DSCR Loans by Shining Star Funding

Yes, DSCR loans require liquid assets known as reserves, which are typically measured in months of the PITIA/ITIA payment of the subject property. Reserve requirements generally range from 3 to 9 months, depending on the loan amount and the DSCR ratio. Cash-out proceeds from the transaction may sometimes be used to meet this reserve requirement.

DSCR loans offer a variety of terms, including 15-year fixed, 30-year fixed, and 40-year fixed amortization options. Furthermore, Interest-Only (IO) periods are commonly available, such as a 10-year IO period followed by the remaining term fully amortized.

No, Prepayment Penalties (PPP) are not mandatory, but they are available for DSCR loans used for investment properties. Opting for a PPP, typically for a term of 1 to 5 years (often a flat 5% penalty if paid early), can result in the borrower securing a significantly lower interest rate.

Yes, short-term rentals are eligible under several DSCR programs, such as the Edge Investor Classic, Sharp DSCR, and Horizon DSCR. These properties usually require a slightly higher minimum DSCR, typically 1.15 to 1.25, and the income calculation must be based on approved methods like AirDNA or 12-month rental history.

Yes, LLC vesting is allowed specifically under the DSCR program, which helps separate the mortgage debt liability from the borrower’s personal credit. However, the program usually requires the borrower to serve as a personal guarantor of the loan.

DSCR loans often require a larger investment from the borrower compared to traditional loans. While minimum down payments can start as low as 15% for highly qualified borrowers (DSCR >= 1.00 and high credit score), general requirements often fall between 20% to 30%.

Yes, borrowers must typically meet a minimum credit score requirement. Generally, all borrowers must have a minimum representative score of 620. However, specific programs often require higher scores (e.g., 660 or 680) depending on the desired loan-to-value (LTV) ratio.

While a DSCR of 1.0 or higher indicates that the property generates enough income to cover the debt, many programs offer flexibility. The minimum DSCR floor can be as low as 0.75 (meaning the property is technically cash-flow negative, but the investor can still qualify). Loans below 1.0 may require higher reserves.

Eligibility is determined by the Debt Service Coverage Ratio (DSCR), which measures the property’s gross rental income against the proposed monthly housing expenses (Principal, Interest, Taxes, Insurance, and Association fees, or PITIA). The formula is: Gross Rent / Proposed PITIA = DSCR.

A DSCR loan is a type of Non-Qualified Mortgage (Non-QM) designed exclusively for real estate investors. Its primary benefit is that qualification is based on the cash flow potential of the property itself, rather than the borrower’s personal income or employment history.