DSCR & Investment Property Financing Glossary

Clear definitions of terms you'll encounter in DSCR and business-purpose lending. Definitions are general and educational; specific program calculations and requirements vary by lender and investor.

Appraisal: An appraisal is an independent estimate of a property’s value, typically prepared by a licensed appraiser. For investment loans, an appraisal may also include a market-rent estimate or rent schedule. Lenders use the appraisal to help evaluate the property and the transaction. Requirements and formats vary by program.
Bridge Loan: A bridge loan is short-term, business-purpose financing used to address a timing or property-condition gap on the way to a sale or permanent financing. Investors may use bridge financing to move quickly or to stabilize a property before refinancing. Structures, terms, and eligibility vary by lender and scenario.
Business-Purpose Loan: A business-purpose loan is used primarily for business or investment activity rather than personal, family, or household purposes. DSCR investor loans are generally business-purpose loans. This distinction affects the regulatory framework that applies. Whether a loan is business-purpose depends on the facts of the transaction and applicable law.
Cap Rate: Capitalization rate, or cap rate, expresses a property’s net operating income as a percentage of its value or price. Investors use it as one way to compare income-producing properties. A cap rate reflects assumptions about income and value and is not a financing term itself. Interpretations vary by market and property type.
Cash-Out Refinance: A cash-out refinance replaces an existing loan with a larger loan, allowing eligible borrowers to access equity as loan proceeds. On business-purpose investor loans, proceeds are generally intended for business or investment use. Available cash-out depends on property value, program leverage limits, and underwriting.
DSCR (Debt Service Coverage Ratio): DSCR stands for Debt Service Coverage Ratio. In real estate lending, it commonly compares a property’s qualifying rental income with the property’s applicable monthly debt or housing expense. Many investor loan programs use DSCR as a primary qualification input instead of the borrower’s personal employment income. Calculation methods vary by lender and program.
Entity Vesting: Entity vesting refers to holding title to a property in the name of a legal entity, such as an LLC, rather than in an individual’s name. Many business-purpose loan programs allow entity vesting, typically with entity documentation and sometimes a personal guaranty. Requirements vary by program and applicable law.
Hard Money: Hard money generally refers to short-term, asset-focused financing often used for acquisition or renovation. It typically emphasizes the property and project rather than the borrower’s personal income. Investors sometimes use hard money to acquire and improve a property, then refinance into longer-term financing. Terms and structures vary by lender.
Investment Property: An investment property is real estate held to generate rental income or investment return rather than to serve as the owner’s primary residence. DSCR and other business-purpose programs are designed to finance investment properties. Property type, use, and occupancy affect which programs may apply.
LLC (Limited Liability Company): A limited liability company (LLC) is a common legal entity investors use to hold real estate. Many DSCR programs allow an LLC to hold title on eligible loans. Decisions about entity structure can have legal and tax implications, so investors often consult their own attorney or tax professional. Requirements vary by program and applicable law.
LTC (Loan-to-Cost): Loan-to-cost (LTC) expresses the loan amount as a percentage of a project’s total cost, often used in renovation or construction financing. Total cost may include the purchase price plus the renovation or construction budget. LTC helps lenders size project financing. Specific limits and definitions vary by program.
LTV (Loan-to-Value): Loan-to-value (LTV) expresses the loan amount as a percentage of the property’s value. Lower LTV means more borrower equity, while higher LTV means more leverage. On investor loans, available LTV affects eligibility and pricing and varies by program, property type, and loan purpose. Cash-out refinances often carry different LTV limits than purchases.
Market Rent: Market rent is an estimate of the rent a property could reasonably command in its current market. On DSCR loans, market rent may be used to establish qualifying rental income, particularly when there is no current lease. Market rent is often estimated through an appraisal or rent schedule and may differ from actual collected rent.
NOI (Net Operating Income): Net operating income (NOI) is a property’s income after operating expenses but before debt service and certain other items. It is commonly used to evaluate income-producing properties, especially multifamily and commercial assets. NOI helps assess a property’s operating performance. Exact calculation conventions vary by lender and property type.
PITIA: PITIA generally stands for principal, interest, taxes, insurance, and association (HOA) dues. It is often used to represent a property’s total monthly housing expense in a DSCR calculation. Because the denominator of a DSCR calculation is frequently the monthly housing expense, PITIA components can directly affect the resulting ratio. Exact definitions vary by program.
Prepayment Penalty: A prepayment penalty is a charge that may apply if a loan is paid off or refinanced within a defined period after closing. Prepayment structures are common on business-purpose investor loans and vary by program in duration and calculation. Some programs allow adjustments, which can affect pricing. Applicable terms are disclosed during the loan process.
Rate/Term Refinance: A rate-and-term refinance replaces an existing loan to change the interest rate, term, or structure without taking significant cash out. Investors often use it to adjust a loan or to move off short-term or bridge financing into longer-term financing. Terms and eligibility vary by program.
Rent Schedule: A rent schedule is documentation, often part of an appraisal, that estimates the market rent a property could command. On DSCR loans, the rent schedule can help establish qualifying income when there is no current lease or when a program relies on market rent. Practices vary by program and property type.
Reserves: Reserves are liquid funds a borrower holds after closing, often measured as a number of months of the property’s monthly housing expense. Some investor loan programs review reserves as a cushion for vacancies or unexpected expenses. Reserve expectations vary by program, property, and scenario.
Seasoning: Seasoning generally refers to the length of time a condition has been in place — for example, how long a borrower has owned a property or held funds. Some programs consider seasoning when evaluating refinances or cash-out transactions. Specific seasoning expectations vary by program and investor.

Definitions are for general educational purposes only and are not lending, legal, or tax advice. Simple DSCR is an assumed business name of WooHoo Mortgage LLC, NMLS #2347993.