Glossary

The mortgage terms business owners actually run into.

Plain-language definitions for the words lenders use — DSCR, PITIA, Non-QM, expense factor, K-1, Schedule C, and dozens more — framed for how you actually earn.

No jargon for its own sake. Each term explains what it means and why it matters to a self-employed borrower or investor.

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1099 Income: Income reported on a 1099 form for independent contractors, gig workers, and freelancers rather than on a W-2. A 1099 loan can qualify you on this income directly, without reducing it by Schedule C write-offs. Learn more

A

Adjustable-Rate Mortgage (ARM): A mortgage whose interest rate is fixed for an initial period — often 5, 7, or 10 years — and then adjusts periodically based on a market index. ARMs usually start lower than a comparable fixed rate, which can suit borrowers who plan to sell or refinance before the fixed period ends. Learn more
Amortization: The schedule by which a loan is paid off over time through regular payments of principal and interest. Early payments are mostly interest; later payments are mostly principal.
Annual Percentage Rate (APR): A broader measure of borrowing cost than the note rate. APR rolls in certain lender fees and points to express the yearly cost of the loan as a percentage, making it useful for comparing offers.
Appraisal: A licensed appraiser's independent estimate of a property's market value. Lenders require it to confirm the home is worth enough to support the loan amount.
Asset Depletion: A qualifying method that converts your liquid assets — savings, investments, and certain retirement accounts — into a calculated monthly income stream. Useful for founders and operators with significant portfolios but variable or hard-to-document earned income. Learn more

B

Bank Statement Loan: A Non-QM program for self-employed borrowers that uses 12–24 months of business or personal bank deposits to establish qualifying income, instead of tax returns. Built for owners whose write-offs lower their taxable income. Learn more
Bridge Loan: Short-term financing that bridges a timing gap — for example, buying a new home before your current one sells, or funding a renovation before permanent financing is in place. Learn more

C

Cash-Out Refinance: Replacing your existing mortgage with a larger one and taking the difference as cash, drawing on your home equity. Often used to fund business needs, consolidate debt, or improve the property.
Closing Costs: The fees and charges paid to finalize a mortgage — including lender fees, title insurance, appraisal, escrow setup, and recording fees. They typically run a few percent of the loan amount.
Conforming Loan: A mortgage that meets the size limits and guidelines set by Fannie Mae and Freddie Mac. Loans at or below the annual conforming limit usually carry the lowest available rates. Learn more
Conventional Loan: A mortgage not backed by a government program such as FHA or VA. When your file fits the agency box, a conventional loan is often the lowest-cost path. Learn more
Credit Score: A number, typically 300–850, summarizing how reliably you repay debt. It influences which programs you qualify for and the rate you are offered, though it is only one factor among many.

D

Debt Service Coverage Ratio (DSCR): An investment-property ratio comparing the property's rental income to its total mortgage payment (PITIA). A DSCR of 1.0 means rent exactly covers the payment; many programs look for 1.0 or higher. It lets the property qualify on its own cash flow rather than your personal income. Learn more
Debt-to-Income Ratio (DTI): The share of your gross monthly income that goes to monthly debt payments, including the proposed mortgage. Lower DTI generally improves approval odds. Non-QM programs that qualify on deposits or rental cash flow often de-emphasize traditional DTI. Learn more
Down Payment: The portion of the purchase price you pay up front, expressed as a percentage. A larger down payment lowers your loan amount and can improve your rate and approval odds.

E

Escrow: A neutral third-party account used in two ways: to hold funds and documents during a transaction, and to collect monthly amounts for property taxes and insurance so the lender can pay them on your behalf.
Expense Factor: On a bank statement loan, the percentage a lender assumes goes to business expenses before counting deposits as income. A 50% expense factor means half of qualifying deposits count as income; a CPA letter can sometimes support a lower, more favorable factor. Learn more

F

FHA Loan: A government-backed mortgage with lower down-payment and more flexible credit requirements. Available to self-employed buyers and often used by first-time buyers. Learn more
Fixed-Rate Mortgage: A mortgage whose interest rate stays the same for the entire term, keeping principal-and-interest payments predictable. Common terms are 30 and 15 years. Learn more
Foreign National Loan: A program that lets non-resident borrowers finance U.S. property, often without U.S. credit history. Frequently paired with ITIN documentation for borrowers without a Social Security number. Learn more

H

HELOC (Home Equity Line of Credit): A revolving line of credit secured by your home equity. You draw funds as needed during a draw period and repay what you use, similar to a credit card but at lower, home-secured rates. Learn more
Home Equity: The portion of your home you actually own — its current market value minus what you still owe on it. Equity grows as you pay down the loan and as the property's value rises.

