What is a gap loan?

Gap funding on a private money loan, typically you would see the lender making a loan 70% or 65% of the purchase price; well the gap funds are essentially the second deed of trust behind that first lien. Usually that’s in the form of another mortgage; also called as shared appreciation mortgage.

It’s another lender, or a private money lender, who’s taken a little bit more risk because they’re in a second lien position. They put up usually the rest of the money and all the money for the rehab. A lender, or a private money lender, who’s taken a little bit more risk because they’re in a second lien position.

A Gap funding lender usually participates in the equity; so after the property is rehabbed, they get a portion of the equity that’s left over after all the first is paid off and the original lien for the second is paid off