Plain-English definitions for every term you'll encounter when financing rental properties. Each entry includes the definition and real examples from our loan programs and investor guides, so you can see exactly how the term applies to your deals.
From DSCR ratios and LTV thresholds to blanket loan structures and yield maintenance — this is the reference rental property investors actually need.
A
The rate at which available homes sell in a specific market over a given time period. A low absorption rate signals a buyer's market with excess inventory; a high rate signals a seller's market where properties move quickly.
A mortgage with an interest rate that changes periodically based on a benchmark index. Common structures include 3/1, 5/1, and 10/1 ARMs, where the first number is the fixed-rate period in years and the second is how often the rate adjusts after that.
The process of spreading a loan into a series of fixed payments over time. Each payment covers both principal and interest. A 30-year amortization schedule, for example, divides the total debt into 360 monthly payments.
A professional estimate of a property's fair market value conducted by a licensed appraiser. Lenders require appraisals to confirm the property is worth enough to secure the loan at the requested LTV ratio.
A financing approach where the lender qualifies the borrower based on the value and income of the property (the asset) rather than the borrower's personal income, tax returns, or employment history. Most DSCR loan programs fall under this category.
A mortgage that allows a new buyer to take over the existing loan terms, interest rate, and remaining balance from the current borrower. The new borrower must typically meet the lender's qualification standards and pay an assumption fee.
B
A large lump-sum payment due at the end of a loan term when the amortization period is longer than the fixed-rate period. For example, a 5-year fixed loan with 30-year amortization requires a balloon payment of the remaining balance at the end of year five.
One hundredth of one percentage point (0.01%). Used to express small changes in interest rates or yields. A rate increase from 6.50% to 6.75% is a 25 basis point increase.
A single mortgage that covers multiple properties under one note, one payment, and one closing. Blanket loans simplify portfolio management for investors who own three or more rental properties. Properties can span multiple states and property types.
A short-term loan used to bridge the gap between buying a new property and selling an existing one, or between acquisition and permanent financing. Bridge loans typically carry higher rates and terms of 6 to 24 months.
An investment strategy where an investor purchases rental properties and holds them long-term to collect rental income and benefit from appreciation. This contrasts with fix-and-flip strategies focused on quick resale.
C
A measure of a property's return on investment, calculated by dividing net operating income (NOI) by the property's purchase price or current market value. A property generating $50,000 NOI with a $500,000 value has a 10% cap rate.
Major spending on improvements that extend the useful life of a property or add significant value -- things like a new roof, HVAC replacement, or full kitchen renovation. CapEx is distinct from routine maintenance and repairs, and is typically depreciated over multiple years for tax purposes.
The net income remaining after all property expenses (mortgage payment, taxes, insurance, management, maintenance, vacancy) are subtracted from gross rental income. Positive cash flow means the property generates more income than it costs to operate.
Replacing an existing mortgage with a new, larger loan and receiving the difference in cash. Investors use cash-out refinances to access equity built up in rental properties and deploy that capital into additional acquisitions.
Fees and expenses paid at the time a real estate transaction is finalized. These typically include origination fees, appraisal fees, title insurance, attorney fees, recording fees, and prepaid items like taxes and insurance.
The property or asset pledged as security for a loan. If the borrower defaults, the lender can seize the collateral to recover the outstanding debt. In rental property lending, the financed property itself serves as collateral.
A mortgage not insured or guaranteed by a government agency (FHA, VA, USDA). Conventional loans for investment properties typically require higher down payments and credit scores than owner-occupied conventional loans.
The original purchase price of a property plus the cost of any capital improvements, minus accumulated depreciation. Cost basis determines your taxable gain when you sell the property.
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D
The ratio of a property's net operating income to its annual mortgage payments. A DSCR of 1.25x means the property earns 25% more than the mortgage costs. Most DSCR loan programs require 1.0x to 1.25x; no-ratio programs eliminate the DSCR requirement entirely.
The percentage of a borrower's gross monthly income that goes toward debt payments. While conventional lenders use DTI to qualify borrowers, DSCR loan programs bypass DTI entirely and qualify on property income instead.
A legal document that secures a mortgage loan by transferring the property title to a trustee who holds it until the loan is repaid. Used in many states instead of a traditional mortgage instrument.
A tax deduction that allows rental property owners to recover the cost of their investment over time. Residential rental property is depreciated over 27.5 years. Only the building value is depreciated -- not the land.
The release of loan funds from the lender to the borrower or closing agent. In construction loans, disbursements happen in stages tied to completed work milestones.
The portion of a property's purchase price paid upfront by the buyer. Investment property loans typically require 20-35% down, depending on the program, property type, and borrower credit profile.
The phase of a construction loan during which the borrower can request disbursements of funds as construction milestones are completed. Each draw is typically verified by an inspector before funds are released.
