DSCR Loans

A Debt Service Coverage Ratio (DSCR) loan is a type of real estate loan for Real Estate investors that evaluates the ability to generate sufficient cash flow from the property to cover the loan payments. 

The higher the DSCR, the better your chances of getting approved for the loan. You will need a DSCR of at least 1.2 which means your net operating income is at least 20% higher than the total debt service payments.

DSCR loans are used to finance the purchase of multifamily and investment real estate properties 

DSCR Calculations
  • The DSCR will be calculated by comparing the monthly cash flow (usually net operating income) of the property to the monthly debt service payments (such as mortgage payments).

Minimum DSCR

  • The higher the DSCR, the better your chances of getting approved for the loan. You will need a DSCR of at least 1.2 which means your net operating income is at least 20% higher than the total debt service payments. 

  • Streamlined Approval: DSCR loans offer a simplified approval process without extensive income verification.
  • Flexibility: Investors can use DSCR loans for properties with more than 4 units or non-warrantable condos, which are not eligible for conventional mortgages.
  • Scalability: Investors can accumulate multiple properties with favorable DSCRs.

  • Generate Rental Income: Lenders won’t ask about your personal income. Instead, they focus on the property’s rental income potential.
  • Lease Agreement or Appraisal: Provide a signed lease agreement to show current rental income. If unavailable, an appraisal may be required.
  • Good Credit: A decent credit score (660 or higher) is necessary.
  • Down Payment: Expect to put down at least 20% for a DSCR loan.  It is only available for Investment Properties.

  • Unlike typical mortgages, a DSCR loan does not rely on your personal income or tax returns.  Instead, the approval is focused on the cash flow generated by the property itself.