Hard Money Lending Glossary
Plain-English definitions of the terms you'll encounter in real estate investing and private lending. No textbook jargon — just clear explanations from someone who uses these terms every day.
After-Repair Value (ARV)
The estimated market value of a property after all planned renovations and improvements are completed. ARV is the primary metric used to underwrite fix-and-flip and BRRRR loans. Lenders use ARV to determine maximum loan amounts.
Amortization
The process of paying off a loan through regular scheduled payments of principal and interest over time. Most hard money loans are interest-only with no amortization — the full principal is due at maturity.
Appraisal
A professional, independent assessment of a property's market value conducted by a licensed appraiser. Hard money lenders order appraisals to confirm the property's value supports the requested loan amount.
As-Is Value
The current market value of a property in its present condition, before any renovations or improvements. This is distinct from the after-repair value and is used to determine purchase loan amounts.
Asset-Based Lending
A lending approach where the loan decision is primarily based on the value of the collateral (the property) rather than the borrower's income, credit score, or employment history. Hard money lending is a form of asset-based lending.
Balloon Payment
A large lump-sum payment due at the end of a loan term that pays off the remaining principal balance. Hard money loans typically require a balloon payment at maturity since they are interest-only during the loan term.
Blanket Loan
A single mortgage that covers multiple properties. Investors with portfolios sometimes use blanket loans to simplify financing and reduce closing costs across several assets.
Bridge Loan
A short-term loan used to bridge the gap between acquiring a property and securing permanent financing. Bridge loans are common in real estate investing when an investor needs to act quickly or stabilize a property before refinancing.
Broker Price Opinion (BPO)
A property valuation prepared by a licensed real estate broker or agent, typically less expensive and faster than a full appraisal. Some hard money lenders accept BPOs in lieu of appraisals for certain loan types.
BRRRR Strategy
An acronym for Buy, Rehab, Rent, Refinance, Repeat. A popular real estate investment strategy where an investor purchases a distressed property, renovates it, rents it out, refinances into long-term financing to recover capital, and repeats the process.
Capital Stack
The total combination of financing sources used to fund a real estate deal, including senior debt, mezzanine debt, preferred equity, and common equity. Understanding the capital stack helps investors structure deals efficiently.
Cash-on-Cash Return
A measure of investment performance calculated by dividing annual pre-tax cash flow by the total cash invested. Expressed as a percentage, it tells an investor what return they're earning on the actual dollars they put into a deal.
Cash-Out Refinance
Refinancing an existing mortgage for more than the current balance and taking the difference in cash. Investors commonly use cash-out refinances to pull equity from stabilized properties to fund new acquisitions.
Closing Costs
Fees and expenses paid at the closing of a real estate transaction, including origination fees, title insurance, appraisal fees, recording fees, and attorney fees. On a hard money loan, closing costs typically run 2-5% of the loan amount.
Collateral
An asset pledged as security for a loan. In hard money lending, the real property being financed serves as collateral. If the borrower defaults, the lender can foreclose on the collateral to recover the loan balance.
Comparative Market Analysis (CMA)
An evaluation of similar, recently sold properties used to estimate a property's market value. Investors use CMAs to validate purchase prices and estimate ARV before committing to a deal.
Construction Draw
A disbursement of funds from a construction or rehab loan escrow account, released after a specific phase of work is completed and verified by inspection. Draws keep the project funded while protecting the lender's collateral.
Cross-Collateralization
Using one or more properties as collateral for a single loan, or using the same property as collateral for multiple loans. This can help investors leverage existing equity to secure additional financing.
Debt Service Coverage Ratio (DSCR)
A ratio comparing a property's net operating income to its annual debt payments. A DSCR above 1.0 means the property generates enough income to cover its loan payments. DSCR loans are a common exit strategy from hard money bridge loans.
Deed of Trust
A legal document that secures a loan by placing the property title with a neutral third-party trustee until the loan is repaid. Virginia uses deeds of trust rather than mortgages for real estate lending.
Default
Failure to meet the terms of a loan agreement, most commonly by missing payments or failing to repay the loan by the maturity date. Defaults can trigger foreclosure proceedings and additional fees.
Draw Schedule
A predetermined plan outlining when and how rehab or construction funds will be disbursed during a project. Each draw is tied to completion milestones and verified by inspection before funds are released.
Due Diligence
The investigation and analysis an investor or lender performs before committing to a transaction. For investors, this includes property inspections, title searches, market analysis, and financial projections.
Earnest Money Deposit (EMD)
A good-faith deposit made by a buyer when entering a purchase contract, demonstrating serious intent to complete the transaction. EMD is typically held in escrow and applied toward the purchase price at closing.
Equity
The difference between a property's market value and the total outstanding debt against it. If a property is worth $200,000 and you owe $140,000, your equity is $60,000. Building equity is the fundamental goal of most real estate investment strategies.
Escrow
A neutral third-party account where funds are held during a transaction. In hard money lending, rehab funds are commonly held in escrow and disbursed as work is completed.
Exit Strategy
The plan for how a borrower will repay a hard money loan. Common exit strategies include selling the property (flip), refinancing into permanent financing (BRRRR), or paying off the loan with other capital. Every hard money lender wants to see a clear, realistic exit strategy.
Fix-and-Flip
An investment strategy where an investor purchases a distressed property, renovates it, and sells it for a profit. Fix-and-flip is the most common use case for hard money loans.
Foreclosure
The legal process by which a lender takes possession of a property when a borrower defaults on their loan. In Virginia, foreclosure is non-judicial and can be completed relatively quickly through the deed of trust process.
Gap Funding
Secondary financing that covers the gap between a primary loan and the total capital needed for a deal. Gap funding typically comes from private investors or secondary lenders and sits in a subordinate lien position.