I

Interest Rate: The note rate charged on the loan balance, expressed as a yearly percentage. It is distinct from APR, which also reflects certain fees and points.
ITIN: An Individual Taxpayer Identification Number issued by the IRS to people who file U.S. taxes but are not eligible for a Social Security number. Some programs accept an ITIN in place of an SSN. Learn more

J

Jumbo Loan: A mortgage above the annual conforming loan limit. Jumbo loans fund high-value properties and high-cost markets and typically carry their own reserve and documentation requirements. Learn more

K

K-1: A tax form (Schedule K-1) reporting a partner or S-corporation shareholder’s share of business income, deductions, and credits. Lenders review K-1s to understand pass-through income for owners of partnerships and S-corps. Learn more

L

Loan Estimate: A standardized three-page disclosure a lender provides after you apply, summarizing your estimated rate, monthly payment, and closing costs so you can compare offers on equal footing.
Loan-to-Value Ratio (LTV): The loan amount divided by the property value, as a percentage. An $800,000 loan on a $1,000,000 home is 80% LTV. Lower LTV (a bigger down payment or more equity) generally means better terms.

M

Mortgage Insurance (PMI / MIP): Insurance that protects the lender if a borrower defaults, typically required when the down payment is below 20% on a conventional loan (PMI) or on FHA loans (MIP). It can often be removed once you build enough equity.

N

Non-QM Loan: A loan that does not meet the federal "Qualified Mortgage" documentation rules — not because it is riskier, but because it qualifies income differently. Bank statement, DSCR, P&L, 1099, and asset-depletion loans are all Non-QM programs built for business owners and investors. Learn more

O

Origination: The end-to-end process of creating a new mortgage, from application through underwriting to closing. An origination fee is what the lender charges for this work.

P

P&L Loan (Profit & Loss Loan): A Non-QM program that uses a CPA- or tax-preparer-prepared profit and loss statement as the income document, without averaging bank deposits. Useful for established owners with clean books. Learn more
PITIA: The full monthly housing payment: Principal, Interest, Taxes, Insurance, and Association dues (HOA). PITIA is the figure used in DSCR and affordability calculations, not just principal and interest. Learn more
Points (Discount Points): An optional upfront fee paid to lower your interest rate. One point equals 1% of the loan amount. Paying points can make sense if you plan to keep the loan long enough to recoup the cost.
Pre-Approval: A lender's conditional commitment, based on reviewed documentation and a credit check, indicating how much you may borrow. Stronger than a pre-qualification and useful when making an offer.
Pre-Qualification: An early, informal estimate of what you might borrow, based on information you provide. It is a starting point rather than a commitment and does not require full documentation.
Principal: The amount you actually borrow, separate from interest. Each mortgage payment reduces the principal balance over time according to the amortization schedule.

R

Rate Lock: A lender commitment to hold a specific interest rate for a set period — often 30 to 60 days — while your loan is processed, protecting you from rate movement before closing. Learn more
Refinance: Replacing an existing mortgage with a new one, typically to lower the rate, change the term, or access equity through a cash-out refinance.
Reserves: Liquid funds a lender wants you to have left after closing, usually measured in months of housing payments. Reserves reassure the lender you can keep paying through income gaps, and Non-QM and jumbo programs often ask for more of them.

S

Schedule C: The tax form sole proprietors use to report business profit or loss. Write-offs on Schedule C lower taxable income, which can shrink the income a traditional loan will count — one reason owners turn to bank statement or P&L programs. Learn more
Seasoning: How long an asset, account, or ownership position has been established. Lenders may require funds or a property to be "seasoned" for a set period before they count toward qualifying.
Self-Employed Borrower: A borrower who earns income through business ownership, contracting, or freelance work rather than a W-2 salary. Sunrise specializes in programs that read this income accurately instead of penalizing write-offs. Learn more

T

Title Insurance: A policy protecting the lender and, optionally, the buyer against problems with the property's legal ownership — such as liens or competing claims — that surface after closing.

U

Underwriting: The lender's review of your income, assets, credit, and the property to decide whether to approve the loan and on what terms. A licensed professional, not software, makes the final call.

V

VA Loan: A mortgage guaranteed by the Department of Veterans Affairs for eligible veterans and service members, often featuring no down payment and no monthly mortgage insurance. Learn more

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Definitions on this page are general educational explanations, not legal, tax, or financial advice. How a term applies to your loan depends on the specific program, lender guidelines, and your situation. Consult a licensed professional for advice on your circumstances.

Sunrise Lending · Equal Housing Opportunity. Matching rules are written and reviewed by licensed mortgage professionals. All loan decisions are made by licensed mortgage professionals. Not a commitment to lend. Loan approval subject to underwriting guidelines. This is not financial advice.