After-Repair Value (ARV)

The estimated market value of a property after all planned renovations are completed. A licensed appraiser determines ARV by reviewing your scope of work against comparable recent sales in the area. Lenders use ARV to set the maximum loan amount for fix-and-flip, rehab, and construction loans, typically lending up to 70 to 75% of ARV. Example: A property will be worth $300,000 after a $60,000 renovation. At 75% ARV, the maximum loan is $225,000.

Amortization

The process of paying down a loan over time through scheduled principal and interest payments. With a fully amortizing loan, each payment reduces the outstanding balance so the loan reaches zero at the end of the term. An amortization schedule shows the exact breakdown of principal vs. interest for every payment. Longer amortization periods (like 40 years on a multifamily loan) mean lower monthly payments but more total interest paid over the life of the loan.

Appraisal

A professional, third-party assessment of a property's market value by a licensed appraiser. Lenders require an appraisal before closing to confirm the property is worth what you are paying for it. For investment properties, the appraisal often includes a Rent Schedule (Form 1007) establishing market rental rates. For commercial properties, a certified MAI appraiser prepares a more detailed report covering income, expenses, and comparable sales.

Asset-Based Lending

A lending approach where loan approval is based primarily on the value of the collateral (the property or business assets) rather than the borrower's personal income or credit history. Hard money loans and many private money loans are asset-based. The property qualifies the loan, not the borrower's W-2. This makes asset-based lending highly accessible for investors with complex tax returns, multiple properties, or self-employment income.

Asset Depletion Income

A mortgage qualification method where the lender calculates qualifying monthly income by dividing the borrower's total liquid assets by the remaining loan term, without requiring W-2s or tax returns. Commonly used for high-net-worth borrowers, retirees, and business owners whose tax returns show low ordinary income despite substantial wealth.

Example: A borrower has $6,000,000 in liquid assets. Applying for a 30-year loan: $6,000,000 ÷ 360 months = $16,667/month in qualifying income. Zero employment documentation required. Eligible assets typically include bank accounts, brokerage accounts, money market funds, and a portion of retirement accounts.

Bad Boy Carve-Out

Provisions in a non-recourse commercial real estate loan that convert the loan to full personal recourse if the borrower commits specific acts of bad faith. Common carve-outs include fraud, material misrepresentation in the loan application, misappropriation of rents or insurance proceeds, voluntary bankruptcy filing without lender consent, and environmental violations. Ordinary economic default, where the investment simply did not perform, does not trigger carve-outs. Bad boy carve-outs protect lenders from willful misconduct while preserving non-recourse protection for standard business risk.

Balloon Payment

A large lump-sum payment due at the end of a loan's term, representing the remaining outstanding principal balance. Most hard money, bridge, and short-term investment loans are structured with balloon payments. The borrower makes interest-only payments monthly and then pays the full principal when the loan matures (or when the property is sold or refinanced). Failing to pay at maturity triggers default, so having a clear exit strategy is essential before taking on a balloon loan.

Basis Points (bps)

A unit of measurement for interest rates equal to one one-hundredth of one percent (0.01%). Used by lenders and finance professionals to describe small rate changes with precision. A rate increase of 25 basis points means the rate went up by 0.25%. One hundred basis points equals one full percentage point. When a lender says the rate is "Prime plus 250 basis points," that means the rate is the Prime Rate plus 2.50%.

Bridge Loan

A short-term loan, typically 6 to 24 months, used to bridge a temporary financing gap between an immediate need and a longer-term solution. Common situations: buying a new property before selling an existing one, acquiring a property while stabilizing it before permanent financing, or funding the acquisition and renovation phase of a BRRRR deal. Bridge loans are interest-only, close in 7 to 21 days, and are repaid when the borrower sells or refinances into long-term debt.

BRRRR Strategy

An acronym for Buy, Rehab, Rent, Refinance, Repeat. A real estate investment strategy where an investor buys a distressed property, renovates it, rents it out, then does a cash-out DSCR refinance to recover the invested capital, and reinvests those proceeds in the next deal. Hawk Funding Group handles both ends of the BRRRR cycle: the initial hard money or bridge loan for the acquisition and rehab, and the DSCR refinance once the property is stabilized and rented.

Business Line of Credit

A revolving credit facility approved at a maximum credit limit from which a business can draw funds as needed. The business only pays interest on amounts actually drawn, not the full credit limit. As draws are repaid, the credit replenishes for future use, without the business needing to reapply. Lines of credit range from $10,000 to $500,000 or more and are ideal for recurring cash flow needs, payroll, seasonal inventory, and ongoing operational expenses. Different from a term loan, which is a one-time lump sum with fixed payments.

Business Term Loan

A lump-sum business financing product repaid on a fixed monthly payment schedule over a set period, typically 1 to 5 years. The business receives the full loan amount upfront and makes consistent monthly payments of principal and interest until the loan is fully paid off. Best for defined, one-time investments where the cost is known upfront: opening a new location, purchasing major equipment, consolidating high-rate debt, or funding a specific growth initiative. Unlike a business line of credit, the funds do not revolve.

Cap Rate (Capitalization Rate)

A metric that measures the potential return on an income-producing property, calculated by dividing annual Net Operating Income (NOI) by the property's purchase price or current market value.

