DSCR Loans
What is a DSCR Loan?
A DSCR loan is a non-qualified mortgage (non-QM) designed for real estate investors. Instead of relying on personal income or tax returns, approval is based on the property’s rental income.
How It Works
- DSCR formula: DSCR = Net operating income (NOI)/Debt obligations
- A DSCR of 1.25 or higher is typically preferred by lenders.
- Approval basis: Lenders look at whether the property’s income can cover mortgage payments, including principal, interest, taxes, insurance, and HOA fees.
Key Benefits of DSCR Loans
- No need for personal income verification.
- Faster approval with less documentation compared to traditional loans.
- Can be used across multiple rental or investment properties.
- Available to foreign nationals and LLCs as well as individuals.
Requirements
- Credit score generally between 620 and 680 or higher.
- Down payment of 20% or more is usually required.
- Loan amounts typically range from $100,000 to $3 million.
- Property must be a rental or investment property, not owner-occupied.
- The property must show positive cash flow to qualify.
Risks and Drawbacks
- Interest rates and origination fees are often higher than traditional loans.
- Rental income fluctuations can affect the ability to qualify or refinance.
- Fewer lenders offer DSCR products, which limits availability.
- Prepayment penalties may apply depending on the loan terms.