Mortgage Basics

DSCR (Debt Service Coverage Ratio)

A financial metric used to determine a property’s ability to cover its debt obligations. Calculated by dividing net operating income by total debt service (monthly loan payments).

LTV (Loan-to-Value Ratio)

A percentage that compares the loan amount to the appraised value of the property. Lower LTVs generally mean less risk for the lender and better loan terms for the borrower.

NOI (Net Operating Income)

The income a property generates after deducting operating expenses, not including mortgage payments. A key figure in qualifying for DSCR loans.

Bridge Loan

A short-term loan used to “bridge the gap” between purchasing a property and securing long-term financing. Often used by investors to act quickly on opportunities.

Amortization

The process of spreading out a loan into a series of fixed payments over time. Each payment includes both interest and principal, with the interest portion decreasing over time.

Prepayment Penalty

A fee charged by some lenders if a borrower pays off the loan early. Not all DSCR or investor loans have this—be sure to check.

Fixed vs. Variable Rate

A fixed-rate loan has the same interest rate throughout its term. A variable-rate loan (or ARM) can fluctuate with the market, potentially lowering or increasing monthly payments.

Term Sheet

A non-binding summary of loan terms offered by a lender before the full underwriting process begins. It outlines rates, amounts, timelines, and basic requirements.

Origination Fee

A charge by the lender for processing a new loan application. Usually expressed as a percentage of the loan amount.

Underwriting

The lender’s process of evaluating the risk of offering you a loan. For DSCR loans, underwriting is focused on the property’s income, not personal financials.

BRRRR Method (Buy, Rehab, Rent, Refinance, Repeat)

A real estate investment strategy where an investor buys a distressed property, renovates it, rents it out, then refinances the property to pull out equity and repeat the process. It’s designed to build a portfolio quickly while recycling capital.

Seasoning

The length of time you’ve held ownership of a property or had a loan in place. Some lenders require a certain “seasoning period” (e.g., 6–12 months) before allowing a refinance or cash-out loan.

PITAI (Principal, Interest, Taxes, Association Dues, Insurance)

An expanded version of PITAI (see below), this acronym reflects the full monthly payment on a property, including:

• Principal & Interest: The loan repayment
• Taxes: Property taxes
• Association Dues: HOA or condo fees
• Insurance: Property insurance

ITI (Interest, Taxes, Insurance)

A simplified monthly expense calculation used in some DSCR loan programs. Focuses on:

• Interest: Loan interest payments
• Taxes: Property taxes
• Insurance: Hazard or property insurance

Used in underwriting to evaluate cash flow for income-producing properties.