What is a DSCR Loan?

A DSCR loan stands for Debt Service Coverage Ratio loan. This type of loan is commonly used in real estate investing, especially for investment properties.

Here’s a brief overview:

What is a DSCR loan?

• A DSCR loan is a type of mortgage where the lender primarily looks at the property’s ability to generate enough income to cover its debt payments, rather than focusing on the borrower’s personal income.

• "Debt Service Coverage Ratio" refers to the ratio of net operating income (NOI) from the property to the total debt service (principal and interest payments on the loan).

• The DSCR is calculated as: Net Operating Income ÷ Debt Payments. For example, a DSCR of 1.25 means the property generates 25% more income than required to cover loan payments.

Why are DSCR loans used?

• DSCR loans are popular among real estate investors who may not show high personal income on tax returns but have properties that generate consistent rental income.

• Lenders use DSCR to assess risk: a higher DSCR indicates that the property generates more than enough income to cover loan payments, making it a safer loan for lenders.

• These loans can allow investors to qualify for financing based on the strength of the investment property itself, rather than their own income or employment situation.

Typical uses:

• Purchasing rental or investment properties

• Refinancing existing investment property loans

• Expanding real estate portfolios without relying on personal income documentation

If you need more detailed information or have specific questions about DSCR loan requirements, let me know! Wes Stolsek, OMNI Homes International, 520-404-9773.