Updated about 3 years ago on . Most recent reply
What is a DSCR Loan?
I have recently heard of DSCR loan and wondering if anyone has more information on it. Or if you have had personally used them. Are their any draw back or restrictions? Thanks in advance
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DSCR = Debt Service Coverage Ratio which is a measurement of the cash flows of the property. It therefore stands to reason that a DSCR loan is a type of debt financing where the cash flows of the property are used to do determine eligibility rather than the individual credentials of the borrower. They are generally 30 Yr Loans (Fixed, IO, ARM, etc.). No blow up / no term renewal. No Income Verifications. No DTI. Ok if you are self-employed. LLC is ok (preferred at times, even).
Credit must be checked but can be as low as 640 in most cases. Possibly even lower.
Main drawbacks would be marginally higher rates (50-75 bps higher), always some kind of prepayment penalty, and because the asset is the primary function of the loan - a non-cash flowing property (maybe lux or bad market) may not qualify. There may be more but that's a good primer.