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DSCR loans are becoming increasingly popular for real estate investors.

The DSCR loan is a valuable tool that allows real estate investors to build wealth over time.

A DSCR (debt service coverage ratio) loan, or Investor Cash Flow loan, allows you to qualify for a home loan without relying on personal income.  

DSCR loans are a great option for real estate investors who can secure a real estate loan based on the property’s cash flow rather than tax returns.

DSCR loans provide an alternative source of financing for borrowers who may not be able to qualify for a traditional mortgage due to their credit score or lack of sufficient income.

How Does a DSCR Loan Work?

A conventional loan requires proof of income, usually in the form of tax returns or pay stubs.  Alternatively, DSCR loans allow buyers to qualify for a mortgage based on the rental income generated from the property.

Instead of using income to qualify, lenders will look at what is called the debt service coverage ratio.  This ratio determines whether or not the rental income is enough to cover the monthly loan payment.

There is no limit to the number of DSCR loans you can qualify for.  This allows real investors to purchase multiple income generating properties to build wealth overtime.  Great option for beginner investors as well as seasoned professionals.

The DSCR Ratio

The DSCR is a measure of a borrower’s ability to pay back the loan by comparing the property’s net operating income (NOI)to its total debt service (TDS).  If the NOI exceeds the TDS, then the DSCR is considered satisfactory.

To calculate your DSCR ratio, simply use the following DSCR formula:

DSCR = Monthly Rental Income / PITIA (Principal, Interest, Property Taxes, Insurance, and HOA dues)

Who Are They For?

DSCR loans are for investors in residential real estate loans.  They are a great option for first-time investors as well as experienced investors.

  • Portfolio Expansion
  • Competitive Rates
  • Alternative Qualifying Income
  • Long-Term Financing
  • Leverage
  • Streamlined Approval Process
  • No Limit On How Many Properties
  • Tax Benefits

DSCR Loan Requirements

While specific requirements vary by the lender, most borrowers can expect to meet the following criteria:

  • DSCR ratio of 1.0 or above
  • Credit scores of at least 620
  • Down payment of 20%
  • Minimum loan amount of $100,000
  • Maximum loan amount of $3 million

What is a non-QM Loan?

A DSCR loan is a type of non-QM loan, or non-qualified mortgage loan.  These are loan products tailor-made for borrowers who may not fit the usual criteria for a traditional mortgage.  These loans tend to have different requirements when it comes to income and credit.

In addition to providing loans for real estate investors, non-QM loans have solutions for self-employed, gig workers, and foreign nationals.  They include:

  • DSCR Loans
  • Bank Statement Loans
  • ITIN Loans
  • Foreign National Loans
  • 1099 Loans
  • Asset Depletion Loans

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