US Glossary

The process of paying off a loan through regular scheduled payments over time. Each payment covers accrued interest first, then reduces the principal balance. Early payments are mostly interest; later payments are mostly principal.

A credentialed appraiser's opinion of a property's value. A lender may require one, use another valuation method, or grant a waiver. A value below the contract price can affect financing, but the response depends on the contract and lender.

An increase in a property's value over time. Appreciation is not guaranteed and varies by property, location, holding period, and market cycle.

A mortgage whose interest rate can change after an initial period. The note specifies the index, lender margin, adjustment frequency, and rate caps; those terms determine how the payment can change.

The ratio of a property's Net Operating Income to its purchase price. Used to compare investment properties regardless of financing. A higher cap rate means higher return — and typically higher risk or a less desirable market.

The annual pre-tax cash flow divided by total cash invested. Unlike cap rate, cash-on-cash accounts for your actual financing — it measures the return on your out-of-pocket investment, not the full property value.

Charges and prepaid amounts due around settlement, such as lender fees, title services, appraisal, recording, taxes, insurance, and legal or settlement services where used. They depend on the loan, property, state, locality, and negotiated allocation.

The maximum original principal balance eligible for Fannie Mae or Freddie Mac acquisition under the applicable county and unit-count limit. Loans above the applicable limit are non-conforming. FHFA publishes new limits annually.

A mortgage not insured or guaranteed by a federal government agency. Some conventional loans conform to Fannie Mae or Freddie Mac requirements; others do not. Eligibility, down payment, credit, and pricing depend on the program and lender.

The IRS allows rental property owners to deduct the cost of the building (not land) over 27.5 years using the straight-line method under the Modified Accelerated Cost Recovery System. This is a non-cash deduction that reduces taxable income without reducing cash flow.

The percentage of your gross monthly income that goes toward debt payments. Lenders use two DTI figures: front-end (housing costs only) and back-end (all monthly debts). The most important qualification metric for mortgage approval.

The upfront cash paid toward a property purchase, expressed as a percentage of the purchase price. Determines your loan-to-value ratio and whether PMI is required. Minimums vary by loan type.

The difference between a property's current market value and the outstanding mortgage balance. Equity grows through principal paydown and appreciation. It can be accessed via refinancing, HELOC, or cash-out refi.

A neutral third-party account that holds funds during a transaction. At closing, escrow holds the purchase funds until all conditions are met. For ongoing mortgages, lenders often require an escrow account to collect and pay property taxes and homeowners insurance.

A mortgage insured by the Federal Housing Administration. FHA sets program rules while lenders underwrite the borrower and may apply additional requirements. Upfront and annual mortgage insurance usually apply.

Annual rental income as a percentage of property purchase price, before deducting any expenses. A quick screening metric — always compare net yield for actual investment decisions.

An organization in planned communities that enforces rules and maintains common areas. HOA fees are included in your front-end DTI calculation. Fees range from $100–1,000+/month depending on community amenities.

Rental income and many ordinary expenses are generally reported on Schedule E. Interest, taxes, insurance, repairs, management, and depreciation can be deductible when IRS requirements are met; limitations, capitalization rules, and passive-activity rules can change the result.

The loan amount divided by the value used by the lender. LTV can affect eligibility, mortgage insurance, and pricing, but the result also depends on the loan program and full application.

The insurance premium paid on FHA loans, analogous to PMI on conventional loans. Has two components: an upfront premium added to the loan balance, and an ongoing annual premium paid monthly.

Gross rental income minus all operating expenses, excluding mortgage payments and income taxes. The fundamental metric for evaluating investment property performance regardless of financing.

Annual rental income after defined operating expenses as a percentage of property value or purchase price. State the denominator and expense treatment; the metric remains before financing and income tax.

The four components of a monthly mortgage payment. Lenders use total PITI when calculating your front-end DTI ratio. PMI and HOA fees are sometimes added making it PITIA.

Insurance that protects the lender on many conventional mortgages with a high LTV. For loans covered by federal cancellation rules, a borrower may generally request cancellation at 80% of original value and automatic termination occurs at the scheduled 78% point when required conditions are met; exceptions apply.

Upfront fees paid for a lower interest rate. One point equals 1% of the loan amount, but the rate reduction per point is not fixed. Compare the added cash cost with payment savings over the expected loan holding period.

A lender's preliminary, conditional assessment based on reviewed financial information. It is not final loan approval; underwriting, the property, and other conditions still matter. Sellers may request one with an offer.

Compensation paid for brokerage services. Amount, payer, credits, and allocation are negotiable and must be modeled from the actual listing and representation agreements rather than a fixed national percentage.

A rough screening ratio comparing monthly rent with purchase price. It ignores vacancy, operating costs, financing, condition, taxes, and required return, so it cannot determine whether a property will cash flow.

The annual return expressed as a percentage of total investment. For rental properties, typically measured as cash-on-cash ROI (cash flow ÷ cash invested) or total ROI including equity buildup and appreciation.

A scenario showing how payment and DTI change at another interest rate. It is useful for ARM resets and planning uncertainty. The calculator's configurable buffer is a user scenario, not a lender rule or worst-case guarantee.

A policy covering specified title risks. A lender may require a lender's policy; an owner's policy is separate and protects the owner subject to its terms and exclusions. Rates and responsibility vary by jurisdiction and transaction.

A state or local tax imposed on a real-property transfer. The base, brackets, exemptions, local additions, and buyer/seller allocation differ by jurisdiction and can change.

A mortgage guaranteed by the US Department of Veterans Affairs for eligible borrowers. Qualified borrowers may finance 100% and VA loans do not use monthly PMI, but qualification, entitlement, lender standards, and property rules apply. Some borrowers are exempt from the funding fee.

The percentage of available time or units that are unoccupied and not generating scheduled rent. Use comparable local data and account separately for collection loss or concessions where relevant.