Example: A property generates $140,000 in NOI and costs $2,000,000. Cap Rate = $140,000 ÷ $2,000,000 = 7.0%. Cap rates vary by market and asset class. Gateway cities like New York and Los Angeles see 4 to 5% cap rates; secondary markets run 5 to 7%; tertiary markets often require 7 to 9%+. A higher cap rate means more income relative to price, but may also reflect higher risk or a less desirable market.

Cash-on-Cash Return

A real estate investment metric measuring the annual cash flow a property generates relative to the actual cash invested, specifically the down payment and closing costs, not the total property value. Gives investors a true picture of what their invested dollars are earning.

Example: An investor puts $70,000 down on a rental property. After all expenses and mortgage payments, the property generates $8,400/year in cash flow. Cash-on-cash return = $8,400 ÷ $70,000 = 12%. This metric does not account for appreciation, equity buildup, or tax benefits. It measures only the cash yield on capital deployed.

Cash-Out Refinance

A refinancing transaction where the borrower takes a new loan for more than the current outstanding balance and receives the difference in cash at closing. Investors use cash-out refinances to access built-up equity for reinvestment, property improvements, or portfolio expansion, without selling the property. Most investment property programs allow cash-out up to 75% of the current appraised value. The "Refinance" step in the BRRRR strategy is typically a cash-out DSCR refinance.

CLTV (Combined Loan-to-Value)

The ratio of all loans secured by a property (first mortgage, second mortgage, HELOCs) to the appraised value. Lenders use CLTV to assess total leverage when a property has multiple liens. Example: A $150,000 first mortgage plus a $50,000 second mortgage on a $250,000 property = 80% CLTV ($200,000 ÷ $250,000). Senior lenders often cap CLTV to limit how much junior financing can sit behind their loan.

CMBS (Commercial Mortgage-Backed Securities)

A type of commercial real estate loan where multiple mortgages on income-producing properties are pooled together and sold as bonds to investors on the securities market. CMBS lenders (also called conduit lenders) can offer competitive rates and non-recourse terms for stabilized properties because the risk is distributed across bond investors. The tradeoff: CMBS loans have rigid covenants, complex servicing, limited flexibility for modifications after closing, and a defeasance or yield maintenance prepayment structure. Once securitized, the loan is managed by a servicer, not the original lender.

Construction Loan

A short-term loan financing the ground-up construction or major renovation of a property. Funds are not disbursed at once. They are released in draws as construction milestones are completed and verified by an inspector. The loan is interest-only during the build period (typically 12 to 36 months), so payments are based only on drawn funds, not the total commitment. Upon completion, the borrower refinances into a permanent mortgage or sells the property to retire the construction loan.

Construction-to-Permanent Loan

A single loan structure that covers both the construction phase and the long-term permanent financing in one closing, eliminating the need for two separate closings and two sets of loan costs. During construction, the loan functions as a standard draw facility with interest-only payments. Upon project completion, issuance of a certificate of occupancy, and reaching the lender's stabilization threshold, the loan converts automatically to the permanent phase with fully amortizing payments. The key benefit: permanent loan terms are locked in at the construction closing, protecting the borrower from rising rates or tighter lending conditions during the build period.

Conventional Loan

A mortgage loan that conforms to guidelines set by Fannie Mae or Freddie Mac and is not insured by a government agency. Conventional loans typically require strong personal credit, fully documented income, and a debt-to-income ratio under 45%. They offer lower rates than private lending but have stricter qualification requirements, longer processing timelines, and cap investors at 10 financed properties, making them less useful for serious real estate investors scaling a rental portfolio.

Credit Score (FICO Score)

A numerical representation of a borrower's creditworthiness, typically ranging from 300 to 850, based on payment history, amounts owed, length of credit history, credit mix, and new inquiries. DSCR and hard money loans have significantly more flexible credit requirements than conventional mortgages. Many programs accept scores as low as 550 to 620. Merchant cash advances can work with scores in the low 500s when business revenue is strong. A higher credit score generally unlocks lower rates and higher leverage across all loan programs.

Debt Service

The total amount of principal and interest payments required on a loan over a given period, usually expressed monthly or annually. Debt service is the denominator in the DSCR calculation: a property's rental income is measured against its full monthly debt service to determine whether cash flow covers the loan payment. For commercial properties, annual debt service is measured against annual NOI.

Debt Service Coverage Ratio (DSCR)

The ratio measuring a rental property's ability to generate enough income to cover its loan payment. The most important qualifying metric for DSCR rental loans.

A DSCR of 1.0x means rent exactly covers the payment (break-even). Above 1.0x means positive cash flow after debt service. Most DSCR programs require a minimum of 1.0x, with 1.20x to 1.25x qualifying for the best rates and maximum 80% LTV. Some programs accept ratios below 1.0x with compensating factors. Example: Property generates $2,400/month in rent. Monthly PITIA = $1,920. DSCR = $2,400 ÷ $1,920 = 1.25x.

Debt Yield

A commercial real estate underwriting metric that measures a lender's return as a percentage, calculated by dividing the property's annual NOI by the total loan amount. Favored by CMBS and institutional lenders because it is independent of interest rates and appraised values, making it harder to manipulate with market conditions.

Most institutional CRE lenders target a minimum 8 to 10% debt yield. Example: A property generates $200,000 in NOI. At a 10% debt yield minimum, maximum loan = $2,000,000. At 8%, maximum loan = $2,500,000.

