DSCR Loans / Lender Recommendations

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DSCR Loans / Lender Recommendations

Eric Hipolito
Member since 2023 · 5 posts · 4 votes

Hello BP community,

I'm new to BP, but excited to learn through so many forums. I'm looking for my 2nd investment property and was waiting to reach a 2-year mark of my W-2 job to apply for an FHA loan or HELOC. However, I just learned about DSCR loans and it looks like an enticing tool. Is this something that I could househack or does it need to be purely a rental property?


Could anyone offer insight on DSCR loans and/or provide any reputable lenders? Thank

2Reply
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Robin SimonBusiness Member
Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
2y
Quote from @Eric Hipolito:

Hello BP community,

I'm new to BP, but excited to learn through so many forums. I'm looking for my 2nd investment property and was waiting to reach a 2-year mark of my W-2 job to apply for an FHA loan or HELOC. However, I just learned about DSCR loans and it looks like an enticing tool. Is this something that I could househack or does it need to be purely a rental property?


Could anyone offer insight on DSCR loans and/or provide any reputable lenders? Thank


Welcome! Check Out this large series (10-Part) on EVERYTHING you need to know about DSCR Loans!

DSCR Loans: What Are They And How To Get The Best Terms

https://www.biggerpockets.com/...

DSCR Loans: How To Use Pro Strategies To Save More And Make More

https://www.biggerpockets.com/...

Multifamily DSCR Loans: A New High-Impact Loan Option For Real Estate Investors?

https://www.biggerpockets.com/...

12 Frequently Asked Questions (And Answers) About DSCR Loans

https://www.biggerpockets.com/...

8 More Commonly Asked Questions and Answers to DSCR Loans

https://www.biggerpockets.com/blog/eight-questions-and-answe...

What Documents Do You Need for a DSCR Loan?

https://www.biggerpockets.com/blog/what-documents-do-you-nee...

BRRRR Loans: What Are the Options, and How Do DSCR Loans Stack Up?

https://www.biggerpockets.com/blog/brrrr-loans-what-are-the-...

Short-Term Rental Loans: What Are the Options and How Do DSCR Loans Stack Up?

https://www.biggerpockets.com/blog/short-term-rental-loans-a...

DSCR Loans: Terms to Know When Working With These Popular Rental Loan

https://www.biggerpockets.com/blog/dscr-loans-terms-to-know

What’s Next For DSCR Loans? Updates For 2024 and Beyond

https://www.biggerpockets.com/blog/what-is-coming-in-2024-fo...

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  • Devin PetersonBusiness Member
    Lender · Sarasota, FL · Member since 2022 · 2k+ posts · 667 votes
    2y
    Quote from @Eric Hipolito:

    Hello BP community,

    I'm new to BP, but excited to learn through so many forums. I'm looking for my 2nd investment property and was waiting to reach a 2-year mark of my W-2 job to apply for an FHA loan or HELOC. However, I just learned about DSCR loans and it looks like an enticing tool. Is this something that I could househack or does it need to be purely a rental property?


    Could anyone offer insight on DSCR loans and/or provide any reputable lenders? Thank


     Hey Eric,

    DSCR loans are the quickest and easiest way to scale a rental portfolio, house hacking aside. Max LTV is 85 - but you will we the best terms with 20% down. These loans are based on three things. Credit. LTV. DSCR score. They essentially make the terms of the loan. No personal income docs or taxes needed. You will generally see the best of the best terms with 80ltv+, FICO 720+, DSCR Score 1.25+ (Minimum is 1.00 - BUT! There are DSCR programs for those who may be below 1.00 as well) Lenders will allow you to get really creative to make the DSCR work. (Gross rent / PITI(A)) - Hope that helps!

    [email protected]860-538-3672
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    2Reply
  • Kristen L GarnerBusiness Member
    Lender · Phoenix, AZ · Member since 2021 · 451 posts · 287 votes
    2y

    Hi Eric! Devin provided some great info here. DSCR is also popular among investors because you are able to close in an LLC and you don't hit a max amount of loans like you do with conventional financing. There are many ways to structure DSCR terms to fit your scenario. There are other products in the non-QM space as well: bank statement loans, P&L loans, asset based loans, etc. Best of luck!

    [email protected]213-880-0434
    2Reply
  • Brittany MinocchiBusiness Member
    Lender · Massillon, OH · Member since 2022 · 1k+ posts · 486 votes
    2y

    Welcome to BP! DSCR loans are business purpose, so you wouldn't be able to occupy the property. As far as hitting the 2 year mark for your job, that might not be necessary as long as you have at least 2 years of employment history in general. Many people think you have to be at a particular job for 2 years, but that’s not usually the case.


