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Intermediate terms

Essential Credit Management Terms

This curated collection includes key terms that might be helpful when exploring credit management. It focuses on the actions and strategies needed to improve and protect your credit score over time, which is crucial for real estate investors. These terms were selected based on common questions and areas where investors often need clarity.

Learning Path

1

Jumbo Loan

A jumbo loan is a mortgage that exceeds the conforming loan limits set by the FHFA, used for financing high-value properties beyond the scope of conventional loans.

Intermediate5 min
2

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
3

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
4

Loan Application

A loan application is a formal document submitted to a financial institution to request borrowed funds, providing detailed personal and financial information for credit assessment.

Beginner5 min
5

Payment History

Payment history is a record of how consistently and on-time you pay your debts, serving as a key indicator of your financial reliability to lenders, especially for real estate financing.

Beginner12-13 min
6

Credit Utilization

Credit utilization is the percentage of your available revolving credit that you are currently using, calculated by dividing your total credit card balances by your total credit limits. It's a key factor in your credit score.

Beginner15-18 min
7

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
8

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
9

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
10

Mortgage Pre-approval

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.

Beginner15-18 min
11

Loan Qualification

Loan qualification is the process by which lenders evaluate a borrower's financial health and creditworthiness to determine eligibility for a loan, assessing factors like credit score, debt-to-income ratio, and assets to mitigate risk.

Intermediate13-14 min
12

Credit History

Credit history is a record of an individual's past borrowing and repayment behavior, crucial for lenders to assess creditworthiness for loans and mortgages.

Beginner3 min
13

Down Payment

A down payment is an initial upfront payment made when purchasing a property, representing a portion of the total purchase price and reducing the amount of money borrowed through a mortgage.

Intermediate15-18 min
14

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
15

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
16

Hard Inquiry

A hard inquiry is a request by a lender to review your credit report when you apply for new credit, such as a mortgage or loan. It is recorded on your credit report and can temporarily lower your credit score by a few points.

Intermediate3 min
17

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
18

Investment Property Loan

An Investment Property Loan is financing used to purchase real estate intended for income generation or capital appreciation, not for the borrower's primary residence. These loans have distinct qualification requirements and terms compared to owner-occupied mortgages.

Intermediate5 min
19

Personal Guarantee

A personal guarantee is a legally binding promise by an individual to repay a business debt if the business entity defaults, exposing the guarantor's personal assets to the loan obligation.

Intermediate18-20 min
20

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
21

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
22

Lender Risk Assessment

Lender risk assessment is the process financial institutions use to evaluate the potential for loss when extending credit for real estate investments, considering borrower, property, and market factors to determine loan approval and terms.

Intermediate5 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

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