GLOSSARY
Real Estate Lending Glossary
Plain English definitions of 72+ real estate investment lending terms. No jargon, no filler - just what each term means and why it matters to you as an investor.
A
After Repair Value (ARV)
The estimated market value of a property after all renovations are complete. Lenders use ARV to determine how much they will lend on a fix-and-flip or rehab project. If a property is worth $300K after repairs, a lender offering 70% ARV would lend up to $210K.
Amortization
The process of paying off a loan through scheduled payments over time, where each payment covers both principal and interest. A 30-year amortization means your loan balance reaches zero after 360 monthly payments.
Appraisal
A licensed professional's estimate of a property's current market value. Lenders require appraisals before funding a loan to make sure the property is worth enough to serve as collateral.
Asset-Based Lending
A lending approach where the loan decision is based on the value of the asset (the property) rather than the borrower's personal income or tax returns. DSCR loans and hard money loans are both forms of asset-based lending.
B
Balloon Payment
A large lump-sum payment due at the end of a loan term. Common in bridge loans and hard money loans where you make interest-only payments for 12-24 months, then owe the entire remaining balance at maturity.
Bank Statement Loan
A mortgage that uses 12-24 months of bank statements to verify income instead of tax returns or W-2s. Designed for self-employed borrowers and business owners whose tax returns understate their actual earnings. Learn more about bank statement loans.
Blanket Mortgage
A single loan that covers multiple properties under one mortgage. Useful for investors who own several rental properties and want to simplify their financing into one payment. See portfolio loans.
Bridge Loan
A short-term loan (typically 6-24 months) used to "bridge" a gap, like buying a new property before selling an existing one, or holding a property while you stabilize it for long-term financing. Learn more about bridge loans.
BRRRR Strategy
Buy, Rehab, Rent, Refinance, Repeat. A popular real estate investing strategy where you purchase a distressed property, renovate it, rent it out, refinance into a long-term loan (pulling your cash back out), and use that cash to buy the next deal.
Buy-and-Hold
An investment strategy where you purchase a property and hold it long-term for rental income and appreciation. The opposite of flipping. DSCR loans are the most common financing tool for buy-and-hold investors.
C
Cap Rate
Capitalization rate. A property's net operating income divided by its purchase price, expressed as a percentage. A $500K property producing $40K/year in NOI has an 8% cap rate. Higher cap rate means higher return (and usually higher risk).
Cash-Out Refinance
Refinancing an existing mortgage for more than you owe and taking the difference as cash. If your property is worth $400K and you owe $200K, you might refinance at $300K and pocket $100K to invest in your next deal. Learn more about cash-out refinance.
Closing Costs
All the fees and expenses paid when a loan closes. Includes origination fees, appraisal, title insurance, attorney fees, recording fees, and prepaid items like insurance and taxes. Typically 2-5% of the loan amount.
Collateral
The asset that secures a loan. In real estate lending, the property itself is the collateral. If you stop making payments, the lender can take the property through foreclosure.
Commercial Loan
A loan for commercial real estate like office buildings, retail centers, warehouses, or multifamily properties with 5+ units. Commercial loans are underwritten based on the property\'s income and financial performance, not just the borrower\'s personal finances. Learn more about commercial loans.
Construction Loan
A short-term loan that funds the building of a new property from the ground up. Funds are released in stages (draws) as construction milestones are completed. Learn more about construction loans.
Cross-Collateralization
Using more than one property as collateral for a single loan. Sometimes used in portfolio loans or when a borrower needs to reduce their down payment by pledging equity in another property they own.
D
Debt Service Coverage Ratio (DSCR)
The ratio of a property\'s rental income to its mortgage payment. A DSCR of 1.25 means the property generates 25% more income than the monthly debt payment. Most DSCR lenders require a minimum ratio of 1.0-1.25. Learn more about DSCR loans.
Deed of Trust
A legal document that gives a lender a security interest in a property. Similar to a mortgage but involves three parties: the borrower, the lender, and a neutral trustee who holds the title until the loan is paid off.
Default
Failing to meet the terms of a loan agreement, most commonly by missing payments. Defaulting on a real estate loan can lead to foreclosure, where the lender takes ownership of the property.
Down Payment
The portion of the purchase price you pay upfront in cash. Investment property loans typically require 15-25% down. The more you put down, the better your rate and the easier it is to qualify.
Draw Schedule
A timeline that dictates when a lender releases funds during a construction or renovation project. Instead of giving you all the money upfront, the lender sends an inspector at each milestone and releases the next draw after verifying the work is done.
Due Diligence
The research and investigation you do before buying a property or closing a loan. Includes inspections, title searches, reviewing financials, checking comps, and verifying rental income. Skipping due diligence is how investors lose money.
