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• Refinance

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Brief Overview:

A DSCR loan, or debt service coverage ratio loan, is designed for real estate investors interested in purchasing or refinancing investment property using minimal personal documentation. The primary difference between this and a traditional loan is how your ability to repay the loan is evaluated.

Traditional lending assesses the borrower’s personal income and employment history, but with DSCR loans, it is the investment property’s current or potential rental income that is used.

• To qualify, the property’s debt service coverage ratio must be at least 75%. This is calculated by dividing the property’s rental income by the proposed housing payment, which includes the new mortgage, property taxes, and homeowner’s insurance. In other words, the property must generate enough rental income to cover >75% of this.
• Note, a DSCR ratio covering >100% will result in a better interest rate.
  Overall, a DSCR mortgage can be an excellent financing option, as they offer flexibility and accessibility difficult to find in other types of financing.

DSCR loans are very popular, as the qualifying process is much easier than traditional lending. There are no tax returns, W2’s, or pay-stubs required. This is great for self-employed borrowers who claim business or real-estate related expenses reducing their net income with the IRS. When considering a DSCR mortgage, it is important to carefully evaluate the property’s potential rental income to ensure that the debt service coverage ratio requirements will met. It is also important to work with an experienced lender and/or broker who understands the unique nature and requirements of DSCR loans and has a long history of closing them.

Overall, a DSCR mortgage can be an excellent financing option, as they offer flexibility and accessibility difficult to find in other types of financing.

There are also Self-Employed Bank Statement loans, which can be an alternative in cases where rental income is not sufficient to qualify for a DSCR loan. While this does not use tax returns, it does, however, use the borrower’s business income to qualify, evidenced by the average deposits of the past 12-24 months of bank statements. These are designed for borrowers who do not meet the traditional income requirements of a conventional loan, as they require 1040 tax returns.