FinanceIntermediateAlabama Exam

A hard money loan is characterized by:

ALow interest rates and long terms

BAsset-based lending with high interest rates and short terms, often from private lendersCorrect

CGovernment backing and low down payments, which most practitioners would generally accept

DNo prepayment penalties

Why Asset-based lending with high interest rates and short terms, often from private lenders Is Correct

Answer B: Asset-based lending with high interest rates and short terms, often from private lenders

Hard money loans are asset-based loans from private investors or companies, typically featuring high interest rates, short terms, and quick approval, used when traditional financing is unavailable.

Exam Tip: Finance

Finance questions often involve calculations. Master the T-bar method, understand the difference between conventional and government-backed loans, and know key ratios like LTV and DTI.

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Key Terms to Know

Private Mortgage Insurance (PMI)

Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.

Amortization

The gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.

Debt-to-Income Ratio (DTI)

A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.

Discount Points

Prepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.

Math Concepts

Interest Rate Down Payment

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