DSCR

A Debt Service Coverage Ratio (DSCR) loan is a type of Non-Qualified Mortgage (Non-QM) financing designed exclusively for investment property transactions that are designated for business purposes only. These loans are generally used for residential income-producing properties, typically ranging from one to four units, although some programs may allow up to 10 units

A DSCR Loan works by prioritizing the investment property’s cash flow over the borrower’s personal income, with qualification based on calculating the Debt Service CoverageA DSCR Loan works by prioritizing the investment property’s cash flow over the borrower’s personal income, with qualification based on calculating the Debt Service Coverage Ratio (DSCR). The DSCR is determined by dividing the Gross Rental Income by the Monthly Housing Payment (PITIA or ITIA), and lenders use this ratio (typically aiming for 1.0 or higher) to ensure the property’s income can adequately cover its debt obligations. Since these are full recourse loans, the individual borrower or guarantor is personally responsible for repayment, even if the property is vested in an LLC

The DSCR Loan Eligibility Requirements After Bankruptcy or Foreclosure are dictated by the mandatory seasoning period following the credit event, which varies significantly across loan programs. For instance, our Prime DSCR program requires a minimum of 24 months seasoning, while the Non-QM Advantage requires 36 months. More exclusive programs like our Edge Investor Elite require the longest seasoning period, typically 4 years since the credit event occurred

Investors are Eligible to Borrow Under DSCR Loan Guidelines primarily based on the investment property’s cash flow potential, as personal income, DTI, and employment verification are typically not required for qualification. To qualify, the property must be strictly non-owner-occupied and used for business purposes, and the borrower must meet minimum credit requirements (FICO typically starting at 660) and demonstrate sufficient cash reserves (generally 3 to 12 months of property expenses

The Primary DSCR Loan Income Documentation Methods focus on the property’s cash flow, completely bypassing the borrower’s personal income, W-2s, or tax returns. Lenders primarily use the lower of the actual lease amount or the market rent opinion from the appraisal to calculate the DSCR. For short-term rental (STR) properties, documentation may require 12 months of documented income from the rental platform or property manager (net of fees), and some programs utilize AirDNA projections to estimate qualifying rental income

Key among the Pros and Cons of DSCR Mortgages is the significant advantage that qualification relies entirely on the investment property’s cash flow, eliminating the need for personal income or employment verification, and allowing investors to finance a higher number of properties than conventional limits. Conversely, primary cons include the strict mandate that the property must be non-owner-occupied, requirements for cash reserves typically ranging from 3 to 12 months, and the common inclusion of prepayment penalties that restrict early payoff flexibility

he process for applying for DSCR Loans simplifies documentation by focusing entirely on the property’s cash flow potential, meaning borrowers generally do not need to provide W-2s, tax returns, or personal employment verification. To apply, you must submit key documents which typically include a property appraisal (to confirm market value and rent opinion), the rent roll or lease agreement verifying income, and bank statements that demonstrate required cash reserves, which usually cover 6 to 12 months of expenses