Help! Any Experience with a DSCR Loan?

Question

So I recently quite my W-2 job under a year ago. I just found out that I do not qualify for a conventional loan due not having 1099/self-employment earnings for at least a year. A DSCR ( debt service coverage ratio) loan was offered to me instead. Honestly, this is the first I have hear of this type of loan. Anyone with experience with this type of loan? If so, how did it work for you?

Ko Kashiwagi · Answer

If the property is a rental property (not a primary), DSCR loans are typically a good fit for your scenario. DSCR qualifies borrowers with rental income rather than personal income, so you don't need tax returns.

Raymond J. Rodrigues · Answer

@Stacy A Stewart are you looking to purchase an investment property or primary residence with financing? DSCR loans are not for primary homes unfortunately. Depending on your new job as a 1099/self employed, there are likely other loan options available that can work. Feel free to reach out with any questions.

Joe Funari · Answer

@Stacy A Stewart I have personally used DSCR loans to purchase rental properties here in the Dallas/Ft. Worth area. You can still get a 30 year fixed conventional DSCR loan for rental properties. The big difference is DSCR loans are higher interest rates. Also, there is a penalty for refinancing out of the DSCR loan within so many years. Usually 3 years from the date of closing. But as you get closer to this no penalty date the "penalty" amount goes down each month. But based on my personal experience you won't cash flow with a DSCR loan on a SFR rental. I strongly recommend a multifamily to start out when using a DSCR loan. If your interested in the Dallas/Ft.Worth area I recommend you reach out to @Andrew Postell. Andrew is my preferred lender and fellow investor I used for my DSCR (and traditional loans) loan for rental properties. Hope this helps.

Justice Bowers · Answer

DSCR loans are a great resource, especially in today's rate environment. They are primarily used for commercial loans but can be used for residential investment properties. An interesting option that they can offer is interest only payments for 3-10 years. This option can allow your property to cash flow at a higher rate because the monthly payment would be cheaper than if you were to have a conventional loan; then once rates come back down you can decide to refinance on to the traditional 30 year fixed.

They require much less for pre-approval and look more into the asset that you're looking to purchase than they do things like credit score.

I hope this helps!