Gross Rent Multiplier (GRM)
A quick valuation metric calculated by dividing a property's purchase price by its gross annual rental income. Lower GRMs generally indicate better value for rental property investors.
Hard Money Loan
A short-term, asset-based loan secured by real property, typically funded by private lenders or small lending companies rather than banks. Hard money loans prioritize the property's value and deal economics over the borrower's personal financial profile.
HUD Settlement Statement
A standardized document itemizing all charges and credits for both buyer and seller in a real estate transaction. It provides a complete accounting of where every dollar goes at closing.
Interest-Only Payments
A payment structure where the borrower pays only the interest on the loan each month, with no principal reduction. Most hard money loans are interest-only, keeping monthly payments low during the project period.
Interest Reserve
A portion of the loan proceeds set aside at closing to cover future interest payments. This allows borrowers to avoid making monthly payments out of pocket during the project, as payments are deducted from the reserve.
Lien
A legal claim against a property that must be satisfied before the property can be sold or refinanced. Mortgages, tax liens, and mechanic's liens are common types. A first-position lien has priority over all other claims.
Loan-to-Cost (LTC)
The ratio of the loan amount to the total project cost, including purchase price and renovation expenses. For example, a $170,000 loan on a project with $200,000 in total costs represents an 85% LTC.
Loan-to-Value (LTV)
The ratio of the loan amount to the appraised value of the property. A $140,000 loan on a property worth $200,000 is a 70% LTV. Lower LTV means less risk for the lender and typically better terms for the borrower.
Maturity Date
The date on which a loan's full principal balance becomes due and payable. Hard money loans typically have maturity dates of 6-18 months from origination. Extensions may be available for a fee.
Mezzanine Debt
A hybrid form of financing that sits between senior debt and equity in the capital stack. Mezzanine debt carries higher interest rates than senior debt and is subordinate to the primary mortgage.
Net Operating Income (NOI)
A property's total income minus operating expenses, excluding debt service and capital expenditures. NOI is the key metric for evaluating rental property performance and is used to calculate cap rates and DSCR.
Non-Owner Occupied
A property that is not used as the borrower's primary residence. Hard money loans are exclusively for non-owner-occupied investment properties, which exempts them from many consumer lending regulations.
Note
The legal document (promissory note) that outlines the terms of a loan, including the interest rate, payment schedule, maturity date, and consequences of default. The note is the borrower's promise to repay.
Origination Fee
An upfront fee charged by a lender for processing and funding a loan, expressed as points (percentage of the loan amount). Two points on a $200,000 loan equals a $4,000 origination fee, paid at closing.
Personal Guarantee
A legal commitment by an individual (typically the managing member of an LLC) to be personally responsible for repaying a loan if the borrowing entity defaults. Most hard money loans require a personal guarantee.
Points
Fees expressed as a percentage of the loan amount. One point equals 1% of the loan. In hard money lending, points typically refer to origination fees charged at closing. Two to four points is standard in the industry.
Prepayment Penalty
A fee charged to a borrower for paying off a loan before its maturity date. Some lenders impose minimum interest guarantees or prepayment penalties. Harvey Capital Funding does not charge prepayment penalties.
Private Lender
An individual or non-bank entity that provides loans secured by real estate. Private lenders operate outside the traditional banking system and can offer faster closings, more flexible terms, and asset-based underwriting.
Proof of Funds
Documentation showing a buyer has sufficient capital to complete a purchase. This can include bank statements, a pre-qualification letter from a lender, or a commitment letter. Sellers and agents often require proof of funds before accepting an offer.
Rehab Budget
A detailed estimate of all renovation costs for a property, broken down by scope of work. A thorough, realistic rehab budget is essential for underwriting a fix-and-flip or BRRRR loan.
Scope of Work (SOW)
A detailed document outlining all planned renovations, materials, and costs for a rehab project. The SOW is submitted to the lender during underwriting and serves as the basis for the draw schedule.
Seasoning
The length of time a borrower has owned a property or held a mortgage. Some lenders and refinance programs require a minimum seasoning period — for example, six months of ownership before a cash-out refinance.
Second Lien
A mortgage or lien that is subordinate to the first (primary) mortgage. In the event of foreclosure, the first lien holder is paid before the second. Second liens carry more risk and therefore higher interest rates.
Soft Costs
Project expenses that are not directly tied to physical construction, including permits, architectural fees, engineering, insurance, and loan costs. Soft costs can add 10-20% to a project's total budget.
Subject Property
The specific property being evaluated for a loan or appraisal. All underwriting analysis, valuations, and inspections are performed on the subject property.
Term Sheet
A non-binding document outlining the proposed terms of a loan, including loan amount, interest rate, points, LTV, term length, and any special conditions. The term sheet is issued after preliminary approval and before formal underwriting.
Title Insurance
An insurance policy that protects the lender (and optionally the buyer) against losses arising from defects in the property's title, such as undisclosed liens, ownership disputes, or recording errors.
Title Search
An examination of public records to verify the property's legal ownership and identify any liens, encumbrances, or title defects. A clean title search is required before any hard money loan can close.
Underwriting
The process of evaluating a loan application to determine risk and set loan terms. In hard money lending, underwriting focuses on the property value, deal economics, borrower experience, and exit strategy.
Usury Laws
State laws that set maximum allowable interest rates on loans. Virginia's usury laws generally do not apply to commercial and investment property loans, which is why hard money rates can exceed conventional limits.
Wholesale Deal
A transaction where an investor contracts to buy a property and then assigns that contract to another buyer for a fee, without ever taking title. Wholesalers are a common source of deal flow for fix-and-flip investors.
Yield
The total return a lender or investor earns on a loan or investment, expressed as a percentage. For hard money lenders, yield includes interest income plus origination fees over the life of the loan.
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