E
Earnest Money
A deposit made to a seller showing you are serious about buying the property. Typically 1-3% of the purchase price, held in escrow. If you back out without a valid reason, you may lose it.
Equity
The difference between what your property is worth and what you owe on it. If your property is valued at $500K and your mortgage balance is $300K, you have $200K in equity. Equity is how you build wealth in real estate.
Escrow
A neutral third-party account that holds funds during a transaction. During a purchase, escrow holds the buyer's deposit. After closing, an escrow account may hold monthly tax and insurance payments collected by the lender.
Exit Strategy
Your plan for paying off a short-term loan. Lenders always ask about this. Common exit strategies include selling the property, refinancing into a long-term loan, or paying off the balance with other funds.
F
Fair Market Value
The price a property would sell for on the open market between a willing buyer and a willing seller. Determined by comparing recent sales of similar properties (comps) and confirmed through an appraisal.
Fix-and-Flip Loan
A short-term loan designed for investors who buy distressed properties, renovate them, and sell for a profit. These loans typically cover both the purchase price and renovation costs, with terms of 6-18 months. Learn more about fix-and-flip loans.
Foreclosure
The legal process where a lender takes ownership of a property after the borrower defaults on the loan. Foreclosure timelines vary by state, ranging from a few months to over a year.
Foreign National Loan
A loan program for non-U.S. citizens who want to buy investment property in the United States. These borrowers do not have a Social Security number, U.S. credit history, or U.S. income, so lenders use alternative qualification methods. Learn more about foreign national loans.
G
Gross Rental Income
The total rental income a property generates before subtracting any expenses. If a duplex collects $2,000/month from each unit, the gross rental income is $4,000/month or $48,000/year.
Ground-Up Construction
Building a new structure from scratch on a vacant lot or after demolishing an existing building. Ground-up construction loans fund the land purchase and the full build. Learn more about construction loans.
Guarantor
A person who agrees to be personally responsible for a loan if the primary borrower defaults. In commercial lending, the guarantor is often the individual behind the LLC that owns the property.
H
Hard Money Loan
A short-term, asset-based loan funded by private lenders rather than banks. Approval is based primarily on the property's value, not the borrower's income. Rates are higher, but closings can happen in days instead of weeks.
HELOC
Home Equity Line of Credit. A revolving credit line secured by equity in a property. You can draw funds as needed, pay them back, and draw again. Some investors use HELOCs on existing properties to fund down payments on new deals.
Holding Costs
The ongoing expenses of owning a property while you wait to sell or rent it. Includes mortgage payments, insurance, property taxes, utilities, and maintenance. Holding costs eat into your profit on every flip.
I
Interest-Only
A payment structure where you only pay interest each month, with no principal reduction. Common on bridge loans and fix-and-flip loans. Your monthly payment is lower, but the loan balance stays the same until maturity.
Interest Rate
The percentage a lender charges you to borrow money, expressed annually. On a $200K loan at 8%, you pay $16,000/year in interest. Investment property rates are typically higher than primary residence rates.
ITIN Loan
A loan for borrowers who have an Individual Taxpayer Identification Number (ITIN) instead of a Social Security number. ITIN loans allow non-citizens with U.S. tax filing history to purchase investment property. Learn more about foreign national and ITIN loans.
L
Loan-to-Cost (LTC)
The loan amount divided by the total project cost (purchase price plus renovation). If you are buying a property for $200K and spending $100K on rehab ($300K total), and the lender offers 85% LTC, your loan would be $255K.
Loan-to-Value (LTV)
The loan amount divided by the property's appraised value, expressed as a percentage. An 80% LTV on a $500K property means a $400K loan. Lower LTV means less risk for the lender, which usually means a better rate for you.
Lockbox
An arrangement where rental income is deposited into an account controlled by the lender. Common in commercial loans. The lender uses the lockbox to make sure debt payments are covered before you receive remaining funds.
M
Maturity Date
The date a loan must be fully repaid. For a 12-month bridge loan closing on January 1, the maturity date is January 1 of the following year. Missing maturity triggers default, so always have your exit strategy lined up well in advance.
Mortgage Broker
A licensed professional who connects borrowers with lenders. Brokers shop your deal across multiple lenders to find the best rate and terms. Unlike a bank loan officer who can only offer that bank's products, a broker has access to dozens of lending options.
N
Net Operating Income (NOI)
A property's total income minus operating expenses (not including mortgage payments). If a property collects $60K/year in rent and has $20K in expenses (taxes, insurance, maintenance, management), the NOI is $40K.
Non-QM Loan
A "non-qualified mortgage" that does not meet the Consumer Financial Protection Bureau's standard lending rules. Most investment property loans (DSCR, bank statement, foreign national) are non-QM. This is not a bad thing. It just means they use alternative ways to qualify borrowers.