Default

Failure to meet the legal obligations of a loan agreement, most commonly by missing required payments. A default can trigger the lender's right to begin foreclosure proceedings. Borrowers facing potential default should contact their lender immediately, as workout options such as loan modifications, extensions, and forbearance are often available before formal default proceedings begin. For short-term loans with balloon maturities, failing to pay off at maturity is also a default event.

Draw Schedule

A predetermined plan for how and when construction or rehab loan funds are disbursed to the borrower. Funds are released in increments tied to the verified completion of specific construction milestones: foundation, framing, rough-in, drywall, finish, and final. An inspector confirms each phase before funds are released. A well-structured draw schedule protects both lender and borrower by ensuring capital is deployed against completed, verified work rather than advanced speculatively.

Earnest Money Deposit (EMD)

A deposit made by the buyer when a real estate purchase contract is executed, demonstrating good faith and commitment to closing the transaction. EMD is typically 1 to 3% of the purchase price and held in escrow by a title company or escrow agent. If the buyer performs and closes, the EMD applies toward the down payment or closing costs. If the buyer defaults without a valid contingency (financing, inspection, or appraisal), the seller typically keeps the EMD as liquidated damages. For investment properties, EMDs may be larger, sometimes 5 to 10% on competitive off-market deals.

Equipment Financing

A business loan that funds the purchase of machinery, vehicles, technology, or other business equipment, using the equipment itself as collateral. Finances 80 to 100% of the equipment's purchase price with terms of 2 to 7 years that align with the equipment's useful life. Because the collateral is tangible and revenue-generating, equipment financing is more accessible than unsecured business loans and is often available to startups and newer businesses. At the end of the loan term, the borrower owns the equipment outright. Common for commercial vehicles, construction equipment, restaurant equipment, medical devices, and manufacturing machinery.

Equity

The difference between a property's current market value and the outstanding balance of all loans secured by it. Equity represents the owner's true ownership stake. Investors build equity through appreciation (rising values), principal paydown over time, and value-add improvements. Equity can be accessed without selling through a cash-out refinance or second trust deed. Example: A property worth $500,000 with a $300,000 mortgage has $200,000 in equity.

Escrow

An arrangement where a neutral third party holds funds, documents, and instructions until all conditions of a real estate transaction are met. In a purchase, escrow protects both sides. The buyer's funds are held until the seller delivers clear title, and the deed is only recorded once funds are confirmed. Lenders may also establish ongoing escrow accounts as part of monthly mortgage payments to collect and disburse property taxes and insurance on the borrower's behalf.

Exit Strategy

A borrower's plan for how they will repay a short-term loan at or before maturity. The most common exit strategies are: selling the property (standard for fix-and-flip), refinancing into long-term permanent financing (standard for BRRRR and bridge-to-DSCR), and paying off from cash reserves. Lenders evaluate exit strategy credibility as a primary underwriting factor for hard money, bridge, and construction loans. A credible exit is as important as the deal itself.

Factor Rate

The pricing mechanism used for merchant cash advances and revenue-based financing. Unlike an interest rate that accrues on declining principal, a factor rate is a fixed multiplier applied to the advance amount to determine the total repayment, regardless of how quickly the advance is repaid.

Example: A business receives a $60,000 MCA with a 1.35 factor rate. Total repayment = $60,000 × 1.35 = $81,000. The business owes $81,000 whether it repays in 4 months or 10 months. Early repayment does not reduce the total cost. Factor rates range from 1.15 for lower-risk profiles to 1.50 and above for higher-risk scenarios. To compare an MCA to a traditional loan, convert the factor rate to an effective APR using the actual repayment timeline.

First Trust Deed / First Position Lien

The primary, senior-most loan secured against a property. In foreclosure, the first position lender has priority claim on sale proceeds before any junior lenders are paid. Most purchase and refinance mortgage loans are first position. Because first position lenders are paid first, they carry less risk than second position or mezzanine lenders, which is why first position loans carry lower interest rates than subordinate financing.

Fix and Flip

A real estate investment strategy where an investor purchases a distressed or undervalued property, renovates it to increase value, and resells it for a profit, typically within 6 to 18 months. Fix-and-flip loans provide combined acquisition and renovation financing in a single short-term product. The standard underwriting metric is ARV: lenders typically advance up to 70 to 75% of the projected after-repair value. Profit is the difference between the net sales price and the total cost of acquisition, renovation, financing, and closing.

Foreclosure

The legal process by which a lender takes possession of a property after the borrower defaults on the loan. The lender then sells the property to recover the outstanding balance. Timelines vary by state: judicial foreclosure states require court involvement and can take 1 to 3 years; non-judicial (deed of trust) states can complete the process in 3 to 6 months. Foreclosures are publicly recorded and create opportunities for investors to acquire properties below market value.

Foreign National Loan

A real estate loan made to borrowers who are not U.S. citizens or permanent residents and have no U.S. credit history, Social Security number, or domestic employment. Qualification is entirely asset-based. Typical requirements include a valid foreign passport, proof of liquid assets sufficient to support the transaction, property details, and optionally an ITIN. Foreign national loans are typically available at 65 to 70% LTV. Common for international buyers from Europe, the Middle East, Latin America, and Asia purchasing U.S. investment or luxury residential real estate.

Funding Gap

The difference between the total capital needed to complete a transaction and the amount a primary lender is willing to provide. Common in value-add and construction projects where the senior loan does not cover the full project cost. Funding gaps are typically bridged with mezzanine financing, preferred equity, a second trust deed, or additional sponsor equity. Experienced sponsors plan their capital stack early to identify and close any funding gaps before the deal is in contract.

