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Intermediate terms

Essential Mortgage Pre-Approval Terms

This curated collection includes key terms that might be helpful when exploring the mortgage pre-approval process. It covers the preparatory steps and documentation required to get cleared by a lender before you start looking at properties. These terms were selected based on common questions and areas where investors often need clarity.

Learning Path

1

Lender

A lender is an individual or financial institution that provides funds to a borrower for real estate acquisition or development, expecting repayment with interest. They are crucial for leveraging capital in real estate investment.

Intermediate13-14 min
2

Asset Verification

Asset verification is the process lenders use to confirm a borrower's financial resources, ensuring they have sufficient funds for a down payment, closing costs, and reserves for a real estate purchase.

Beginner3 min
3

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
4

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
5

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
6

Income Documentation

Income documentation refers to the financial records and statements required by lenders to verify a borrower's ability to repay a loan, crucial for securing real estate financing.

Intermediate5 min
7

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
8

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
9

Appraisal

An appraisal is an unbiased, professional opinion of a property's market value, conducted by a licensed appraiser, primarily used for lending, buying, and selling decisions.

Intermediate14-15 min
10

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
11

Loan Officer

A Loan Officer is a financial professional who helps individuals and businesses apply for and obtain loans, guiding them through the entire lending process from application to closing. They are key in connecting borrowers with suitable loan products.

Beginner3 min
12

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
13

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
14

Employment Verification

Employment verification is the process by which a lender confirms a borrower's current employment status, job title, and income to assess their ability to repay a loan.

Beginner2-3 min
15

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
16

Mortgage Broker

An independent financial professional who acts as an intermediary between borrowers and multiple lenders, helping real estate investors find and secure the most suitable mortgage products and terms for their investment properties.

Intermediate5 min
17

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
18

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
19

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
20

PITI

PITI stands for Principal, Interest, Taxes, and Insurance, representing the four main components of a monthly mortgage payment for real estate investors and homeowners. It is a critical metric for budgeting, loan qualification, and assessing the true cost of property ownership.

Intermediate14-15 min
21

Closing Disclosure

The Closing Disclosure (CD) is a five-page document outlining the final terms of a mortgage loan, including the loan amount, interest rate, monthly payments, and all closing costs, provided to the borrower at least three business days before closing.

Intermediate14-17 min
22

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
23

Loan Approval

Loan approval is a lender's official decision to provide financing for a property purchase, based on a comprehensive evaluation of the borrower's financial stability and the property's value.

Beginner4-5 min
24

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