E360 MORTGAGE

What is a DSCR Loan?

A DSCR loan is a mortgage loan where the lender focuses on the income generated by the property (like rental income) to decide whether you qualify. DSCR stands for Debt Service Coverage Ratio, which compares the property’s income to the loan’s debt payments.

Benefits of DSCR Loans

  • No Personal Income Verification - You don’t need to provide personal tax returns or proof of income. The loan is based on your property’s income.
  • Ideal for Real Estate Investors - If you own rental properties or commercial properties, this loan can help you finance or refinance real estate investments.
  • Easy Qualification - DSCR loans are easier to qualify for than traditional loans, especially if you have a good property cash flow but less-than-perfect credit.
  • Flexible Terms - Many lenders offer competitive interest rates and flexible repayment terms for DSCR loans.

How Does a DSCR Loan Work?

1. Focus on Property’s Income

Lenders primarily look at how much money the property makes (rent or lease income) to ensure it can cover the loan payments.

2. No Need for Personal Financial Info

You don’t need to show proof of personal income, employment history, or credit score (though some lenders may consider it).

3. Loan Terms Based on Cash Flow

The loan terms (interest rates, loan amounts) are based on the property’s financial health. If the property generates consistent income, you’re more likely to get approved.

Eligibility for a DSCR Loan

To qualify for a DSCR loan, the property needs to generate enough income to cover its debts. Here’s a quick list of what you need:

  • Income-Generating Property: The property must be a rental or another income-producing asset (like an apartment building or commercial property).
  • Minimum DSCR Ratio: Lenders usually require a minimum DSCR ratio of 1.0 or higher (ideally 1.25 or more).
  • Credit Score: While not the main focus, having a credit score of 620+ could help.
  • Property Location: The property must be in a location where the lender is willing to lend.

Types of DSCR Loans

 

1. Residential DSCR Loans

For single-family or multi-family rental properties (2-4 units). Great for individual investors.

2. Commercial DSCR Loans

For larger income-producing properties, like apartment complexes, office buildings, or retail centers.

3. DSCR Refinance Loans

If you already own an income-producing property, you can refinance using a DSCR loan to access better rates or additional cash for other investments.