Commerical Flashcards
What is NOI?
Formula:
(income - expenses)
Net Operating Income- a formula to determine profit and revenue of running a property.
What does it mean if a loan is assumable?
An assumable mortgage allows a buyer to assume the rate, repayment period, current principal balance and other terms of the seller’s existing mortgage rather than obtain a brand-new loan.
What is agency debt?
Frannie and Freddie are both agencies.
What are regional banks?
Regional banks are banks with total assets between $10 billion and $100 billion.
Wintrust
Providence
Old national
What is a rate buy down?
A buydown allows homebuyers to obtain a lower interest rate when taking out a mortgage loan.
Commercial (Multifamily) Loan
Commercial loans 5+ units have higher interest rates, higher down payments, shorter loan terms, and therefore, higher monthly payments.
Agency Loan
An agency loan is a mortgage loan backed or guaranteed by a government-sponsored entity or government agency, such as Fannie Mae or Freddie Mac. These loans are known for their competitive interest rates, favorable terms, and broad accessibility, making them a popular choice for homebuyers and homeowners looking to refinance their properties.
Bridge Loan
A short-term financing option used by real estate investors or developers to bridge the gap between the purchase or acquisition of a multifamily property and the securing of longer-term, permanent financing
Construction Loan
A construction loan is a type of short- term financing used by developers, builders, and individuals to fund construction of a new building or major renovation to an existing property. Once construction is complete, the borrower typically refinances the construction loan into a long-term mortgage or pays off the loan from the proceeds of the sale.
Hard Money Loan
Short-term, asset-based loan. Provided by private individuals or organizations, often referred to as hard money lenders. These loans are primarily used by real estate investors and developers for projects that may not qualify for conventional financing due to factors like property condition, borrower’s credit history, or the need for quick funding.
Seller Financing
The seller of the property provides the financing to the buyer instead of the buyer obtaining a traditional mortgage from a bank.
Interest Only (IO)
is a loan which requires the borrowers to pay only interest for the first few years of the loan’s term.
Interest-only mortgages typically require a larger down payment, higher credit score and a lower debt-to-income (DTI) ratio than conventional loans.
After the interest-only term, the borrower must begin paying down the principal
Debt Service Coverage Ratio (DSCR)
Key measure of a company’s ability to repay its loans.
Formula:
(NOI / annual debt service)
The higher the ratio gets, the easier it becomes for that entity to obtain financing.
Assumable Loan
An assumable mortgage allows a buyer to assume the rate, repayment period, current principal balance and other terms of the seller’s existing mortgage rather than obtain a brand-new loan.
Currently only three types of loans typically have this feature: FHA, USDA, and VA loans. Conventional loans are usually not assumable.
The catch-Mortgage assumption allows a buyer to take on the original loan balance at the original terms, but it’s important to note that it doesn’t account for home equity the seller has built. If the house has gained value since the original loan was issued, the loan may no longer cover the home’s actual value and the buyer will have to make up the difference.
Balloon
A balloon mortgage is a real estate loan with an initial period of low or no monthly payments. The borrower pays off the full balance in a lump sum at the end of the term. The monthly payments, if any, may be interest only, and the interest rate is commonly low.