Gross Rent Multiplier (GRM)

A quick valuation metric dividing a property's purchase price by its annual gross rental income.

Example: A $500,000 property generating $50,000/year in gross rent has a GRM of 10. GRM is a fast screening tool for comparing properties but does not account for vacancy, operating expenses, or financing costs. It should be used alongside cap rate and DSCR analysis for a complete investment picture.

Hard Costs

The direct, physical construction expenses in a renovation or building project: labor, materials, fixtures, and installed equipment. Hard costs are distinguished from soft costs (permits, architectural fees, legal fees, financing costs). In rehab and construction loan underwriting, lenders separately review hard costs and soft costs when analyzing a project budget. Hard costs are typically the larger component and the primary basis for draw disbursements.

Hard Money Loan

A short-term, asset-based real estate loan where approval is based primarily on the value of the collateral property rather than the borrower's personal income or credit. Hard money loans close in 5 to 15 business days, carry rates of 9 to 13%, and are typically interest-only for 6 to 24 months. They are used for fix-and-flip projects, bridge situations, and distressed property acquisitions where conventional financing is not available or not fast enough. Hard money lenders accept credit scores as low as 550 to 580 for strong deals.

Holdback Rate

In a merchant cash advance, the holdback rate is the fixed daily percentage of credit card receipts or bank deposits automatically withheld by the funding company and applied toward repayment of the advance. The holdback continues until the total contracted repayment amount is fully recovered.

Example: A business has a 10% holdback rate. On a day with $4,000 in sales, $400 is automatically withheld. On a slow day with $1,200 in sales, only $120 is withheld. This flexible structure means repayment naturally slows during slower business periods, a key advantage over fixed daily payments. Typical holdback rates range from 5% to 20% depending on the advance amount and projected repayment timeline.

Hold Period

The length of time an investor plans to own a property before selling or refinancing. Hold period significantly impacts the right financing choice. A 6-month flip needs a short-term hard money loan. A 5 to 10-year rental hold calls for a 30-year DSCR loan. A 3-year value-add apartment play calls for a bridge loan with a defined stabilization timeline. Projected hold period also determines whether paying discount points to buy down the rate makes financial sense.

Interest-Only Loan

A loan where the borrower pays only the interest charges each month with no principal reduction during the interest-only period. Monthly payments are lower than a fully amortizing loan, improving short-term cash flow. Most hard money, bridge, and fix-and-flip loans are interest-only for the full term. Some long-term DSCR and commercial loans offer interest-only periods of 3 to 10 years before converting to amortizing payments. At the end of an interest-only period or at maturity, the full principal remains outstanding as a balloon payment.

Interest Reserve

A portion of a construction or bridge loan set aside at closing to cover future interest payments during the project period. The lender holds the interest reserve and draws from it each month, allowing the borrower to avoid out-of-pocket interest payments while the project generates no income. Interest reserves are particularly common in ground-up construction loans and large commercial rehab projects where carrying costs during construction can be substantial.

Investment Property

Real estate purchased to generate rental income or capital appreciation rather than as a primary residence. Investment properties are underwritten differently than owner-occupied homes. Lenders require larger down payments, higher credit scores, and often qualify the loan based on rental income (DSCR) rather than personal income. Virtually all of Hawk Funding Group's real estate loan products are designed specifically for investment properties, not primary residences.

Jumbo Loan

A mortgage that exceeds the conforming loan limits set by Fannie Mae and Freddie Mac (currently $766,550 for most U.S. counties; higher in designated high-cost areas). Because jumbo loans cannot be purchased by government-sponsored enterprises, lenders hold them in their own portfolios or sell to institutional investors. Standard jumbo mortgages require stronger credit (typically 700+), larger down payments (often 20 to 30%), and full income documentation. For loan amounts above $4 million on luxury or investment properties, private money jumbo loans offer asset-based qualification and faster closings as an alternative to retail bank jumbo programs.

Lender

An individual or institution that provides loan funds to a borrower in exchange for repayment of principal with interest according to agreed terms. In real estate, lenders include banks, credit unions, mortgage companies, private money lenders, and hard money lenders. Hawk Funding Group operates as both a direct lender on select programs and a mortgage broker with access to 50+ capital sources across all loan types, giving borrowers access to the full lending market through one relationship.

Leverage

The use of borrowed capital to increase the potential return on an investment. In real estate, leverage means using a mortgage to control a property worth more than your cash investment. Higher leverage amplifies both gains and losses. A 75% LTV loan means the investor controls 100% of the property's appreciation with only 25% down. Example: A property appreciates 10% from $500,000 to $550,000. An investor who put $125,000 down (25%) gained $50,000 on a $125,000 investment, a 40% cash return, while the unlevered return was just 10%.

Lien

A legal claim against a property used as security for a debt. When you take out a mortgage, the lender records a lien against your property that must be paid off before you can sell or refinance. Liens have a priority order. First position liens are paid before second position liens in a foreclosure sale. Other types of liens include mechanics' liens (unpaid contractors), tax liens (unpaid property taxes or income taxes), and judgment liens (court orders against a property owner).