The investigation and analysis a buyer performs before purchasing a property. This includes inspections, title searches, reviewing financials, verifying rental income, checking zoning and permits, and confirming property condition.
A residential building divided into two separate living units, each with its own entrance, kitchen, and bathroom. Duplexes are popular with investors because they generate two rental income streams from a single property.
E
The difference between a property's current market value and the outstanding mortgage balance. An investor with a $400,000 property and a $280,000 mortgage has $120,000 in equity (30% equity position).
A neutral third-party account that holds funds during a real estate transaction until all conditions are met. Also refers to the ongoing account where a lender collects monthly deposits for property taxes and insurance premiums.
The plan an investor has for eventually selling, refinancing, or otherwise disposing of a property. Lenders evaluate exit strategies when underwriting short-term or bridge loans to ensure the borrower has a clear path to repay.
F
The price a property would sell for on the open market between a willing buyer and a willing seller, both having reasonable knowledge of the relevant facts. Appraisals estimate fair market value using comparable sales, income analysis, or replacement cost.
An investment strategy where a property is purchased below market value, renovated, and resold for profit. Unlike buy-and-hold investors, flippers aim for quick returns rather than long-term rental income.
A mortgage with an interest rate that remains constant for the entire loan term. Fixed rates provide payment predictability, which is especially valuable for long-term rental property investors projecting cash flow.
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The legal process by which a lender seizes a property after the borrower defaults on mortgage payments. Foreclosed properties are often sold at auction or as bank-owned (REO) properties, sometimes at below-market prices.
See it in use:
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A loan program designed for non-US citizens who want to invest in American rental property. These programs typically don't require a US credit score or Social Security number but may require higher down payments (35%+).
A residential building with four separate living units. Fourplexes are the largest residential property type that can be financed with residential (rather than commercial) loan programs, making them popular with investors.
G
The total rental income a property generates before any expenses are deducted. This includes base rent, pet fees, parking income, and any other tenant-paid charges.
H
A short-term loan from a private lender secured by real property, typically used for fix-and-flip projects or bridge financing. Hard money loans carry higher interest rates but close faster and have more flexible qualification requirements than traditional loans.
I
An escrow account maintained by a lender to collect and pay property taxes and insurance premiums on behalf of the borrower. Monthly mortgage payments include a portion that goes into the impound account to cover these obligations when they come due.
A loan where the borrower pays only interest for a set period (typically 5-10 years), with no principal reduction. Monthly payments are lower during the interest-only period, maximizing cash flow. Principal payments begin after the interest-only period ends.
Real estate purchased with the intent to generate income through rental revenue, appreciation, or both. Investment properties include single-family rentals, multifamily buildings, vacation rentals, and commercial properties.
L
The owner of a rental property who leases it to tenants in exchange for rent payments. Landlords are responsible for property maintenance, legal compliance, and managing the tenant relationship (directly or through a property manager).
A legally binding contract between a landlord and tenant that outlines the terms of the rental arrangement, including rent amount, payment schedule, lease duration, security deposit, and rules for the property.
A legal claim against a property that serves as security for a debt. Mortgages create liens. Tax liens, mechanic's liens, and judgment liens can also attach to a property. Liens must be resolved before a property can transfer with clear title.
A business structure that provides personal asset protection for property owners. Many rental investors hold properties in LLCs to shield personal assets from lawsuits and liabilities related to the rental business.
The ratio of the mortgage amount to the appraised property value, expressed as a percentage. A $375,000 loan on a $500,000 property is 75% LTV. Lower LTV means more equity and typically better loan terms.
M
The date on which the final payment of a loan is due and the remaining balance must be paid in full. For balloon mortgages, the maturity date is when the balloon payment comes due.
A residential building with two or more units. Small multifamily (2-4 units) can use residential loan programs; large multifamily (5+ units) typically requires commercial financing with different underwriting standards.
N
A property's total income minus operating expenses, before mortgage payments and income taxes. NOI is the key metric lenders use to calculate DSCR and evaluate whether a property can support the requested loan amount.
A loan program that eliminates the debt service coverage ratio requirement entirely. Instead of requiring a minimum DSCR threshold, the lender qualifies the borrower based on LTV, credit score, and property income documentation alone.
A loan where the lender's recovery is limited to the collateral (the property) if the borrower defaults. The lender cannot pursue the borrower's other personal assets. Non-recourse terms are common on larger multifamily and blanket loans.
The interest rate stated on the mortgage note -- the actual rate used to calculate monthly interest charges. The note rate may differ from the APR, which includes additional costs like origination fees.
O
The percentage of rental units in a property or portfolio that are currently occupied by tenants. A 95% occupancy rate on a 20-unit building means 19 of 20 units are rented. Lenders evaluate occupancy rates when underwriting investment property loans.
