DSCR Loan

A DSCR loan is a type of non-QM loan used in real estate investing. The loan eligibility depends on the property’s income potential, not the borrower’s income. The Debt Service Coverage Ratio (DSCR) helps determine if a property makes enough money to pay its debts.

It's actually very simple to qualify for a DSCR loan. The property must generate enough rental income to offset the mortgage payment plus other expenses associated with the investment property. The minimum debt service coverage ratio required is between 1.1x and 1.2x, which means the property must produce between 10% and 20% net positive cash flow after all expenses have been deducted. A minimum loan amount of $175,000 and a 700 FICO score is also required.

To calculate the debt service coverage ratio (DSCR), divide the property's profit generated after deducting operating expenses or net operating income (NOI) by its total debt service, which refers to the annual loan payments. A DSCR of 1.0 indicates that the property's income is sufficient to meet its debt obligations. A DSCR above 1.0 suggests positive cash flow, while a ratio below 1.0 indicates negative cash flow.

Lenders usually want a DSCR of 1.2 or more. This means the property makes 20% more money than needed for debt payments. However, some lenders may accept a lower DSCR depending on the property type and the risk involved.

No. Unlike traditional loans, DSCR loans focus on the property’s ability to generate income. Your personal income and credit score are not as important. However, some lenders may still ask for this information during application.

Yes. DSCR loans are made for real estate investors. They help finance rental properties, commercial properties, and other income-generating assets.

Yes. DSCR loans can be used for residential and commercial properties if the property generates income. However, the specific DSCR requirements may vary based on the property type.

The down payment needed can change. It usually falls between 20% and 30%, depending on the lender, property type, and DSCR. A higher DSCR may allow you to secure a lower down payment.

DSCR loans are typically for income-generating properties that are not in need of major repairs and are less commonly used for flips. However, if the property has the potential for long-term rental income, a DSCR loan may still be an option.

es. If tenants already occupy the property, you can boost the DSCR. This makes it easier to qualify for a loan.

The main benefit of a DSCR loan is that it helps real estate investors qualify for a loan. This analysis focuses on the property’s income potential, not on the investor's personal finances, making financing easier for investors with low personal incomes.

Traditional loans usually need a borrower's credit score, income, and other details. In contrast, DSCR loans focus on the income the property makes. DSCR loans are typically more flexible for real estate investors.

The approval process can change based on the lender and the loan's complexity. Usually, the approval and funding process takes 30 to 60 days.

Lenders consider DSCR loans at a higher risk, so they can set higher interest rates than traditional loans. The rate will depend on factors such as the DSCR, the property type, and the loan amount.

Yes, you can refinance a property with a DSCR loan. The property must make enough income to meet the DSCR requirements. A refinance may allow you to access better terms or pull equity from the property.