Lending Terms Explained

Here’s a quick rundown of the most common lending terms you’ll come across if you’re new to the world of private lending.

We’re here to make the lending process go as smoothly as possible. If you’re you’re thinking about working with us, or if you already do work with us, you may run into several of these terms so we wanted to create a mini-guide to help you out!

Private Lender: A non-institutional company or individual that loans money for the purpose of funding real estate transactions.

Hard money: A type of asset-based financing where a borrower receives funds secured by real property. These are typically issued by private investors or companies.

ARV: This stands for After Repair Value. It is the estimate of what the property will be worth after all the repairs and renovations are complete.

Bridge Loans: A short-term loan used until a borrower secures permanent financing. It “bridges” the gap until secure, long-term financing is available.

Buy & Hold Loan: A loan for investors looking to purchase or refinance properties to be held as rentals.

Draws: Often, there will be a portion of the loan that is “held back.” The borrower can take or “draw” on these held back funds once they’ve done a specified amount of work to the property.

Draw Fee: A fee for every day the borrower takes on a loan. This is to cover the cost of inspecting the property as well as the wire fee from the bank.

Fix & Flip Loans: Loans that are given to individuals to purchase properties to be rehabbed and then resold for profit.

Interest Rate: This the monthly cost of money. This number is annualized, so the interest rate would be paid over an entire year. Once you calculate what your total interest amount will be, you divide it by 12 (for the 12 months of the year).

For example, a 12% interest rate on a $100,000 loan would mean your monthly interest payments are $1,000. The math for this goes: $100,000*0.12= $12,000/12 = $1,000

Junk Fees: These fees are not always easy to spot – unless you know what you’re looking for. Watch out for the following fees: admin, application, appraisal, BPO, broker, control, construction, credit check, filing, underwriting, etc.

These fees might not look like much at the time, but they all add up quite a bit. Loan Ranger Capital never charges junk fees.

LTV: Stands for Loan-To-Value; it is the ratio of the loan divided by the value of the property.

Here at Loan Ranger Capital, we limit loans to 75% of the LTV. So for a property worth $100,000, LRC would typically lend $75,000.

New Construction Loans: A loan for investors who are purchasing a lot, or tearing down an existing home, to build a new construction.

Points: This is the fee payable at closing, expressed as a percentage of the loan. 1-point equals 1%.

For example, if your $100,000 loan has a 3-point fee then you would pay $3,000.

Prepayment Penalty: A fee charged by some lenders if the borrower sells the property or pays the loan back early. Loan Ranger does not charge this fee; we never want to punish our borrowers for a successful project.

Term: This is the length of the loan. If the loan is still outstanding at the end of the term the borrower will either need to get a loan with us (refinance), sell the property, or find a new loan.

Transactional Funding: A loan for wholesalers who are looking for a capital resource to facilitate a double closing.

Getting to know the most common lending terms can help you better understand each step of your loan process. If you’re unsure about what any of these terms would mean for you, or have any questions let us know!

We’re always happy to help or explain further. We hope to work with you in the future.

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