Credit Requirement for DSCR Loans
Credit Requirement for DSCR Loans
Credit requirement for DSCR loans is generally higher than traditional mortgages and varies significantly based on the proposed Debt Service Coverage Ratio (DSCR) and the Loan-to-Value (LTV) ratio.
A. General Minimums
- The absolute minimum representative score for all borrowers on DSCR transactions is often 620.
- However, many programs prefer a minimum FICO of 660 or higher.
- Borrowers who take out DSCR loans with some lenders have an average credit score of 739.
B. Credit Score Tiering Based on DSCR and LTV
We use FICO scores in tiered matrices to determine eligibility and pricing:
| DSCR Ratio Scenario | Minimum FICO Range | Requirements/Restrictions |
| Highest Leverage / Best Terms | 720 to 740 | Typically required for maximum LTV (up to 80% or 85%). A FICO of 740 is required for a 15% down (85% LTV) DSCR loan in some specialized programs. |
| DSCR > 1.00x (Standard) | 660 to 720 | This is the typical qualifying range for DSCR loans covering the PITIA payment. |
| DSCR < 1.00x (Negative Cash Flow) | 680 to 700 | We compensate for negative cash flow by requiring higher FICO scores and larger down payments. A 700 credit score is required for DSCRs less than 1.00x on loans under $1,000,000. |
| Interest-Only (I/O) Feature | 660 to 700 | DSCR loans with an I/O feature may require a minimum credit score of 660 (if DSCR ? 1.00) or 700 (if DSCR <1.00). |
| First-Time Investors (FTI) | >700 | For first-time investors (FTI), the Sharp DSCR program requires a minimum Credit Score of $>700 and a DSCR >1.0. The Edge Investor Classic allows FTI with a minimum of 680 FICO and DSCR ?1.0. |
C. Foreign National Requirements
- Foreign National borrowers (FN), who primarily live and work outside the U.S. and are eligible for DSCR loans only, must typically have a minimum FICO of 680.
- For FNs who do not have a usable credit score (e.g., relying on foreign credit), some programs may use a 660 representative score for qualification.
Credit History and Derogatory Events
We require a clean history of repayment on all debts to approve a DSCR loan, even though the borrower’s DTI is ignored.
A. Housing Payment History
- A satisfactory 12-month housing history is required for the borrower’s primary residence and the subject property (if a refinance).
- Many DSCR programs, such as the Sharp DSCR, require a 0x30x12 payment history (no payments late by 30 days or more within the last 12 months).
- If a borrower is living rent-free and cannot document 12 months of housing history, strict LTV caps and a minimum 680 FICO may apply.
B. Significant Derogatory Credit Event Seasoning
Seasoning refers to the time elapsed since a major negative credit event.
- For the Prime DSCR Program, the minimum seasoning period since a Significant Credit Event (Foreclosure, Short Sale, Bankruptcy, Deed in Lieu) is 24 months.
- Other programs, such as the Sharp DSCR Program, require 3+ years seasoning.
- Foreign National borrowers typically require a longer minimum seasoning period of ?48 months (4 years) for significant derogatory credit.
C. Collections and Charge-Offs
- For DSCR transactions, collections and charge-offs can generally be ignored unless title is impacted.
- Non-title charge-offs and collections may stay open if not impacting title.
Tradeline Requirements
DSCR guidelines mandate a minimum credit profile to verify established debt management experience.
- Tradeline Requirements: All borrowers on DSCR transactions must meet the minimum tradeline requirements. Generally, a borrower’s credit profile must include a minimum of two trade lines within the last 24 months.
- Specific Options: Acceptable requirements include three tradelines reporting for 12+ months (with one active in the last 12 months) OR two tradelines (one reporting 24+ months with activity in the last 12 months, and the other reporting 12+ months).
- DSCR Exception: For the Horizon DSCR Elite and DSCR programs, minimum tradelines are waived if all borrowers have three credit scores.
- Ineligible Accounts: Authorized user accounts are not considered an acceptable tradeline for establishing the minimum requirements.
Credit Score Calculation for DSCR Loans
When multiple parties are involved in the loan, a specific rule determines the representative score used for qualification.
- The score used to qualify for the DSCR program is the lowest representative score of all borrowers on the loan.
- The “usable score” for each individual borrower is determined by taking the middle score when three credit reporting agencies are provided or the lower score when only two agencies are provided.
Credit Reporting and Inquiries
- Credit Report Requirement: A merged credit report containing information from all three credit bureaus is required. If only one score is obtained, the borrower/guarantor is ineligible.
- Credit Inquiries: Unlike other Non-QM loan types, an inquiry letter addressing recent credit inquiries is not required for Investor Cash Flow/DSCR loans.
FAQ's
The absolute minimum representative credit score required for all borrowers on DSCR transactions is often 620. However, many program matrices set the minimum higher, typically starting at 660.
When the DSCR is less than 1.0, lenders typically require a higher FICO score to offset the risk. For example, a minimum FICO of 700 is required when the DSCR is below 1.0 and the loan has an Interest-Only feature.
The score used for loan qualification is the lowest representative score of all borrowers or guarantors on the loan.
Many DSCR programs require a history of 0x30x12, meaning the borrower must show no mortgage or rental payments late by 30 days or more in the last 12 months.
First-Time Investors are allowed under specific DSCR programs, provided their credit score is greater than 700 (or 680 in some programs) and the DSCR ratio is greater than 1.0.
For certain DSCR programs, such as Horizon DSCR and DSCR Elite, the minimum tradeline requirements are waived when all borrowers on the loan have three credit scores.
No. Authorized user accounts are explicitly not considered an acceptable tradeline for establishing the minimum requirements.
The required seasoning varies, but for major derogatory credit events (like Foreclosure or Bankruptcy), the minimum seasoning period is often three years (≥ 36 months). Some programs require four years (≥ 48 months).
No. A letter of explanation for credit inquiries is not required for DSCR/Investor Cash Flow loans.
Borrowers must meet one of two options: 1) Three tradelines reported for at least 12+ months, with one active in the last 12 months; OR 2) Two tradelines, one active for 24+ months and the other for 12+ months.
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