2nd Trust Deed Glossary for California Real Estate Investors
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2nd Trust Deed Loan Terms
Familiarize yourself with common second trust deed loan terms to have a better understanding of what you are getting yourself into.
While some of the terms, such as loan amount or interest rates, are fairly self-explanatory, others might be foreign to you.
2nd Trust Deed Loan Terms
Combined Loan-to-Value (CLTV)- (1st mortgage amount + 2nd mortgage amount) / property value
- Normally restricted to 60% to 65%, but could be higher depending on lender
Refers to the duration of the loan, usually 6 to 24 months
Subordination AgreementEstablishes priority of liens, with the 1st trust deed in a senior position over the 2nd trust deed in a junior position
Pre-payment PenaltiesVary lender to lender, but usually 3 to 6 months
Cross Collateralizing PropertiesUsing multiple properties as security for one loan is often seen when a borrower lacks sufficient equity in a single property
Credit RequirementsSome hard money lenders may require a minimum credit score, but this can be overlooked if equity is strong
Default Interest RateA higher rate kicks in if the borrower misses payments or does not adhere to the loan terms
Balloon PaymentA lump-sum payment is due at the end of the loan term, since the majority of hard money payments are interest-only
Personal GuaranteeA personal guarantee from the borrower, allowing for personal assets to be used for repayment if the property collateral is insufficient