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A DSCR loan, or debt service coverage ratio loan, is a type of mortgage loan that is underwritten based on the cash flow from rent payments, rather than the borrower's ability to repay the loan. This makes DSCR loans a good option for real estate investors who do not have a lot of personal income. Some DSCR programs allow for moderate credit or FICO scores when they meet the other requirements. There are a variety of wholesale investors who purchase these loans. These are not hard money lenders. They are called Non QM lenders as the loans are not a Dodd Frank Qualified mortgage.
To qualify for a DSCR loan, the borrower must have a property that is generating enough income to cover the monthly mortgage payments, taxes, insurance, and any other associated costs. The lender will calculate the DSCR by dividing the monthly rent income by the monthly debt service. For example, if a property has a monthly rent income of $2,000 and a monthly debt service of $1,000, the DSCR would be 2.0.
DSCR loans typically have higher interest rates than traditional mortgages, but they can be a good option for investors who are unable to qualify for a traditional mortgage. DSCR loans can also be a good option for investors who want to purchase a property with a lower down payment.
Debt Service Ratio mortgage loans
Market rents determined and verified by lease agreement, deposit check at closing and the appraiser's rental survey which borrower pays for are used to compare against principle, interest, taxes, insurance. and HOA bills. Short term rental is not used. Interest only or Adjustable rate payment is adjusted to the full actual payment.
Here are some of the benefits of DSCR loans:
- They can be a good option for investors who do not have a lot of personal income.
- They can be used to purchase properties with only rents to cover the payments
- They can be a good option for investors who want to purchase properties in areas with high rental demand.
- They require less paperwork and headache.
- Long term thirty year loans are offered
Here are some of the drawbacks of DSCR loans:
- They typically have higher interest rates than traditional mortgages.
- They are ONLY for investment property not owner occupied.
- They may require the borrower to make a larger down payment.
- They may require reserves. Borrower has to show in checking, savings, and 60% of stock accounts enough liquid cash to cover ALL their bills for twelve or twenty four months. the amount of reserves is part of the interest rate available
- They are for a single borrower with lots of money but perhaps self employed tax returns that don't work for conventional loan types.
If you are considering a DSCR loan, it is important to speak with a qualified mortgage lender to determine if it is the right option for you. Feel free to call me 949- 784- 9699
This is not a commitment to lend
When you call please advise about:
property type, condition of property
property Class type
location, city, state
market rents
valuation/ sale price
how much cash you have in checking, savings, and stocks broken into different categories.
What you think your FICO score is