    The biggest perks of DSCRs are not having to provide income or employment history/docs, DTI isn't a factor and you can close in an LLC. Biggest downside is the prepayment penalty. It's typically 3-5 years but can be bought down/out completely depending on lender and state. Sometimes in states like OH or PA, a lender might require you to buy it out, which increases your rate. This'll kick in if you sell OR refinance the property. Right now, plan for 20%+ down for the numbers to work. The less you put down, the harder it is to hit a 1.00+ ratio.

    Happy to answer any other questions you might have, feel free to connect! 


    [email protected]330-354-6590
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    0Reply
  • Derek BrickleyBusiness Member
    Lender · Ann Arbor, MI · Member since 2021 · 668 posts · 227 votes
    2y

    Hey Eric! Totally agree with Devin. DSCR is a great way to scale since we don't look at any income documentation, you qualify based on the property itself. However you would need significantly more cash compared to a primary residence house hack. Depending on your situation, you might not need to wait 2-years on your current job though. For DSCR, the best terms are generally with 25% down but househacking you could get in with as little as 3.5% or 5% depending on your situation and program.

    [email protected]734-645-7722
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    1Reply
  • Jamie Jones
    Lender · Nashville, TN · Member since 2017 · 205 posts · 107 votes
    2y

    Hi @Eric Hipolito, have you talked to a lender who told you need to wait 2 years at your W-2 job? Unless you are using commission, bonus, or have variable income to qualify, you should not need to wait 2 years for conventional financing, which will have lower rates and less down payment required than DSCR (assuming you plan to house hack). Also, just two days ago Fannie Mae made it possible to buy a 2-4 unit property as a primary residence with just 5% down. I'd recommend talking to a couple different lenders and providing them with all your income documentation to see if you can qualify now without waiting the full 2 years.

    1Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    2y
    Quote from @Eric Hipolito:

    Hello BP community,

    I'm new to BP, but excited to learn through so many forums. I'm looking for my 2nd investment property and was waiting to reach a 2-year mark of my W-2 job to apply for an FHA loan or HELOC. However, I just learned about DSCR loans and it looks like an enticing tool. Is this something that I could househack or does it need to be purely a rental property?


    Could anyone offer insight on DSCR loans and/or provide any reputable lenders? Thank

    Hey Eric, 

    DSCR loans are for investment properties only. You may not owner occupy it. 


    The minimum downpayment for a DSCR loan is 15% if you are experienced. 20-25% will be most common. 

    You qualify based on the market rents, lease agreements, or short term rent survey covering the full mortgage payment. Most lenders require that you close in an LLC, however a handful will let you close in a personal name. 

    Conventional loans now allow 5% down on 2-4 unit properties. Best of all is that there is no self sufficiency requirement. You must be able to show 2 full years of tax returns, and have a FICO score above 620. The max qualifying DTI is 48.99% which includes your housing expense and all other debts on your credit report. You may use projected rental income to help you qualify, however you may not only use the projected rents to qualify. 

    [email protected]818-269-7983
    LuxePrivate Investments LLC 572 Reviews
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    0Reply
  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    2y
    Quote from @Eric Hipolito:

    Hello BP community,

    I'm new to BP, but excited to learn through so many forums. I'm looking for my 2nd investment property and was waiting to reach a 2-year mark of my W-2 job to apply for an FHA loan or HELOC. However, I just learned about DSCR loans and it looks like an enticing tool. Is this something that I could househack or does it need to be purely a rental property?


    Could anyone offer insight on DSCR loans and/or provide any reputable lenders? Thank


    Welcome! Check Out this large series (10-Part) on EVERYTHING you need to know about DSCR Loans!

    DSCR Loans: What Are They And How To Get The Best Terms

    https://www.biggerpockets.com/...

    DSCR Loans: How To Use Pro Strategies To Save More And Make More

    https://www.biggerpockets.com/...

    Multifamily DSCR Loans: A New High-Impact Loan Option For Real Estate Investors?

    https://www.biggerpockets.com/...

    12 Frequently Asked Questions (And Answers) About DSCR Loans

    https://www.biggerpockets.com/...

    8 More Commonly Asked Questions and Answers to DSCR Loans

    https://www.biggerpockets.com/blog/eight-questions-and-answe...

    What Documents Do You Need for a DSCR Loan?

    https://www.biggerpockets.com/blog/what-documents-do-you-nee...

