Financial Glossary

A **1031 exchange** is a tax strategy that allows real estate investors to defer paying capital gains taxes when selling...

**Amortization** is the process of gradually paying off a loan through regular monthly payments that include both princi...

**Annual Percentage Rate (APR)** is the total yearly cost of borrowing money, expressed as a percentage that includes bo...

An **appraisal** is a professional assessment of a property's current market value conducted by a licensed appraiser. Th...

**Appreciation** is the increase in value of a property over time due to market conditions, improvements, or other facto...

**Assessed value** is the dollar amount assigned to your property by local government assessors for the purpose of calcu...

**Asset protection** is a legal strategy designed to safeguard your wealth and property from potential creditors, lawsui...

A **basis point** (abbreviated as "bps" and pronounced "bips") is a unit of measurement equal to 1/100th of a percentage...

The **break-even point** is the moment when the money you save from a financial decision equals the upfront costs you pa...

A **bridge loan** is a short-term financing solution that helps borrowers "bridge" the gap between buying a new property...

The **BRRRR strategy** is a real estate investment method that stands for Buy, Rehab, Rent, Refinance, Repeat. This appr...

**Capital gains tax** is a tax you pay on the profit you make when you sell an asset (like a home or investment property...

**Capitalization rate (cap rate)** is a percentage that shows how much annual income a rental property generates relativ...

**Cash flow** is the amount of money flowing in and out of your property or investment over a specific period, typically...

**Cash-on-cash return** is a real estate investment metric that measures how much annual cash flow you receive compared ...

A **cash-out refinance** is when you replace your existing mortgage with a new, larger loan and receive the difference i...

**Closing costs** are the various fees and expenses you pay when finalizing a loan, typically ranging from 2% to 5% of t...

**Collateral** is an asset that a borrower pledges to a lender as security for a loan, which the lender can seize and se...

**Combined Loan-to-Value Ratio (CLTV)** is the percentage of your home's value that's borrowed across all mortgages and ...

**Comparable sales (comps)** are recently sold properties that are similar to your home in location, size, condition, an...

**Compound interest** is interest that is calculated not only on the original principal amount borrowed or invested, but...

A **conforming loan** is a mortgage that meets the size and underwriting standards set by government-sponsored enterpris...

A **construction loan** is a short-term financing option that provides funds to build a new home or complete major renov...

A **conventional loan** is a mortgage that is not insured or guaranteed by a government agency like the FHA, VA, or USDA...

A **credit bureau** is a company that collects and maintains financial information about consumers and businesses, then ...

A **credit limit** is the maximum amount of money a lender allows you to borrow on a revolving credit account, such as a...

A **credit report** is a detailed document that shows your complete borrowing and payment history, including all credit ...

A **credit score** is a three-digit number (typically ranging from 300 to 850) that represents your creditworthiness and...

**Credit utilization** is the percentage of your available credit that you're currently using across all your credit acc...

**Debt consolidation** is the process of combining multiple debts into a single loan, typically with better terms like a...

**Debt Service Coverage Ratio (DSCR)** is a financial metric that measures whether a property generates enough income to...

**Debt-to-Income Ratio (DTI)** is the percentage of your gross monthly income that goes toward paying all your monthly d...

A **deed of trust** is a legal document that secures a mortgage loan by giving a neutral third party (called a trustee) ...

**Default** occurs when a borrower fails to make required payments on a loan according to the agreed-upon terms and sche...

**Depreciation** is the gradual decrease in value of an asset over time due to wear, tear, and obsolescence. In real est...

A **down payment** is the upfront cash amount you pay toward the purchase price of a home when you buy it, with the rema...

A **draw period** is the initial phase of a Home Equity Line of Credit (HELOC) during which you can actively borrow mone...

A **DSCR loan** (Debt Service Coverage Ratio loan) is a type of investment property mortgage where lenders qualify borro...

**Early payoff** refers to paying off a loan completely before its scheduled maturity date, eliminating all remaining de...

**Equity** is the portion of an asset that you truly own outright, calculated as the asset's current market value minus ...

**Escrow** is a neutral third-party account where your mortgage lender collects and holds money to pay certain homeowner...

The **Federal Funds Rate** is the interest rate at which banks lend money to each other overnight to meet their reserve ...

A **FICO Score** is a three-digit number between 300 and 850 that represents your creditworthiness based on your credit ...

**Fix and flip** is a real estate investment strategy where an investor purchases a distressed or undervalued property, ...

A **fixed interest rate** is an interest rate that stays the same throughout the entire life of your loan or for a speci...

**Flood insurance** is a specialized type of property insurance that covers damage to your home and belongings caused by...

**Forced appreciation** is the increase in a property's value that results from deliberate improvements and renovations ...

**Foreclosure** is the legal process where a lender takes possession of a property when the borrower fails to make mortg...

**Gross monthly income** is the total amount of money you earn each month before any taxes, deductions, or expenses are ...

**Gross Rent Multiplier (GRM)** is a quick valuation metric that shows how many years it would take for a rental propert...

A **hard credit pull** (also called a hard inquiry or hard credit check) is when a lender requests your full credit repo...

A **hard money loan** is a short-term, asset-based loan secured by real estate that typically comes from private lenders...

**Home equity** is the portion of your home that you actually own outright—the difference between your home's current ma...

A **Home Equity Line of Credit (HELOC)** is a revolving credit line that allows homeowners to borrow against the equity ...

A **home equity loan** is a type of second mortgage that allows homeowners to borrow a lump sum of money using their hom...

