DSCR Loans: Unlock Investment Property Financing

Are you ready to take your real estate investments to new heights? We are now offering Debt Service Coverage Ratio (DSCR) loans for investment properties!

What is a DSCR loan?

DSCR loans are tailored to real estate investors for financing an investment property. Under this loan program, investors can secure funding for their investment properties based on their cash flow potential – or rental income – rather than relying on personal income alone to qualify. Investors that do not wish to submit job information, tax returns, pay stubs, or W-2s may find this option appealing. Borrowers will still need to prove that they will have adequate cash flow from the subject property to pay off the loan. This is done by calculating the DSCR. 

Additionally, the DSCR loan process is often faster and more streamlined than traditional loans, since it focuses primarily on the property's income potential. This makes it particularly advantageous for experienced investors looking to expand their portfolios quickly. However, it's crucial for borrowers to ensure their properties consistently generate sufficient income to meet loan obligations and maintain financial stability.

How to calculate DSCR:

DSCR compares Net Operating Income to debt payments. To calculate it, you divide a property’s annual Net Operating Income (NOI) by its Total Debt Service (TDS), where NOI is the income generated from the property after covering all other expenses, and TDS is the total amount of mortgage payments including principal and interest. This ratio represents the property’s ability to cover its debt obligations. 

For example, if property’s Net Operating Income is $36,000/year and the Total Debt Service is $18,000/year, then the DSCR is 2.0. This indicates that it generates about 2 times more income than needed to cover its debt obligations. The higher the DSCR, the better the financial position. We require a minimum DSCR of 1.0 (some exceptions apply).

What to know about your numbers

You should be thinking about these questions before engaging with a lender. It is always helpful to know your numbers before starting the process. 

• Have you checked your credit scores?
• How much cash do you have readily available? (Exclude equity and retirement savings—focus on liquid assets)                                                                                         
• How many properties do you have in your investment portfolio?                                                      
• What is the rental income or expected rental income for the property you are interested in? 
• What is the intended purchase price and loan amount for the property?

Do DSCR loans have closing costs?

Yes, DSCR loans typically have closing costs, which may include fees for processing, underwriting, appraisal, and other necessary services.

Our DSCR loan offerings*:

• Investment properties only,
• Minimum credit score of 660,                                                                                                
• First-time Investors allowed (must meet additional criteria),                                                              
• Purchase, rate/term refinance and cash-out refinances,                                                                   
• Maximum 2% seller concessions,                                                                                                      
• Reserves required,                                                                                                      
• 1-4 Unit, Condos and PUD's.