What is a DSCR Loan?
A DSCR loan is a mortgage loan offered to a borrower who uses the property's debt service to qualify. Mortgage companies may refer to it as a no doc investment property loan because the borrower's income and employment are not disclosed.

How does a DSCR loan work?
A DSCR loan is a mortgage offered on an investment rental property. These loans are typically offered on 30 yr fixed rate and 7 or 10 yr hybrid ARMs on 30 yr terms. Borrowers qualify using the rental income from the subject property to buy or a rental property they already own, their own credit, and liquid reserves. Their own personal or business income cannot be used to qualify. If other income is needed they'll need to use a different loan program.

This forumula is for 1-4 unit residential properties. For commercial real estate the DSCR ratio is calcutaed differently.

In 5 steps, here’s how a DSCR loan works.
-You apply for a rental property loan to get up to 80% loan to value of your investment.
-You calculate if the rental income will cover the new proposed mortgage payment (vacant or leased).
-The lender has an appraisal done on the property and the appraiser confirms the local market rents.
-You receive a loan based on the appraised value and rental income based on either the current lease or market rents to cover the new full mortgage payment.
-Your tenant is essentially repaying the loan and the property's rent and/or value appreciates over time.

Required documents
Borrower(s) to provide the lender copies of the most recent lease agreements if the property is tenant occupied. If is not occupied the lender will use what's in the appraisal report from a local market rent survey.

Ideally, the lender will use the current lease agreements provided and use that for cash flow. It doesn't matter if the tenant is leaving soon, behind on the rent, or being evicted. Your personal income will not be provided or used to qualify.

What is the minimum down payment on a DSCR loan?
Borrower(s) may be eligible to put down as low as 20% subject to the cash flow of the rents and the borrower's credit score and history. In general most real estate investors (new and experienced) bring in a 20-50% down payment because if the rent's don't cover the new mortgage then you may have to put more money down or "if approved" accept a higher interest rate and fees.

Ready to learn more? Get Our DSCR Guide and schedule a 1:1 with our mortgage and real estate experts.