Skip to main content

It may surprise you, but there are many loan products available, particularly when we start looking at loans for income-generating investment properties.

A DSCR Loan is a Debt Service Coverage Ratio Loan. Essentially it makes it possible for investors to qualify for a property purchase without using their own income. Instead, the loan underwriting process looks at the property’s current or forecasted income-generating potential. It considers the asset’s cash flow capacity to cover the debt requirement instead of the borrower’s personal income.

A DSCR is the ratio of a net operating income and debt servicing of the asset. To calculate the DSCR ratio, you divide the monthly net operating income by the monthly debt payment (aka mortgage payment) to come to this ratio.

Let’s look at an example. A rental property has a net operating income of $2,000 per month with a monthly mortgage payment of $1,500. Therefore, the DSCR is 1.33, meaning that the property earns 33% more than its debt requirement. Because most lenders require a DSCR of 1.2 or higher, this property would likely qualify for a DSCR loan.

Why would you get a DSCR loan as opposed to a conventional loan?

This loan product type can be excellent for investors or entities who have the cash to buy a property but might not have the income capacity for a conventional loan product. A buyer can qualify with a DSCR loan without even being employed.

Benefits of a DSCR include:

  • NO personal income requirement.
  • NO income verification.
  • A high credit score is not required.
  • NO leases are required to be listed.
  • You don’t have to show proof of a lease if the property is not already leased.

Buyers further benefit from potentially faster closing times, and there are no limits on the number of properties you can own. In addition, long-term and short-term rentals (Airbnb or VRBO) can qualify, making DSCR loans exceptionally flexible.

We find that DSCR loans work amazingly for self-employed and business owner individuals. Just because you can’t meet the stringent income requirements of a conventional loan doesn’t mean that you need to get locked out of real estate investing. With a DSCR loan, there’s no need to verify income or employment, and the property qualifies based on its independent income-earning capacity.

DSCR loans unlock real estate investing for many borrowers who wouldn’t qualify otherwise. Get in touch today to determine if this is the right loan product for your real estate investing goals.  

Schedule a Call >

Leave a Reply