, every step of the way.
Ask a professional if you have any questions to ensure you choose the right loan for your specific need.
Contact our team today, 415-938-7331 or Submit an Inquiry!