DSCR Loan

A debt service coverage (DSCR) loan is one that qualifies borrowers through an investment property’s cash flow rather than the borrower’s income. DSCR loans — also known as investor cash flow loans — are frequently used by real estate investors to qualify for mortgages and buy investment properties.

DSCR can have applications in business, government, and personal finances. Like DSCR loans, this ratio is often used in real estate to determine whether an investment property’s cash flow can cover its mortgage payments. The higher the DSCR, the better the ratio. A DSCR above 1 means that an investment property has positive cash flow and enough net operating income to cover its debts. As a general rule, anything above 1.25 is considered a good DSCR.

A DSCR loan works by evaluating the income generated by your investment property to determine loan eligibility, focusing on the property's ability to cover debt obligations instead if the owners income.

DSCR. Generally speaking, most lenders require a DSCR between 1 and 1.5 to qualify for a DSCR loan, with the most common minimum requirement being a DSCR of 1.25. We go as low as zero! Credit score. Each lender will require a specific credit score, with minimum requirements typically ranging from 620 to 700. We go down to 620. Down payment. Most DSCR loans have a maximum LTV of 80% — you will need a down payment of at least 20% to qualify. We offer LTVs up to 80%! Cash reserves. Like other investment properties, DSCR loan lenders require a certain amount of cash reserves, often equal to six months of payments. We only require 3 months of reserves! Loan amount. The maximum they can borrow for a DSCR loan depends upon the lender, but many financial institutions offer loans up to $2 million. We offer a maximum of $3 million! Prepayment penalty. Unlike Conventional loans and typical investment property loans, many lenders charge prepayment penalties on DSCR loans. We can offer up to 5 years of prepayment penalties!

Basic qualification requirements for an FHA loan Applicants must: 1: Have a social security number (SSN) Be of the minimum age to enter into a mortgage Meet income requirements Show two years of work history and income that will continue for the first three years of the mortgage Have qualifying debt-to-income and mortgage payment-to-income ratios (varies based on credit score and compensating factors) Hold a minimum credit score of 500 for the 10% down payment and 580 for 3.5% down payment (although many lenders require at least a 620) Must be creditworthy (i.e., no recent bankruptcies, liens, unresolved delinquencies or collection accounts, recent foreclosures, etc.) Have mortgage insurance Take the title in their own name or in the name of a living trust Live in the property as their primary residence within two months and for one year (exceptions do exist) Have no delinquent tax or non-tax federal debt Additionally, the home must meet the “Property Acceptability Criteria,” and the loan must be under the FHA maximum limit for their area

Closing a DSCR loan typically takes between 2 to 3 weeks, providing a swift financing solution for investors. This expedited process allows you to quickly access the funds needed for your income-generating properties.