The following terms are applicable to conventional bank loans as well as to bridge loans and hard money financing
. Terms that are specifically relevant to bridge loans or commercial hard money
are noted as such.
Investment Property / Income-Producing Property
A property that is used as an investment for the purpose of generating capital gains and / or income. This type of property is required as collateral for conventional commercial loans, commercial bridge loans and commercial hard money loans. However, some private lenders require the pledge of additional collateral (including residential properties or non-real estate assets) in order to make a loan.
A claim on a property, e.g., a mortgage, a tax lien, a mechanics lien, etc.
A period of time after origination during which a borrower is prohibited from repaying a loan. If a loan is paid off before a lock-in date, a borrower will incur a prepayment penalty. Some lenders completely prohibit prepayment during lock-in, not even with a prepayment penalty.
Loan-to-Value ratio. The ratio between the balance of a loan and a Market Value
of a property. For example, if a loan is $60,000 and the value of a property is $100,000, then the loan-to-value ratio is 60%. Hard money financing is often available at higher LTVs than financing from bridge loan companies or conventional banks.
The gross proceeds an owner would get from selling his property. From these proceeds all mortgage(s)
encumbering the property would be deducted prior to disbursement of the net proceeds to the owner (see Equity
The date on which a loan is due. If a loan is not paid off on or before maturity, it is accelerated
and foreclosure is commenced.
A loan to a corporation that owns a property. This is not a mortgage loan. The security available to a mezzanine lender is a UCC lien
. Commercial hard money financing can come in the form of a mezzanine loan.
The pledge of real property as security to a lender. Mortgages are filed to secure promissory notes
for residential or commercial hard money, bridge loans, and conventional loans. Some hard money financing may not require a mortgage but only a UCC
lien (see Mezzanine Financing
A document which serves as an IOU in mortgage transactions. It is also called Promissory Note, or simply Note. The note specifies the terms of a loan. The note, mortgage and other closing documents are produced by lenders’ attorneys.
A loan in which a lender’s security is limited to the collateral
. In the event of deficiency, a lender with a non-recourse loan cannot collect from the personal assets of a company’s principal
, because there is no personal guarantee
. While some conventional commercial loans may not require a personal guarantee, commercial hard money financing tends to include it in every transaction. Thus, it can be said that commercial hard money financing for the most part involves a Full-Recourse Loan.
1. The starting date of a loan.
2. The process leading to the start of a loan.