What are DSCR loans & how do they work?

Debt Service Coverage Ratio Loans

DSCR loans are loan programs specifically designed to purchase investment properties.

They do not require any income or employment verification.

Instead, borrowers are qualified for the loan based on the amount of rental income that the property produces. Underwriting can use rental income from existing lease agreements (for long term tenants), short rental income (AirBnB or VRBO), or market rent if the property is vacant (determined via an appraisal).  

How does it work?

DSCR loans work by using the property's rental income to determine your qualification. DSCR is calculated by dividing the rent by the total mortgage payment.

Example: $5,000/mo (rent) / $4,500/mo (mortgage) = DSCR of 1.11

Ideally, a DSCR of 1.0 will allow you get the best terms, however if the DSCR is below 1.0, you can still qualify but the interest rate may be higher and require a larger down payment.

What are the requirements to qualify?

Qualifications for this program is straightforward:

• Minimum credit score of 620

• Must own a primary residence or investment property

• Down payment:

  • 15% for single family homes

  • 20% for 2-4 units

  • 25% for 5+ units

• 3-4% for closing costs (subject to change)

• 2+ months of reserves

• Minimum loan amount of $100,000

If you're interested in learning more about how you can use this program to finance your next investment property purchase or refinance, feel free to schedule an appointment to discuss your situation in more detail!