DSCR Loans
DSCR loans qualify real estate investors based on property cash flow rather than personal income documentation.
Overview
Debt Service Coverage Ratio (DSCR) loans are a type of non-QM loan designed for real estate investors. Instead of requiring traditional income documentation like W-2s or tax returns, DSCR loans qualify borrowers based on the property’s ability to generate rental income sufficient to cover the monthly mortgage payment.
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Frequently Asked Questions
What DSCR ratio do lenders require?
Most DSCR lenders require a minimum ratio of 1.0, meaning the rental income must at least cover the monthly mortgage payment. A DSCR of 1.25 or higher is preferred and may qualify for better pricing. Some programs allow DSCR below 1.0 with adjusted terms.
How is DSCR calculated?
DSCR is calculated by dividing the property’s net operating income (NOI) by its annual debt service. NOI is gross rental income minus vacancy and operating expenses. Debt service is the total of all loan payments over the year.
Do DSCR loans require personal income verification?
No, DSCR loans primarily rely on the property’s cash flow for qualification. However, lenders may still check credit score, verify employment or assets, and require a minimum down payment of 20-25%.
What property types are eligible for DSCR loans?
DSCR loans are typically available for 1-4 unit residential investment properties, including single-family homes, townhomes, condos, and small multifamily properties. Some lenders also offer DSCR loans for larger multifamily and mixed-use properties.
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