Non-Recourse Loan
A loan where the lender can only seize the collateral (the property) if you default. They cannot come after your personal assets, bank accounts, or other properties. Non-recourse loans are common in DSCR and commercial lending.
Note Rate
The interest rate stated on your loan documents (the promissory note). This is the rate used to calculate your monthly payment. It may differ from the APR, which includes fees and other costs.
O
Origination Fee (Points)
A fee charged by the lender for processing and funding your loan, expressed as a percentage of the loan amount. One "point" equals 1% of the loan. On a $300K loan, 2 points means $6,000 in origination fees.
P
PITI
Principal, Interest, Taxes, and Insurance. The four components of a standard monthly mortgage payment. Lenders use PITI to calculate your total housing cost and determine affordability.
Portfolio Loan
A loan that covers multiple investment properties under a single mortgage. Instead of managing 10 separate loans, you combine them into one with a single payment and one set of terms. Learn more about portfolio loans.
Prepayment Penalty
A fee charged if you pay off your loan early. Common in DSCR loans and commercial loans, typically structured as a percentage of the balance that decreases over time (e.g., 5-4-3-2-1 over five years). Always check for this before signing.
Private Money Lender
An individual or private company that lends their own money for real estate deals, outside of the traditional banking system. Private lenders move fast and are more flexible, but charge higher rates.
Pro Forma
A financial projection showing what a property's income and expenses are expected to look like in the future. Lenders may look at pro forma numbers for new construction or value-add projects, but they prefer actual historical performance.
R
Rate Lock
An agreement from the lender that guarantees a specific interest rate for a set period (usually 30-60 days) while your loan processes. If rates go up during that time, your locked rate stays the same.
Recourse Loan
A loan where the lender can pursue your personal assets if the property sale does not cover the full loan balance after a default. The opposite of a non-recourse loan. Most residential investment loans are full recourse.
Refinance
Replacing an existing loan with a new one, usually to get a lower rate, change the loan term, or pull cash out. Investors commonly refinance short-term bridge or hard money loans into long-term DSCR loans once a property is stabilized.
Rehab
Renovating or repairing a property to increase its value. In lending, "rehab" refers to the renovation budget included in a fix-and-flip or construction loan. Lenders release rehab funds in draws as work is completed.
Rent Roll
A document listing every unit in a property, the tenant name, lease terms, and monthly rent. Lenders use rent rolls to verify income on multifamily and commercial properties. A clean rent roll speeds up your loan approval.
Reserves
Cash savings the lender requires you to have after closing, usually expressed as a number of monthly payments. If your payment is $2,000/month and the lender requires 6 months of reserves, you need $12,000 in the bank post-closing.
S
Seasoning
The amount of time you have owned a property or held funds in an account. Many DSCR lenders require 6 months of ownership seasoning before you can do a cash-out refinance. Some lenders have no seasoning requirement.
Short-Term Rental (STR)
A property rented out for short stays (typically less than 30 days) through platforms like Airbnb or VRBO. Some DSCR lenders allow STR income to qualify, often using actual Airbnb revenue or a third-party income projection.
Soft Money
A loan with more favorable terms than hard money, usually with lower rates and longer terms. Soft money loans often refer to DSCR or conventional investment property loans that are less aggressive than short-term hard money.
Stabilized Property
A property that is fully renovated, occupied (or mostly occupied), and generating consistent rental income. Lenders prefer stabilized properties because the income is proven and predictable.
T
Term Sheet
A preliminary document outlining the key terms of a loan offer: rate, LTV, term, fees, and conditions. Not legally binding, but it gives you a clear picture of the deal before you commit to a full application.
Title Insurance
A one-time insurance policy that protects you (and the lender) against claims on the property's title, like undisclosed liens, ownership disputes, or recording errors. Required on virtually every real estate loan.
Trailing 12 (T-12)
A financial statement showing the last 12 months of a property's actual income and expenses. Lenders request a T-12 on multifamily and commercial properties to verify real performance, not projections.
U
Underwriting
The process where a lender evaluates your loan application, the property, and the risk involved before deciding to approve or deny funding. Underwriting reviews your credit, the appraisal, income documentation (if applicable), and deal structure.
V
Vacancy Rate
The percentage of time a rental property sits empty and is not producing income. Lenders typically assume a 5-10% vacancy rate when underwriting rental income. Lower vacancy means more reliable cash flow.
Vesting (LLC)
How the ownership of a property is recorded on the title. Most investment properties are vested in an LLC for liability protection. DSCR and commercial lenders allow LLC vesting, while conventional lenders usually require personal name vesting.
Y
Yield
The annual return on an investment, expressed as a percentage. In real estate, yield usually refers to the rental income relative to the property's value or purchase price. A property generating $30K/year on a $400K purchase has a 7.5% yield.
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