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Intermediate terms

Essential Real Estate Entry Costs Terms

This curated collection includes key terms that might be helpful when exploring the real cost of entry into real estate investment. It demystifies the actual amount of cash a beginner needs for their first property, covering upfront, transactional, and ongoing expenses. These terms were selected based on common questions and areas where investors often need clarity.

Learning Path

1

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
2

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
3

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
4

Maintenance Costs

Maintenance costs are the ongoing expenses required to keep a real estate property in good repair, functional, and habitable, directly impacting an investor's profitability and cash flow.

Beginner12-13 min
5

Cash Reserves

Cash reserves are readily available funds held by a real estate investor to cover unexpected property expenses, operational shortfalls, or periods of vacancy, ensuring financial stability and risk mitigation.

Intermediate2-3 min
6

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
7

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
8

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
9

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
10

Homeowner's Insurance

Homeowner's insurance is a comprehensive property insurance policy that protects a homeowner's dwelling, personal belongings, and liability against various perils like fire, theft, and natural disasters.

Intermediate13 min
11

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
12

Property Inspection

A property inspection is a visual examination of a property's condition by a qualified professional to identify defects, safety hazards, and maintenance needs before purchase.

Intermediate13-14 min
13

Principal and Interest

Principal and Interest (P&I) refers to the portion of a loan payment that goes towards reducing the outstanding loan balance (principal) and compensating the lender for the use of their money (interest). It is a fundamental component of mortgage payments for real estate investors.

Intermediate12-15 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

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
16

Property Taxes

Property taxes are recurring taxes levied by local governments on real estate, based on its assessed value, to fund public services and infrastructure.

Beginner12-13 min
17

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
18

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