    BRRRR Loans: What Are the Options, and How Do DSCR Loans Stack Up?

    https://www.biggerpockets.com/blog/brrrr-loans-what-are-the-...

    Short-Term Rental Loans: What Are the Options and How Do DSCR Loans Stack Up?

    https://www.biggerpockets.com/blog/short-term-rental-loans-a...

    DSCR Loans: Terms to Know When Working With These Popular Rental Loan

    https://www.biggerpockets.com/blog/dscr-loans-terms-to-know

    What’s Next For DSCR Loans? Updates For 2024 and Beyond

    https://www.biggerpockets.com/blog/what-is-coming-in-2024-fo...

    [email protected]
    Harpoon Capital514 Reviews
    WebsiteView Page
    14Reply
  • Stacy RaskinBusiness Member
    Lender · Member since 2022 · 1k+ posts · 508 votes
    2y

    @Eric Hipolito, welcome to the community! 

    More on DSCR loans- DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.DSCR loans won't use your income to underwrite the loan.

    Here's a bit more in detail about how rates are calculated for DSCR loans:

    1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders

    2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.

    3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.

    4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.

    I've included an example below to help illustrate this.

    So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.

    See example below:

    DSCR < 1

    Principal + Interest = $1,700

    Taxes = $350, Insurance = $100, Association Dues = $50

    Total PITIA = $2200

    Rent = $2000

    DSCR = Rent/PITIA = 2000/2200 = 0.91

    Since the DSCR is 0.91, we know the expenses are greater than the income of the property.

    DSCR >1

    Principal + Interest = $1,500

    Taxes = $250, Insurance = $100, Association Dues = $25

    Total PITIA = $1875 Rent = $2300

    DSCR = Rent/PITIA = 2300/1875 = 1.23

    DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.

    [email protected]818-770-0340
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    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    2y
    Quote from @Eric Hipolito:

    Hello BP community,

    I'm new to BP, but excited to learn through so many forums. I'm looking for my 2nd investment property and was waiting to reach a 2-year mark of my W-2 job to apply for an FHA loan or HELOC. However, I just learned about DSCR loans and it looks like an enticing tool. Is this something that I could househack or does it need to be purely a rental property?


    Could anyone offer insight on DSCR loans and/or provide any reputable lenders? Thank


     Hey Eric,

    DSCR is a tool like any other loan product and as others have said, it will help you to scale, but you can't live in/house hack the property.

    Full disclosure; my company does DSCR and hard money for fix and flip exclusively and I'll tell you the same thing I tell all of our clients-exhaust the opportunity to use conventional financing BEFORE you dip your toe in the DSCR world. Conventional money is the cheapest way to go when it comes to interest rates and down payments. Most important though, if you do ever want to purchase an owner occupied property, the debt from the DSCR loan will go against your income and could cause you a problem. All DSCR loans require a personal guarantee and since you're personally guaranteeing the loan, you'll need to disclose it.

    Food for thought

    Welcome to BP

    Stephanie

    0Reply
  • Eric Hipolito
    OP
    Member since 2023 · 5 posts · 4 votes
    2y

    Thank you BP community for all the input. It's been extremely helpful!

    Cheers, Eric

    0Reply
  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    2y

    @Eric Hipolito thanks for the post and you have some good comments above.  To find specific lenders I always recommend speaking with other investors in your market first.  It's not foolproof, but it certainly helps if another investor in your market has already vetted them.  Read this post HERE for more on this topic.

    0Reply
  • Alex BekezaBusiness Member
    Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    2y

    It's too bad BP doesn't have a way to sort DSCR lenders by # of BP Reviews/References :)

    [email protected]818-606-8823
    Investor Property Loan5306 Reviews
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  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    2y

    @Eric Hipolito did you end up finding a DSCR Lender / having a good experience?

    [email protected]
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  • Adam Summerer
    Lender · Franklin, TN · Member since 2026 · 59 posts · 10 votes
    1w

    DSCR is business-purpose — you generally cant owner-occupy / househack it; that's the tradeoff for skipping personal DTI and tax returns. For a true rental, stronger tiers often sit around ~80% purchase LTV with a ~1.0x DSCR floor (some expanded desks go ~0.75–0.80x with tighter LTV/FICO), and you'll want the prepay schedule in writing. If househacking is the real goal, exhaust conventional/FHA on a 2–4 as a primary first — usually cheaper down payment and rate than jumping straight to DSCR. You may not need a full 2 years at the current W-2 for conventional if the income type is stable; get that checked before waiting.

    0Reply
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