Knowledge is power.
Whether you are new to real estate investing or have been around the proverbial block a few times, it pays to understand the lingo. Below are some commonly used terms every investor should know...
Private Lender—Real estate investors often have several options when it comes to financing their flips. You may self-finance using cash (at significant opportunity cost), turn to traditional mortgage lenders (and face income requirements), or even consider hard money lenders. The wisest choice, however, is a local private lender like Navigator Private Capital (NavCap) offering both flexible terms and competitive rates.
Hard Money Lender—With an often formulaic approval process and non-negotiable terms, hard money lenders are commonly considered an option of last resort.
Origination Fees—An origination fee is a fee charged by a lender to establish a new loan. These fees are typically taken out of the loan before you receive the borrowed funds and paid at closing. Origination fees are quoted as a percentage of the total loan and are often referred to as points.
Loan to Value (LTV)—The ratio of the total loan amount (including the purchase price of the property plus the planned repairs) to the after-repair value or ARV. It's a way to judge the potential profit in the completed home to ensure the deal is worthwhile for everyone involved.
After Repair Value (ARV)—The expected market value of the property after all repairs have been completed.
Comparative Market Analysis (CMA)—Performed by a real estate professional, a detailed comparison of recently sold or listed properties of similar size and location. The CMA allows borrowers to estimate the potential market value of the renovated property or ARV.
Scope of Work (SOW)—A detailed estimate of all the repair work needed to update the property and prepare it for sale. To help our clients put together a workable SOW, we offer a free downloadable template on our website.
Appraisal—Performed by a licensed professional, a home appraisal is a critical piece of the real estate investing puzzle. Before any loan with NavCap is finalized, the appraiser will inspect the property and do a thorough comparative sales analysis to determine the expected ARV.
Liens—An ownership claim against a property. This can be the result of mistakes in the transfer of title among previous owners or a contractor filing a mechanic’s lien for non-payment of services.
Title Insurance—The potential for liens against the property makes title insurance a critical element in the loan application process. By ensuring a clean title, this type of policy takes some of the risk out of the house-flipping scenario.
Happy to help.
NavCap wants to help make your next project a winner. Reach out to your loan officer to talk through financing or call 888.444.3160 to be put in touch.