Intermediate terms

Essential Mortgage Financing Terms

This curated collection includes key terms that might be helpful when exploring mortgage financing and loan approval. It covers foundational concepts for understanding how loans work, what lenders look for, and common loan types. These terms were selected based on common questions and areas where investors often need clarity.

Learning Path

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

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

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

Adjustable-Rate Mortgage

An Adjustable-Rate Mortgage (ARM) is a home loan where the interest rate can change periodically based on an index, leading to fluctuating monthly payments after an initial fixed-rate period.

Beginner14-15 min

Fixed-Rate Mortgage

A fixed-rate mortgage is a home loan with an interest rate that remains unchanged for the entire loan term, providing stable and predictable monthly payments.

Beginner13-14 min

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

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

Escrow

A legal arrangement where a neutral third party holds funds and documents until specific conditions of a contract are met, ensuring a secure and fair transaction, especially in real estate.

Intermediate15-18 min

Financing

The process of obtaining funds or capital to acquire, develop, or manage real estate investments, typically involving borrowed money from lenders (debt financing) or capital from investors (equity financing).

Intermediate15-18 min

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

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

Principal

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.

Intermediate13-14 min

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

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

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

Private Mortgage Insurance

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.

Intermediate15-18 min

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

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