Frequently Asked Questions
What is a DSCR loan?
A DSCR (Debt Service Coverage Ratio) loan is a type of real estate investment loan that qualifies borrowers based on the property’s income rather than personal income. The DSCR ratio is calculated by dividing the property’s net operating income by its debt obligations.
How is DSCR calculated?
DSCR is calculated by dividing the property’s monthly rental income by the monthly mortgage payment (including principal, interest, taxes, insurance, and HOA fees). For example, if a property generates $2,000 in monthly rent and the mortgage payment is $1,600, the DSCR is 1.25.
What DSCR ratio do I need to qualify?
Most lenders require a minimum DSCR of 1.0, though some programs accept ratios as low as 0.75. A DSCR of 1.0 means the property’s income exactly covers the debt payment. Higher ratios generally result in better loan terms.
Do I need to provide tax returns or W-2s?
No. One of the main benefits of a DSCR loan is that it does not require personal income verification through tax returns, W-2s, or pay stubs. The loan is qualified based on the property’s income potential.
What types of properties are eligible?
DSCR loans can be used for single-family homes, multi-family properties (2-4 units), condos, townhomes, and some commercial properties that generate rental income.
What is the minimum credit score required?
Most DSCR loan programs require a minimum credit score of 620, though better rates and terms are available for scores of 680 or higher.
How much down payment is required?
Down payment requirements typically range from 20% to 25% of the purchase price, depending on the property type, loan amount, and borrower qualifications.
Can I use a DSCR loan for a property I plan to rent on Airbnb?
Yes. Many DSCR lenders accept short-term rental income from platforms like Airbnb and VRBO, though documentation requirements may differ from traditional long-term rentals.
What are the typical interest rates for DSCR loans?
Interest rates vary based on market conditions, credit score, DSCR ratio, and loan-to-value ratio. Generally, DSCR loans have rates that are competitive with conventional investment property loans.
How long does it take to close a DSCR loan?
The typical closing timeline for a DSCR loan is 21-30 days, though this can vary depending on the complexity of the transaction and how quickly documentation is provided.
Can I get a DSCR loan for a property that needs repairs?
Yes. Some DSCR programs offer renovation financing that allows you to purchase and repair a property with a single loan.
Are there prepayment penalties?
Prepayment penalty terms vary by lender and loan program. Many DSCR loans offer options with no prepayment penalties, while others may have penalties that decrease over time.
How many DSCR loans can I have at once?
Most lenders allow borrowers to have multiple DSCR loans simultaneously. The exact number depends on the lender’s portfolio limits and your overall financial profile.
Do I need to have landlord experience?
No prior landlord or real estate investment experience is required for most DSCR loan programs.
Can I use projected rent instead of actual rent?
Yes. If the property is not currently rented, lenders will use a rent schedule or appraisal to determine the projected rental income for DSCR calculation purposes.