A DSCR loan, also known as a Debt Service Coverage Ratio loan, is a type of financing specifically designed for rental properties. It considers the property’s rental income to determine your borrowing capacity, rather than solely relying on your personal income. This helps you qualify for a loan based on the property’s ability to generate sufficient cash flow to cover the mortgage payments.

To calculate the DSCR, divide the property’s net operating income (NOI) by the annual mortgage payments. A DSCR ratio of 1.20 or higher is generally considered favorable, indicating that the property’s income is sufficient to cover its debt obligations.

A DSCR ratio of 1.20 or higher is often considered a good benchmark for rental properties. It suggests that the property’s income is generating enough cash flow to comfortably cover its mortgage payments, leaving a buffer for other expenses.

While credit history is a factor considered by lenders, generally you FICO should be greater than 620. So, even if you have less-than-perfect credit, you may still qualify for a DSCR loan if the property’s cash flow supports the mortgage payments.

DSCR loans are not limited to commercial properties. They can be used for short-term rentals (AirBnB/VRBO), residential rental properties, including non-owner occupied 1-4 unit properties, mixed-use properties, and multifamily properties with 5 or more units.

The DSCR loan application process typically involves providing information about the borrowing entity (articles of organization if an LLC or certificate of incorporation if a corporation) and the property, including its rental income and expenses. Lenders will evaluate the property’s cash flow potential and your qualifications as a borrower (FICO score and proof of funds).

The documentation required for a DSCR loan application may include bank statements, rent rolls, and property-related documents. Your mortgage broker will provide you with a detailed list of the required documents during the application process.

Yes, projected rental income can be considered when applying for a DSCR loan. Projected rent is typically determined by the appraiser. 

Yes, DSCR loans are available for first-time real estate investors. Lenders primarily evaluate the property’s income potential and your ability to manage the investment.

DSCR loans may have slightly different interest rates and terms compared to traditional mortgages. Since DSCR loans focus on the property’s income, the interest rates may be slightly higher. However, the terms can be tailored to suit your investment needs, providing flexibility and specific features geared towards rental properties.