What is a DSCR Loan?
A DSCR (Debt Service Coverage Ratio) loan is a type of financing primarily used by real estate investors and business owners. The DSCR is a financial metric used to evaluate an entity's ability to produce enough cash flow to cover its debt obligations. A DSCR loan focuses on the cash flow generated by the property or business, rather than the borrower's personal income, making it an attractive option for investors and entrepreneurs.

Benefits of a DSCR Loan
DSCR loans offer several significant benefits, including:
- Flexibility in Loan Terms: Borrowers can often negotiate terms that better fit their financial strategy.
- Higher Loan Amounts: Loans are based on the cash flow of the property or business, potentially allowing for larger loan amounts.
- No Traditional Income Verification: Instead of personal income, the focus is on the revenue generated by the investment.
- Ideal for Investors: Especially beneficial for real estate investors with multiple properties.
Who Qualifies for a DSCR Loan?
To qualify for a DSCR loan, borrowers typically need to meet the following criteria:
- Real Estate Investors and Business Owners: This loan type is ideal for those who own or are purchasing income-generating properties or businesses.
- Adequate DSCR Ratio: Lenders usually require a minimum DSCR ratio, often around 1 or higher, indicating that the property's income sufficiently covers its debt payments. Some lender require 1.25 and some require zero DSCR ratio depending on the Loan-to-Value.
- Solid Financials: Demonstrated ability to generate consistent cash flow from the investment property or business.
How is a DSCR ratio calculated?
Rent / PITI payment = DSCR Ratio
Example
$1200 rent / $1000 PITI = 1.2 DSCR ratio
Requirements for a DSCR Loan
- When applying for a DSCR loan:
- Property Appraisal: An appraisal to assess the current value of the property.
- Rental Income: your lender will order a rent schedule, also known as a 1007 (ten-oh-seven) form, to confirm market rents.
- Credit History: Personal credit report to evaluate creditworthiness.
- Minimum Credit Score: Most lenders require a minimum credit score, often around 620 or higher.
- Down Payment: A down payment is typically required, with loan-to-value (LTV) ratios commonly around 75-80%.
A DSCR loan is an excellent option for real estate investors and business owners looking to leverage the cash flow generated by their investments. With flexible terms, potential for higher loan amounts, and a focus on revenue rather than personal income, DSCR loans can provide the financing needed to grow and expand investments.
For more information or to start your application, contact MORTGAGEinc today, info@mortgage-inc.com!