LLC (Limited Liability Company)

A legal business entity that separates personal assets and liability from business obligations. Real estate investors commonly hold properties in LLCs to protect personal wealth from property-related lawsuits, tenant claims, or business debts. An LLC creates a legal barrier between the investment and the owner's personal finances. LLCs also simplify portfolio management, allow multiple members with flexible profit-sharing, and facilitate estate planning. Most DSCR, hard money, bridge, and multifamily loan programs fully support LLC vesting, one of their key advantages over conventional financing, which typically requires personal ownership for investment loans.

Letter of Intent (LOI)

A non-binding document outlining the preliminary terms under which a lender agrees to provide financing, or a buyer agrees to purchase a property. In commercial real estate lending, an LOI (or term sheet) establishes the key deal parameters (loan amount, rate, LTV, DSCR requirement, term, and major conditions) before formal underwriting begins. An LOI commits neither party to the deal but serves as the agreed starting point for due diligence and documentation.

LTC (Loan-to-Cost)

The ratio of the loan amount to the total project cost: purchase price plus renovation or construction budget.

Example: A $280,000 loan on a project with a $200,000 purchase price and $150,000 rehab budget = $280,000 ÷ $350,000 = 80% LTC. Most fix-and-flip and construction lenders cap LTC at 85 to 90% while also applying an ARV cap (typically 70 to 75% of ARV). Both caps apply: the lower of the two governs the maximum loan amount.

LTV (Loan-to-Value)

The ratio of the loan amount to the appraised value of the property, expressed as a percentage.

LTV is one of the most fundamental metrics in lending. Lower LTV means more equity and less lender risk. Example: A $200,000 loan on a property appraised at $250,000 = 80% LTV. Investment property lenders typically require 65 to 80% LTV depending on loan type, lower than owner-occupied programs to account for additional risk. For commercial properties, LTV of 65 to 75% is standard. For luxury residential private money, up to 80% is available.

Maturity Date

The date on which a loan must be repaid in full. For short-term loans like hard money and bridge loans, maturity may be 6 to 24 months from closing. For long-term DSCR rental loans, it may be 30 years. At maturity, the borrower must either pay the outstanding balance (balloon payment), refinance into a new loan, or sell the property. Failing to pay at maturity is a default event. Many hard money and bridge lenders offer extensions for a fee (typically 1 to 2%) if the borrower needs additional time to complete their exit strategy.

Merchant Cash Advance (MCA)

A business financing product where a funding company provides a lump sum of capital in exchange for the right to collect a fixed dollar amount of the business's future sales. Repayment is automatic through a daily holdback percentage on credit card processing receipts or bank account deposits. Technically, an MCA is a purchase of future receivables, not a loan, which means it carries different regulatory protections and pricing structures than traditional lending.

MCAs fund in 24 to 48 hours with minimal documentation (3 months of bank statements), no collateral, and credit scores as low as 500+. The tradeoff is cost: effective APRs on MCAs are significantly higher than traditional business loans. Best for high-revenue businesses needing fast capital with naturally flexible repayment. Not ideal for businesses that have time and credit to qualify for conventional products.

Mezzanine Financing

A hybrid form of financing that sits between senior debt and equity in the capital structure. Mezzanine lenders receive a higher return than senior lenders but have a subordinate claim in foreclosure. In commercial real estate, mezzanine financing fills funding gaps when the senior loan does not cover the full project cost. It typically carries interest rates of 12 to 20% reflecting the additional risk, and may include equity participation rights ("equity kickers") alongside the interest payment.

Mixed-Use Property

A property combining residential and commercial uses in the same building or development. For example, ground-floor retail with apartments above, or a live-work building. Mixed-use properties can be more complex to finance because they do not fit neatly into residential or commercial loan categories. Lenders evaluate income from all uses and may apply commercial lending standards to the entire property even if the residential component is larger. Mixed-use mortgage programs account for the blended income stream and can unlock higher loan amounts than single-use programs.

NNN Lease (Triple Net Lease)

A commercial lease structure where the tenant pays base rent plus all three "nets": property taxes, building insurance, and maintenance and repair costs. The landlord's only responsibility is typically structural integrity. NNN leases are common in single-tenant retail properties. Walgreens, Dollar General, Starbucks, and similar national brands frequently sign NNN leases. For investors, NNN properties are highly attractive because they generate predictable, low-management income. For lenders, NNN leases with national tenants are underwritten favorably because the creditworthiness of the tenant backstops the rent stream.

Net Operating Income (NOI)

The annual income a property generates after all operating expenses but before mortgage debt service and income taxes. The single most important number in commercial real estate lending. It drives cap rate valuation and DSCR qualification.

Operating expenses include property taxes, insurance, management fees, maintenance, utilities (if owner-paid), and capital reserves. They do not include mortgage payments. NOI measures the property's income independent of how it is financed. Example: A building generates $240,000 in gross rent. Vacancy = $12,000 (5%). Operating expenses = $68,000. NOI = $240,000 − $12,000 − $68,000 = $160,000.

Non-Recourse Loan

A loan where the lender's only remedy in default is to foreclose on and sell the collateral property. The lender cannot pursue the borrower's personal assets (bank accounts, other real estate, investments) beyond the property itself. Non-recourse loans are common in commercial real estate, particularly for loans from life insurance companies, CMBS conduits, and some private lenders. They provide significant personal liability protection and are especially valuable for investors holding properties in LLC structures. See also: Bad Boy Carve-Out.

