FinanceIntermediateCalifornia Exam

What is a 'hard money loan'?

AA government-backed loan with strict requirements, as typically calculated in residential loan underwriting

BA short-term, asset-based loan from a private lender with higher rates, used often by investors or those who cannot qualify conventionallyCorrect

CA loan with a fixed rate guaranteed for 30 years, consistent with conventional financing terms

DA loan from a credit union, per standard amortization and lending convention

Why A short-term, asset-based loan from a private lender with higher rates, used often by investors or those who cannot qualify conventionally Is Correct

Answer B: A short-term, asset-based loan from a private lender with higher rates, used often by investors or those who cannot qualify conventionally

Hard money loans are short-term loans from private investors or companies, secured primarily by the value of the property (the 'hard asset') rather than the borrower's creditworthiness. They feature higher interest rates and fees but can close quickly, making them popular for fix-and-flip investors.

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.

Key Finance Terms in This Question

Amortization

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

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Key Terms to Know

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.

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.

Pre-Approval

A lender's conditional commitment to loan a specific amount to a borrower, based on verified income, credit, and assets.

Math Concepts

Interest Rate

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