A fee charged by the lender to process and underwrite a new loan, typically expressed as a percentage of the loan amount (e.g., 1-2%). Origination fees are paid at closing and cover the lender's administrative costs.
P
A provision in a blanket loan that allows the borrower to sell or refinance individual properties from the portfolio without triggering a full loan payoff. The lender releases its lien on the sold property while the remaining properties stay under the blanket mortgage.
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Interest charged on a daily basis, typically applied between the closing date and the first full month of mortgage payments. If you close on the 15th of the month, you'll pay per diem interest for the remaining 15-16 days.
A loan that a lender keeps on its own books rather than selling on the secondary market. Portfolio lenders have more flexibility on qualification criteria and loan structures because they set their own underwriting guidelines.
A fee charged if a borrower pays off a loan before its scheduled maturity date. Prepayment penalties protect the lender's expected interest income. Common structures include step-down penalties (5-4-3-2-1%) and yield maintenance.
The original loan amount borrowed, or the remaining balance of a loan excluding interest. Each amortized payment reduces the principal by a small amount, with more going to principal as the loan matures.
An individual or non-bank entity that provides real estate loans using their own capital. Private money lenders offer faster closings and more flexible terms than banks but typically charge higher rates.
A financial projection showing estimated income, expenses, and returns for a property based on assumptions about rents, occupancy, and costs. Investors use pro forma analysis to evaluate potential acquisitions before purchasing.
The operation, control, and oversight of a rental property. This includes tenant screening, rent collection, maintenance, legal compliance, and financial reporting. Investors can self-manage or hire a professional property management company.
R
Replacing an existing mortgage with a new loan, typically to secure a lower interest rate, change the loan term, switch from an ARM to a fixed rate, or pull cash out of built-up equity.
A document listing all rental units in a property along with each tenant's name, lease terms, monthly rent, and payment status. Lenders require rent rolls to verify a property's income during underwriting.
Liquid funds a borrower must have available after closing to cover future mortgage payments. Lenders may require 3-12 months of reserves depending on the program. Reserves demonstrate the borrower's ability to handle vacancies or unexpected expenses.
A measure of an investment's profitability, calculated by dividing net profit by total investment cost. For rental properties, ROI factors in cash flow, appreciation, loan paydown, and tax benefits.
S
The minimum time a borrower must own a property before refinancing or the minimum time since a credit event (bankruptcy, foreclosure) before qualifying for a new loan. Typical seasoning ranges from 6 months to 3 years.
A property rented for periods shorter than 30 days, typically through platforms like Airbnb or VRBO. Short-term rental loans qualify on platform revenue rather than traditional lease income.
A detached house rented to tenants as an investment property. SFRs are the most common entry point for rental property investors due to lower price points, easier financing, and broad tenant demand.
A loan program where the borrower states their income on the application without providing tax returns or W-2s. The lender verifies rental income through lease agreements and bank statements rather than IRS documentation.
T
An insurance policy that protects the property owner or lender against financial loss from defects in the title, such as undisclosed liens, ownership disputes, or recording errors. Required on virtually all real estate transactions.
A residential building with three separate living units. Like duplexes and fourplexes, triplexes fall under residential lending guidelines and offer investors multiple income streams from a single property.
A fully renovated, tenant-occupied rental property that is ready to generate income immediately upon purchase. Turn-key properties appeal to investors who want cash flow without the work of renovation or tenant placement.
U
The process by which a lender evaluates a loan application to determine the risk of lending. For investment property loans, underwriting focuses on property income, DSCR, LTV, borrower credit, and property condition.
V
The percentage of time a rental unit sits unoccupied during a given period. Lenders and investors typically assume a 5-8% vacancy factor when projecting cash flow, even if the property is currently fully occupied.
Y
A prepayment penalty calculated to compensate the lender for lost interest income, typically equal to the present value of remaining loan payments at a discount rate. Yield maintenance penalties can be substantial on commercial and portfolio loans.
#
A tax-deferred exchange under IRS Section 1031 that allows an investor to sell a property and reinvest the proceeds into a like-kind property without paying capital gains tax at the time of the exchange. Strict timelines apply: 45 days to identify replacement properties, 180 days to close.
From single-family rentals to multifamily portfolios — know the language of investment lending.
Key Numbers Every Investor Should Know
- DSCR 1.0x — breakeven; most programs require 1.2x+. No-ratio programs skip this entirely.
- 75% LTV — maximum on most blanket and single-property investor loans (680+ credit).
- 640 FICO — minimum credit score across all programs.
- 5-8% vacancy — standard underwriting assumption even on fully occupied properties.
- $75K – $50M — loan range from single property to blanket portfolio.
Questions About a Term or Loan Program?
Our lending team can walk you through any of these concepts and show you exactly how they apply to your investment goals. No jargon, no pressure — just straight answers from people who finance rental properties every day.