Introduction
Anyone new to the hard money industry may find themselves feeling lost in a sea of hard money terms they have never heard of before. There are many acronyms and phrases unique to the lending industry. These hard money terms may seem overwhelming to new borrowers in their initial search to find a lender. While many lenders do not expect new borrowers to know all of these hard money terms, it is great to have some basic understanding. That is why Pacific Equity & Loan has compiled this list of basic hard money terminology in hopes of easing the process for inexperienced borrowers.
Hard Money Terminology
Automatic Clearing House (ACH): System that is used to transfer funds. These funds are electronically deposited in financial institutions, and payments are made online
As-Is Value (AIV): The estimated value of a property in its current condition
After Repair Value (ARV): The estimated future value of the property after it has been fixed, renovated, or improved.
Broker Price Opinion (BPO): A report filed by a licensed broker, appraiser, or real estate agent. It is used to help determine the potential selling price or estimated value of a property.
Due Diligence (DD): An investigation to confirm the accuracy of seller/ borrowers information and appraise its value.
Deed in Lieu (DIL): A document that transfers a property’s title from the borrower to the lender
Deed of Trust (DOT): A legal document in which a property is transferred to a trustee, which holds it as security for a loan between a borrower and lender.
Escrow: The process in which a third-party mediates a real estate transaction. Money and property is held in “escrow” until the borrower and the lender agree that all the conditions are met for the deal to close.
General Contractor (GC): Contractor responsible for the day-to-day oversight of a construction site and communication of information to all involved parties throughout the course of a building project. They provide all of the material, labor, equipment, and services necessary for the construction of the project.
I/O: Interest only
Letter of Interest (LOI): Document outlining the understanding between the borrower and the lender in which they intend to formalize a legally binding agreement.
Loan to After Repair Value (LTARV): Specifically related to fix and flip investments, this term enables investors to better understand the value of a loan in relation to the future appraised value of the property
Loan-to-Value (LTV): An assessment of risk that lenders examine before approving a loan. Calculated by dividing the loan amount by the appraised value of the property.
Settlement Statement (SS): Document given to the borrower at closing that itemizes the services and fees to be paid to the vendors and charged to the borrower.
Scope of Work (SOW): A document that outlines all the repair work scheduled to be completed before the house is sold. It should include an overview of the project, anticipated costs, and individual line items of the work necessary to complete the job.
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