Investment Fundamentals Terms & Definitions

A mortgage is a loan obtained from a lender to purchase real estate, where the property itself serves as collateral for the debt. Borrowers make regular payments, including principal and interest, over a set period until the loan is fully repaid.

Mortgage pre-approval is a formal assessment by a lender of how much money you can borrow for a mortgage, based on your verified financial information, providing a strong advantage when making an offer on a property.

A mutual fund is a type of investment vehicle that pools money from many investors to invest in a diversified portfolio of stocks, bonds, or other securities, managed by a professional fund manager.

Net worth is a measure of your financial health, calculated by subtracting your total liabilities (what you owe) from your total assets (what you own). It provides a snapshot of your financial standing at a specific point in time.

Passive investing in real estate involves generating income or appreciation with minimal active management, often through vehicles like REITs, syndications, or turnkey properties, allowing investors to benefit from real estate without the day-to-day operational demands.

Penalty-free withdrawals refer to specific distributions from tax-advantaged retirement accounts, such as IRAs and 401(k)s, made before age 59½ without incurring the standard 10% early withdrawal penalty, provided they meet strict IRS criteria.

Personal budgeting is the process of creating a plan for how you will spend and save your money, tracking income and expenses to achieve financial goals, including real estate investments.

Personal Burn Rate refers to the rate at which an individual or household spends their cash reserves over a specific period, typically monthly. It's a critical metric for real estate investors to understand how long they can sustain themselves without active income.

Personal finances refer to the management of an individual's or family's money, including income, expenses, savings, investments, and debt, to achieve financial stability and goals.

A Personal Financial Stress Test is a systematic evaluation of an individual's or household's financial resilience against adverse economic scenarios, crucial for real estate investors to safeguard their portfolios.

Principal refers to the original amount of money borrowed for a real estate loan, or the remaining balance of that borrowed amount, excluding interest and fees. It is the core sum that directly reduces debt and builds equity.

Private Mortgage Insurance (PMI) is a type of insurance required by lenders for conventional loans when a borrower makes a down payment of less than 20%, protecting the lender in case of default.