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Intermediate45 minutes12 terms

Assumable Mortgage Key Terms & Concepts

Explore this curated collection of key terms that might be helpful when navigating assumable mortgages. These carefully selected concepts provide clarity on how to leverage lower interest rates and understand the mechanics of loan assumption. Use this reference to grasp essential terminology for your investment strategy.

Term Collection

1

Residency Rule

The Residency Rule, also known as the Section 121 Exclusion, allows eligible homeowners to exclude a significant portion of capital gains from the sale of their primary residence from federal income tax.

Intermediate2-3 min
2

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
3

Blended Rate

A blended rate is a weighted average interest rate calculated when multiple loans or financing components are combined or evaluated together for a single real estate asset. It provides a holistic view of the overall cost of capital.

Intermediate5 min
4

Mortgage Rate

A mortgage rate is the interest percentage charged by a lender on a home loan, directly determining the cost of borrowing and influencing monthly payments and total repayment amount.

Beginner12-13 min
5

Traditional Bank Mortgage

A traditional bank mortgage is a conventional loan provided by a financial institution to purchase real estate, following guidelines from Fannie Mae and Freddie Mac, commonly used by investors to finance properties.

Beginner15-18 min
6

House Hacking

House hacking is a real estate investment strategy where you live in one unit of a multi-unit property or a portion of a single-family home, and rent out the remaining units or rooms to cover your housing expenses.

Intermediate14-15 min
7

Loan Assumption

Loan assumption allows a buyer to take over an existing mortgage from a seller, often retaining the original interest rate and terms, which can be advantageous in rising interest rate environments.

Intermediate18-20 min
8

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
9

Equity Gap

The equity gap in real estate investing represents the difference between the total capital required for an investment property and the combined sum of available debt financing and the investor's readily available cash equity. It signifies a funding shortfall that must be addressed for the transaction to proceed.

Intermediate6 min
10

Cash Flow

Cash flow in real estate investing represents the net income generated by a property after all operating expenses and debt service payments have been made. Positive cash flow indicates profitability, while negative cash flow suggests a loss.

Intermediate2-3 min
11

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
12

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

Common Questions