Definitions of Common Hard Money Terms

Anyone new to hard money lending has quite a bit to learn. For example, there is a long list of words and phrases unique to the lending experience. A person who has never borrowed before would not be expected to know them. However, once borrowing becomes an option, it is important for potential borrowers to understand their definitions.

 

In anticipation of our readers looking for hard money loans, we have put together a list of common hard money terms and their definitions. These should give you a good start toward understanding what we do at Actium Partners.

 

1. Hard Money

Hard money consists of private loans secured by hard assets to make real estate purchases and business expansion. Hard money is typically loaned to borrowers who are unable to, or do not want to, borrow from banks.

 

2. Balloon Loan

A balloon loan is a loan that does not fully amortize over its term. The borrower is left with a lump sum payment that must be paid on the loan’s maturity date. Balloon loans can be structured as interest-only loans under certain circumstances.

 

3. Bullet Loan

A bullet loan is similar to a balloon loan with one exception: it is not amortized. The borrower pays the entire sum of principal, interest, and any associated fees at maturity.

 

4. After Repair Value (ARV)

A property’s ARV is its estimated value after all repairs and improvements have been made. ARV is calculated by looking at up to six comparable properties, in the same general vicinity, that have sold within the last 90 days. It can be calculated based solely on the average sale price or as an average of the sale price per square foot.

 

5. Appraisal

An appraisal is a statement of value at the current time. Appraisers look at the various aspects of a property in question, compare that property to similar properties, and come up with a number that represents the property’s value on that date. Licensed and credentialed experts conduct appraisals.

 

6. Loan-To-Value Ratio (LTV)

LTV is a representation of the ratio between the amount borrowed and the value of the asset against which the loan is made. If a Salt Lake City property was worth $100,000 and the lender provided $75,000, the LTV would be 75%. Note that LTV can be influenced by subordinate positions – meaning additional liens on the same property.

 

7. Lien

A lien is a legal claim against real property. It dictates that a lender has a real interest in the asset in question, giving that lender the right to repossess and sell the asset in the event of borrower default.

 

8. Points

Points are assessed as a means of covering the costs of making a loan. One point is equal to 1% of the total amount being borrowed.

 

 

These definitions should give you a basic understanding of common hard money terms. If you have questions or if you are interested in getting a hard money loan, please contact us!