Glossary of Terms

Appraisal — A written expert opinion and analysis of the estimated market value of real estate which will be used as collateral.

After Rehab Value (AVR) — The value of a property after it has been rehabbed, not in its current condition.

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

Broker Price Opinion (“BPO”) — A property inspection report performed by a licensed real estate broker or agent which results in a written assessment of the property and the estimated value.

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

Combined Loan to Value (CLTV) — This is the sum of all liens divided by value when there is more than one lien against the property.

Co-Signer/Co-Borrower — Another person who signs the loan and is jointly accountable for the payment and liability.

Default Interest Rate — This is the increased interest rate imposed if there is a breach of the loan terms.

Exit Strategy — The lender will need to know how are you going to pay off their short-term loan. For example, sell the property after the repairs or refinance with a long-term loan.

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.

Guarantor — Simply means signing a legal agreement to cover mortgage repayments if the actual borrower falls behind.

Hydraulic Load Test — A hydraulic load test is done to ensure that a home’s septic system is working properly and the absorption area can handle a specified amount of water.

Late Fee — A borrower-paid fee imposed by lender if the borrower fails to make the loan payment on time, usually after a 10-day grace period. The amount of the late fee is stated on the promissory note.

Loan-to-Value — The amount of outstanding liens against a property divided by the fair market value.

Loan-to-Purchase Price (“LTPP”) — When calculating LTPP, the numerator is the initial loan amount and the denominator is the purchase price of the property. For example, the loan amount is $150,000.00 and the purchase price is $225,000.00 = 67%.

Modification — An extension fee set by the lender and paid by the borrower if the loan is not paid in full by the end of the loan term.

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.

Personal Financial Statement — A personal financial statement is a document outlining your personal assets and liabilities, and your personal net worth. It will break down the total of your assets minus your liabilities. It will also contain some general information about you such as name, social security number, employment, etc.

Personal Guarantee — If the entity or business is unable to pay back the debt owed to the lender, this is the legal promise made by an individual to personally pay back the credit issued to the business for which they serve as a member or partner.

PITI — Principal, Interest, Taxes, and Insurance.

PITIA — Principal, Interest, Taxes, Insurance, and Association Dues, if applicable.

Points — Finance charge paid at settlement. Each point equals 1% of the loan amount.

Prepayment Penalty — A lender may impose a pre-payment penalty if a loan is paid off before it is due.

Proof of Funds — This is a letter or document that proves an individual or entity has sufficient funds (money) to complete a transaction.

Referral Fee — A fee paid by one company to another for referred business.

Scope of Work — Your renovation budget estimate that outlines the work to be done, how it will be completed and by whom, and the cost of each item.

Takeout Loan — A long-term loan replacing a short-term or interim/bridge loan.