Note (Promissory Note)

A legally binding written promise to repay a specific sum of money under defined terms: interest rate, payment schedule, and maturity date. The note is the "IOU" in a real estate transaction. It is separate from the deed of trust or mortgage, which is the document securing the loan against the property. The borrower signs the note; the lender holds it as evidence of the debt obligation. When a loan is paid off, the lender cancels and returns the note.

Origination Fee

An upfront fee charged by a lender for processing and originating a loan, expressed as a percentage of the loan amount (also called "points"). One point = 1% of the loan amount. Example: 2 points on a $400,000 loan = $8,000. Origination fees vary by loan type: conventional loans charge 0.5 to 1%; hard money and private loans typically charge 1 to 3 points. Origination fees are paid at closing and represent the lender's compensation for underwriting, processing, and funding the loan.

Owner-Occupied vs. Investment Property

The most fundamental classification in real estate lending. Owner-occupied properties (primary residences) receive the most favorable terms: lowest rates, highest LTV, most program options. Investment properties carry higher rates, require larger down payments, and use different qualification criteria (DSCR vs. personal income). Owner-occupied commercial real estate, where the business occupies at least 51% of the space, qualifies for SBA 504 and 7(a) financing with favorable terms not available to investment CRE. Misrepresenting a property's intended use (occupancy fraud) is a federal offense.

Phase I Environmental

A standard due diligence report required by most commercial real estate lenders, prepared by a licensed environmental professional to identify potential contamination or environmental hazards on or near a property. A Phase I reviews historical records, aerial photographs, regulatory databases, and a site inspection. It does not involve physical sampling or laboratory testing. If a Phase I identifies a "Recognized Environmental Condition" (REC), the lender may require a Phase II environmental assessment (actual soil and groundwater testing) before the loan can close. Phase I reports typically take 2 to 3 weeks and cost $1,500 to $3,000.

PITIA

The complete monthly mortgage payment: Principal, Interest, Taxes, Insurance, and Association dues (HOA fees if applicable). PITIA is the denominator in the residential DSCR calculation: the full monthly cost of carrying the property, not just the principal and interest. Lenders measure monthly gross rental income against the full PITIA to determine whether the property's rental income covers the complete monthly obligation.

Points

Upfront fees paid to a lender at closing, calculated as a percentage of the loan amount (1 point = 1%). Can be origination points (lender compensation) or discount points (paid to buy down the interest rate). Example: 2.5 points on a $300,000 loan = $7,500 due at closing. Hard money and private money loans typically charge 1 to 3 origination points. Paying discount points makes financial sense only if you hold the loan long enough for the interest savings to exceed the upfront cost.

Portfolio Lender

A lender that originates and holds loans in its own portfolio rather than selling them to secondary market investors like Fannie Mae or Freddie Mac. Because portfolio lenders are not bound by agency guidelines, they can offer significantly more flexibility: financing unusual property types, accommodating non-standard borrowers, creating custom loan structures, and making faster approval decisions. Many community banks, credit unions, and private lenders are portfolio lenders. Most hard money and DSCR programs come from portfolio lenders or private capital sources.

Prepayment Penalty

A fee charged when a borrower pays off a loan before its maturity date. Lenders charge prepayment penalties to recoup the interest income they lose when a loan is retired early. Common structures include step-down penalties (e.g., 5-4-3-2-1%, decreasing by 1% each year), yield maintenance (compensating the lender for the full interest they expected to earn), and defeasance (replacing the loan collateral with government securities). DSCR loans often have 3 to 5-year prepayment periods. Always review prepayment terms carefully before closing if an early sale or refinance is possible.

Private Money Lender

An individual or non-institutional entity that lends their own capital or pooled investor capital for real estate transactions. Private money lenders can create custom loan structures, move quickly, and underwrite deals case-by-case without institutional guidelines. Rates are higher than bank lending to compensate for the flexibility and speed. Hard money lenders are a subset of private money lenders, typically focused on short-term, asset-based lending on investment properties.

Pro Forma

A financial projection document estimating a property's future income, expenses, and returns based on stated assumptions. Standard pro forma components include projected gross rent, vacancy allowance, operating expenses, NOI, debt service, and cash-on-cash return. Lenders review pro formas as part of commercial and multifamily underwriting to assess whether income projections are realistic and supportable. Aggressive or unsupported pro forma assumptions are a common reason commercial loans are restructured or declined during underwriting.

Rate-and-Term Refinance

A refinancing transaction where the borrower replaces an existing loan with a new one solely to change the interest rate, the repayment term, or both, without taking any cash out. Used to lower monthly payments by securing a better rate, shorten the loan term to build equity faster, or convert from an adjustable-rate to a fixed-rate loan. Rate-and-term refinances are simpler and less expensive than cash-out refinances because no equity is extracted. Most lenders require the borrower to have owned the property for at least 6 to 12 months before doing a rate-and-term refi.

Recourse Loan

A loan where the lender can pursue the borrower's personal assets, beyond the collateral property, if the loan goes into default and the foreclosure sale does not cover the full outstanding balance. Most residential mortgages are full recourse. Investors should clearly understand whether any loan is recourse or non-recourse before signing, as this significantly affects personal liability exposure in a worst-case scenario. See also: Non-Recourse Loan, Bad Boy Carve-Out.