**Homeowners insurance** is a type of property insurance that protects your home and personal belongings from damage cau...

A **homestead exemption** is a legal protection that reduces the assessed value of your primary residence for property t...

**Inflation** is the general increase in prices of goods and services over time, which reduces the purchasing power of m...

An **interest-only payment** is a monthly payment that covers only the interest charges on a loan, without paying down a...

An **interest rate** is the percentage of your loan balance that a lender charges you each year for borrowing money. Thi...

An **investment property** is real estate that you purchase with the primary goal of generating income or profit, rather...

A **jumbo loan** is a mortgage that exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA),...

A **lien** is a legal claim that a lender or creditor has against your property as security for a debt you owe. When you...

**Liquidity** refers to how quickly and easily you can convert an asset into cash without significantly affecting its va...

An LLC (Limited Liability Company) is a business structure that combines the **limited liability protection** of a corpo...

**Loan balance** is the amount of money you still owe on your mortgage or other loan at any given point in time. When yo...

A **loan limit** is the maximum dollar amount that a lender will allow you to borrow for a specific type of loan. These ...

**Loan term** is the length of time you have to repay a loan, typically expressed in years. For most mortgages, common l...

**Loan-to-Value Ratio (LTV)** is the percentage of your property's value that you're borrowing against, calculated by di...

A **lump sum** is a single, large payment of money received all at once, rather than in smaller installments over time. ...

A **margin** is the additional percentage points that a lender adds on top of a benchmark interest rate (like the prime ...

**Market value** is the estimated price that a property would sell for in the current real estate market between a willi...

A **monthly payment** is the fixed amount of money you pay to your lender each month to repay your mortgage loan. This p...

The **mortgage interest deduction** is a federal tax benefit that allows homeowners to deduct the interest they pay on t...

**Net Operating Income (NOI)** is the total rental income from a property minus all operating expenses, but before mortg...

**Net worth** is the total value of everything you own (assets) minus everything you owe (debts and liabilities). It's e...

**Operating expenses** are the ongoing costs required to maintain and operate a property, excluding mortgage payments, d...

An **origination fee** is an upfront charge that lenders impose to process and approve your loan application. This fee t...

**Points** are upfront fees you pay to your lender at closing, where each point equals 1% of your total loan amount. Als...

**Preapproval** is a formal evaluation by a lender that determines how much money you're likely qualified to borrow, bas...

A **prepayment penalty** is a fee that lenders charge borrowers who pay off their loan early, either by refinancing or m...

**Prequalification** is an initial assessment by a lender that estimates how much you might be able to borrow based on b...

The **prime rate** is the interest rate that banks charge their most creditworthy customers, typically large corporation...

**Principal** is the original amount of money you borrowed from a lender, or the remaining balance you still owe on that...

**Private Mortgage Insurance (PMI)** is insurance that protects your lender if you default on your mortgage, required wh...

A **promissory note** is a legal document where a borrower promises in writing to repay a specific amount of money to a ...

**Property management** is the day-to-day operation, maintenance, and oversight of rental properties on behalf of the pr...

**Property tax** is an annual tax that homeowners pay to their local government based on the assessed value of their rea...

**Property valuation** is the process of determining how much a property is worth in the current market. This assessment...

**Qualifying ratios** are the financial measurements lenders use to determine whether you can afford a mortgage or home ...

A **rate cap** is a limit on how much your variable interest rate can increase over a specific period or over the life o...

A refinance is the process of replacing your existing mortgage with a new loan, typically to secure better terms, lower ...

A renovation is the process of improving, updating, or restoring a property by making changes to its structure, systems,...

**Rental income** is the money you receive from tenants who rent your property, typically paid monthly as rent. This inc...

The **repayment period** is the phase of a loan when you must make regular monthly payments that include both principal ...

**Return on Investment (ROI)** is a percentage that measures how much profit you earn compared to how much money you ini...

**Revolving credit** is a type of borrowing arrangement that allows you to access funds up to a predetermined credit lim...

A **second mortgage** is an additional loan secured by your home that sits behind your primary mortgage in terms of repa...

**Secured debt** is a type of loan that is backed by an asset (called **collateral**) that the lender can take if you do...

A **short sale** is when a homeowner sells their property for less than the total amount owed on their mortgage, with th...

**Short-term financing** refers to loans or credit arrangements designed to be repaid within a relatively brief period, ...

A **soft credit pull** (also called a soft inquiry or soft check) is a type of credit check that allows lenders to revie...

**Subordination** is the legal process where one loan agrees to take a lower priority position behind another loan when ...

**Tappable equity** is the portion of your home's equity that you can actually borrow against through a loan or line of ...

A **tax deduction** is an expense that reduces your taxable income, which in turn lowers the amount of income tax you ow...

**Tax deferral** is a strategy that allows you to postpone paying taxes on income or gains until a later date, rather th...

A **tax lien** is a legal claim that a government entity places on your property when you fail to pay taxes owed, such a...

**Title insurance** is a type of insurance policy that protects property owners and lenders from financial losses due to...

A **title search** is a detailed examination of public records to verify the legal ownership of a property and identify ...

**Underwriting** is the process where a lender evaluates your financial situation and the property to determine whether ...

**Unsecured debt** is money you borrow without putting up any collateral or asset as security for the loan. Unlike secur...

**Vacancy rate** is the percentage of time a rental property sits empty without paying tenants over a given period, typi...

A **variable interest rate** is an interest rate that can change over time based on market conditions and economic facto...