Real Estate Financing Strategies Flashcards
7 cards from real Real Estate Investing practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Real Estate Financing Strategies flashcards as text
What is seller financing (also called owner financing)?
Answer: The seller acts as the lender and the buyer makes payments directly to the seller
In seller financing, the seller extends credit to the buyer, who repays in installments, bypassing the need for a traditional bank mortgage.
What is a balloon payment in real estate financing?
Answer: A large lump-sum payment due at the end of a loan term
A balloon payment is a large final payment that comes due at the end of the loan term, common in short-term or seller-financed deals.
Which government-backed loan program is specifically designed for purchasing and rehabilitating a fixer-upper?
Answer: FHA 203(k) loan
The FHA 203(k) loan allows buyers to finance both the purchase price and renovation costs into a single mortgage backed by the FHA.
What is a hard money loan's most defining characteristic compared to a conventional mortgage?
Answer: It is asset-based, with terms and approval driven primarily by the property's value
Hard money loans are collateral-based, meaning approval depends on the property's value (especially ARV), not the borrower's creditworthiness.
In real estate, what does 'ARV' stand for and why is it critical for investors?
Answer: After Repair Value — the estimated value of a property after renovations are complete
ARV (After Repair Value) is used by investors and hard money lenders to determine how much to lend and what profit margins are achievable after renovating a property.
What is a bridge loan used for in real estate investing?
Answer: Short-term financing that bridges the gap between purchasing a new property and selling or refinancing an existing one
Bridge loans are short-term, interest-only loans that provide quick capital while an investor arranges longer-term financing or completes a sale.
What is the typical loan-to-cost (LTC) ceiling most hard money lenders apply on fix-and-flip projects?
Answer: Around 90% of total project costs (purchase + rehab)
Most hard money lenders cap at roughly 90% LTC or 70–75% of ARV, whichever is lower, to ensure adequate equity cushion.