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Intermediate terms

Essential Consumer Debt Terms

This curated collection includes key terms that might be helpful when exploring consumer debt and its impact on personal finance. It defines various types of loans and credit lines that commonly appear on a personal financial statement and influence your debt-to-income (DTI) ratio. These terms were selected based on common questions and areas where investors often need clarity.

Learning Path

1

Mortgage

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.

Beginner15-18 min
2

Personal Financial Statement

A Personal Financial Statement (PFS) is a document that summarizes an individual's financial position at a specific point in time, detailing assets, liabilities, and net worth. It is a critical tool for real estate investors seeking financing or evaluating their financial health.

Intermediate5 min
3

Debt-to-Income Ratio

The Debt-to-Income (DTI) Ratio is a financial metric used by lenders to assess a borrower's ability to manage monthly payments and repay debts, calculated by dividing total monthly debt payments by gross monthly income.

Intermediate18-20 min
4

VA Loan

A mortgage loan guaranteed by the U.S. Department of Veterans Affairs (VA) for eligible service members, veterans, and surviving spouses, offering benefits like no down payment and no private mortgage insurance.

Intermediate12-13 min
5

FICO Score

A FICO Score is a three-digit number that summarizes your credit risk, used by lenders to determine your creditworthiness for loans, including mortgages.

Beginner12-13 min
6

Foreclosure

Foreclosure is the legal process by which a lender takes possession of a property when the borrower fails to make mortgage payments, leading to the sale of the property to recover the outstanding debt.

Beginner12-15 min
7

Debt Service

Debt service is the total amount of principal and interest payments required to repay a loan over a specific period, typically for a mortgage or other property-related financing.

Beginner11-12 min
8

Lien

A lien is a legal claim or right against a property, granted to a creditor, which serves as security for a debt or obligation until it is satisfied.

Intermediate18-20 min
9

Home Equity Line of Credit

A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by the equity in your home, allowing flexible borrowing and repayment up to a set limit.

Intermediate14-15 min
10

Loan-to-Value Ratio

The Loan-to-Value (LTV) ratio is a financial metric used by lenders to assess the risk of a mortgage loan, calculated by dividing the loan amount by the property's appraised value, expressed as a percentage.

Intermediate14-15 min
11

Conventional Loan

A conventional loan is a mortgage not backed by a government agency, adhering to Fannie Mae and Freddie Mac guidelines, commonly used by real estate investors for various property types.

Intermediate11-12 min
12

FHA Loan

An FHA loan is a government-insured mortgage backed by the Federal Housing Administration, offering lower down payments and more flexible credit requirements to make homeownership more accessible.

Intermediate15-18 min
13

Credit Report

A credit report is a detailed record of an individual's credit history, including borrowing and repayment activities, used by lenders to assess creditworthiness.

Beginner14-15 min
14

Interest Rate

An interest rate is the percentage charged by a lender for the use of borrowed money, typically expressed as an annual percentage of the principal amount.

Beginner15-18 min
15

Loan Origination Fee

A loan origination fee is an upfront charge from a lender for processing a new loan, typically a percentage of the loan amount, covering administrative costs like underwriting and processing.

Intermediate11-12 min
16

Closing Costs

Closing costs are the various fees and expenses incurred by buyers and sellers at the end of a real estate transaction, covering services like loan origination, title insurance, appraisal, and legal fees.

Intermediate13-14 min
17

Home Equity Loan

A Home Equity Loan is a type of second mortgage that allows homeowners to borrow a lump sum against the equity in their property, repaid over a fixed term with a fixed interest rate. It's often used by real estate investors to fund new acquisitions or property improvements.

Intermediate5-6 min
18

Qualifying Income

Qualifying income is the total verifiable and stable income a borrower can demonstrate to a lender to secure financing, primarily used to assess repayment capacity for mortgages and real estate loans.

Intermediate5 min
19

Loan Default

Loan default is the failure of a borrower to fulfill the terms of a loan agreement, typically by missing required payments, which can lead to severe financial consequences like foreclosure and credit score damage.

Beginner15-18 min
20

Consumer Debt

Consumer debt is money owed by individuals for personal goods and services, such as credit card balances, auto loans, and student loans, which directly impacts an investor's financial health and borrowing capacity for real estate.

Beginner5 min
21

Amortization

Amortization is the process of paying off a debt over a set period through regular, fixed payments that gradually shift from mostly interest to mostly principal.

Intermediate12-13 min
22

Debt Service Coverage Ratio

The Debt Service Coverage Ratio (DSCR) is a financial metric used in commercial real estate lending to assess a property's ability to generate sufficient Net Operating Income (NOI) to cover its annual mortgage debt payments.

Advanced15-18 min
23

Underwriting

Underwriting is the process by which lenders assess the risk of lending money for a real estate transaction, evaluating the borrower's creditworthiness and capacity to repay, as well as the property's value and marketability.

Intermediate15-18 min
24

Real Estate Refinancing

Real estate refinancing is the process of replacing an existing mortgage loan with a new one, typically to secure better terms, lower payments, or access property equity for investment purposes.

Intermediate15-18 min
25

Promissory Note

A promissory note is a legally binding written promise by one party to pay a specific sum of money to another party on a specified date or on demand, outlining all loan terms.

Beginner15-18 min