Refinance

Replacing an existing loan with a new loan, typically to achieve a lower interest rate, extend the loan term, change the loan type (adjustable to fixed), or access equity through a cash-out refinance. The existing loan is paid off with proceeds from the new loan at closing. Common reasons investors refinance: rolling a bridge loan into permanent financing, executing the "Refinance" leg of the BRRRR strategy, lowering a rate after market improvement, or pulling equity out for the next acquisition. Closing costs and any prepayment penalties on the old loan must be weighed against the benefit.

Rehab Loan

A loan providing financing for both the acquisition and renovation of a property. Rehab funds are held in a draw reserve at closing and disbursed in increments as construction milestones are verified complete by an inspector. The standard financing vehicle for fix-and-flip investors. Also used by BRRRR investors buying properties that need work before they can be rented or refinanced into a DSCR loan.

Rent Roll

A document listing all current tenants in an income-producing property, including each tenant's unit or space, monthly rent amount, lease start and end dates, and any special lease terms (options to renew, rent abatements, tenant improvement allowances). Lenders require a current rent roll as part of due diligence on multifamily and commercial properties to verify actual rental income. The rent roll is the starting point for NOI calculation and is one of the two most critical documents in any CRE or multifamily loan application, alongside the trailing 12-month operating statement.

Rental Income

Income generated by renting a property to tenants. For DSCR loan qualification, rental income is documented through a signed lease agreement and/or a 1007 Rent Schedule from an appraiser establishing market rent. For short-term rentals (Airbnb, VRBO), lenders use 12-month actual STR income history or AirDNA market data projections. Rental income is the primary qualifying criterion for DSCR loans, replacing the need for personal income verification entirely.

Revenue-Based Financing

A category of business financing where repayment is tied to a percentage of the business's ongoing revenue rather than a fixed monthly payment. Includes merchant cash advances and certain business loans structured with variable payments. When revenue is strong, repayment is faster. When revenue is slow, repayment naturally slows. This makes revenue-based financing attractive for businesses with seasonal cash flow or irregular revenue patterns. Typically more expensive than conventional business loans but faster to obtain and more accessible to businesses with lower credit scores or limited operating history.

RevPAR (Revenue Per Available Room)

The primary performance metric for hotels and hospitality properties, calculated by multiplying the average daily rate (ADR) by the occupancy rate. Used by lenders instead of standard rent roll or DSCR analysis when underwriting hospitality loans.

Example: A 100-room hotel charges an average of $150/night and runs at 72% occupancy. RevPAR = $150 × 0.72 = $108. Lenders compare a hotel's trailing RevPAR against its competitive set and market averages to assess performance. A hotel with RevPAR above its market average signals strong management and pricing power, both of which support lender confidence.

SBA Loan

A loan partially guaranteed by the U.S. Small Business Administration designed to help small businesses access capital on favorable terms. The SBA 7(a) program provides up to $5 million for working capital, equipment, real estate, business acquisition, and debt refinancing with terms up to 25 years. The SBA 504 program focuses specifically on owner-occupied commercial real estate and major equipment with long-term fixed rates and down payments as low as 10%. The SBA guarantee reduces lender risk, allowing rates and terms unavailable through conventional business lending.

Scope of Work (SOW)

A detailed, line-item document describing all planned renovation or construction work on a property: specific tasks, materials, quantities, and costs for each component of the project. Lenders require a complete scope of work before approving fix-and-flip, rehab, and construction loans to verify the renovation budget is realistic and that the planned improvements support the projected ARV. A licensed general contractor typically prepares or signs off on the SOW. Vague or incomplete scopes of work are one of the most common reasons rehab loans are delayed or declined during underwriting.

Seasoning

The length of time a borrower has owned a property or held funds in a bank account. Lenders use seasoning requirements to reduce fraud risk. Most cash-out refinance programs require the borrower to have owned the property for at least 6 to 12 months before allowing a cash-out at current appraised value. Asset seasoning requirements verify that down payment funds have been in the borrower's account for a sufficient period rather than being borrowed or gifted at the last minute. Lenders will also verify how long a rental has been generating income before using that income for qualification.

Second Trust Deed / Second Position Lien

A loan secured by a property that is subordinate to an existing first mortgage. In foreclosure, the first lien holder is paid in full before the second position lender receives anything, making second position loans riskier and therefore priced at higher rates. Second trust deeds allow investors to access additional equity without refinancing the existing first mortgage. Also called a second mortgage or junior lien. Hawk Funding Group offers second trust deed programs for investors seeking to leverage existing equity without disrupting their current loan terms.

Short-Term Rental (STR)

A residential property rented to guests for periods typically shorter than 30 days, through platforms like Airbnb, VRBO, or Booking.com. STRs generate significantly higher gross income than long-term rentals in many markets. Dedicated DSCR loan programs for STR properties use AirDNA market data or actual 12-month STR income history to qualify the property's cash flow rather than requiring a traditional annual lease. Local regulations vary widely. Many cities restrict STRs to owner-occupied properties or require operating permits, which affects both the investment's income stability and lender qualification standards.

Soft Costs

Indirect expenses associated with a construction or rehab project that are not physical labor or materials. Soft costs include architectural and engineering fees, permits and inspections, legal fees, financing costs (points and interest during construction), title and escrow fees, and project management fees. In construction loan underwriting, lenders evaluate both hard costs and soft costs to confirm the project budget is realistic and complete. Under-budgeting soft costs is a common mistake that can cause projects to run over budget.

