Welcome to the Real Estate Investing From A to Z series. Each week we’ll take a letter from the alphabet and define all the real estate investing terms you need to know that begin with that letter. Today’s letter is……H!
This week, we’ll cover Hard Money Lenders, Housing and Urban Development (HUD), Home Equity Loan, Home Inspection and Holding Costs. It’s been a while since we covered the “G” words so let’s jump right into it!
A Hard Money Lender is a lender who will lend money on projects that the banks and other typical lenders will not. For this service their closing cost and interest rates are generally much higher than other lenders. These loans typically are only for a short period of time, a year or so, and then they need to be refinanced or paid in full.
Housing and Urban Development or HUD is a government department that administers the FHA and FNMA loan programs. They are a source of foreclosed homes that you should be investigated as part of your due diligence.
A Home Equity Loan is a mortgage that is secured by the equity in a property. The equity is determined by the difference between the appraised value and the mortgaged amount owed on the property. Home equity loans can be used to finance portions of another property or make repairs on an existing property.
Typically a Home Inspection is done by an independent company that determines the condition of a property before a buyer goes to settlement. If this inspection finds major damage to the structure of the property, the seller may have to make repairs or the buyer may decide to back out the deal.
Holding Costs are the monies needed to float the project until it starts marking a profit. All the costs that are expended until the project can sustain itself such as; taxes, mortgage payments, etc. For example, if you purchase a property and fix it up, but cannot find a renter quickly, the mortgage payments, utilities and other payments you make until you get a renter are considered holding costs.
That’s it for this week. We’ll get back on track next week and talk about the “I” words you need to know to be a successful investor.