Stabilized Property

A commercial or income-producing property that has reached a consistent, market-rate level of occupancy and revenue, typically defined as 85 to 95% occupied with market-rate leases in place. Stabilization is the benchmark that determines when a property qualifies for permanent financing at full program terms. A property that is not yet stabilized (high vacancy, mid-renovation, below-market rents) is considered transitional or value-add and typically requires bridge financing until it crosses the stabilization threshold. Lenders define stabilization requirements in the bridge loan agreement, and meeting those requirements triggers the right to refinance into permanent debt.

Term Sheet

A non-binding document summarizing the key terms under which a lender proposes to provide financing. A term sheet typically includes loan amount, interest rate, LTV, DSCR requirement, loan term, origination fees, prepayment structure, and major conditions. Receiving a term sheet is an early step in the loan process. It allows the borrower to evaluate and compare options before committing to a full application or paying for third-party reports (appraisal, environmental, title). Hawk Funding Group provides term sheets within 24 hours of receiving a deal inquiry at no cost and no obligation.

Title

The legal evidence of a person's right to own and possess a property. A clear title means no outstanding liens, disputes, or claims exist against the property. Before any real estate loan closes, a title search is conducted to verify the seller has marketable title and identify any existing encumbrances. Title issues (unpaid liens, easements, ownership disputes, missing heirs) must be resolved before closing can proceed. Unresolved title issues are one of the most common reasons real estate transactions are delayed or fail to close.

Title Insurance

An insurance policy protecting against losses from title defects that existed before, but were not discovered at, closing. A lender's title insurance policy protects the lender (required on virtually all mortgage loans). An owner's title insurance policy protects the buyer. Both are one-time premiums paid at closing covering the insured party for as long as they hold their interest in the property. Unlike other insurance, title insurance protects against past events, not future ones.

Trailing 12 (T12)

A 12-month financial operating statement for an income-producing property showing actual rental income and expenses over the most recent 12 calendar months, regardless of fiscal year. Lenders require the T12 in commercial and multifamily real estate underwriting to verify NOI based on actual property performance rather than projections or estimates. A T12 that shows consistent or growing income strengthens a loan application; one showing declining collections or rising expenses raises underwriting questions. Alongside the current rent roll, the T12 is one of the two most important documents in any CRE loan submission.

Trust Deed (Deed of Trust)

A legal document used in many states as an alternative to a mortgage, creating a lien on a property as security for a loan. A deed of trust involves three parties: the borrower (trustor), a neutral third-party trustee, and the lender (beneficiary). In the event of default, the trustee has the power to sell the property without court involvement, called non-judicial foreclosure. States using deeds of trust generally have faster foreclosure timelines than states using traditional mortgage instruments.

Underwriting

The process by which a lender evaluates loan risk by analyzing the borrower's creditworthiness, income, assets, and the collateral property. Underwriters review documentation, order appraisals and inspections, verify stated facts, and ultimately approve, deny, or conditionally approve the loan. Different loan programs have very different underwriting approaches: hard money underwriting is asset-focused and fast (days); conventional underwriting is income-focused and thorough (weeks); commercial underwriting is cash-flow-focused and deal-specific (weeks to months).

UPB (Unpaid Principal Balance)

The remaining amount of principal owed on a loan at any given point in time, not including accrued interest or fees. UPB decreases with each principal payment and is the basis for calculating interest charges each period. When refinancing, the UPB of the current loan is paid off with proceeds from the new loan. For a cash-out refinance, the new loan amount exceeds the UPB, with the difference distributed to the borrower at closing.

Vacancy Rate

The percentage of available rentable units or space in a property that is unoccupied at a given time.

In residential underwriting, lenders typically apply a standard 5% vacancy allowance to gross rent when calculating NOI, even if the property is currently 100% occupied. This accounts for future turnover and brief vacant periods. Commercial lenders use local market vacancy data to stress-test income projections. High vacancy in a property is a risk signal; low vacancy in a strong market supports higher valuations, higher NOI, and better loan terms. A market with rising vacancy can trigger more conservative underwriting even for fully-leased properties.

Value-Add Property

An investment property with unrealized income potential that can be increased through improvements, better management, lease-up, or repositioning. Value-add properties are typically acquired below market rate because they require work: cosmetic renovations, functional upgrades, occupancy stabilization, or management improvements. After improvements are made and the property is stabilized at market rents, the investor refinances or sells at a higher valuation. Bridge loans are the standard financing vehicle for value-add acquisitions. The strategy works because investors create the value themselves rather than simply buying existing cash flow.

Vesting

The legal structure in which title to a property is held. Common options include sole ownership (one individual), joint tenancy (equal shares with right of survivorship), tenancy in common (unequal shares allowed, no survivorship), community property (in applicable states), and entity vesting (LLC, LP, or corporation). Vesting affects personal liability exposure, estate planning, tax treatment, and how the property can be transferred or encumbered. Most investment property loan programs at Hawk support entity vesting (LLC, LP) without restriction.

Working Capital

The funds a business uses to cover day-to-day operations: payroll, inventory, rent, utilities, and other short-term obligations. Defined as Current Assets minus Current Liabilities. Positive working capital means a business has more liquid resources than near-term obligations, a sign of operational health. Negative working capital means the business has more obligations than liquid resources, the situation a working capital loan is designed to address. Common working capital financing products include business lines of credit, merchant cash advances, and short-term business term loans.