Thoughts on DSCR Loans

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Alex BreshearsBusiness Member
Lender · Springfield, MO · Member since 2020 · 351 posts · 504 votes
4y

Hi Tim! Welcome to real estate investing! Now DSCR loans are loans that are looking primarily at the asset to pay for the liability of the mortgage. They are termed Debt Service Coverage Ratio. For investment properties, they are looking at the amount of income generated compared to the debt service on the loan. Right now, their interest rates are really high. There is a lot of uncertainty in the market for institutional capital, which funds a lot of these types of loans. For investment property, I would say commonly you are going to have 80% to 75% LTV. They may or may not require underwriting on you as a person, including credit checks, asset levels, etc. On the plus side, if the property cash flows with a DSCR loan, when it comes time to refinance time with a lower rate it will improve on cash flow lol. This is generally going to be a loan product for a long term buy and hold property.

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  • Christine SnyderPro Member
    Member since 2018 · 12 posts · 4 votes
    3y

    Who is a reputable DSCR lender to use?

    1Reply
  • Christine SnyderPro Member
    Member since 2018 · 12 posts · 4 votes
    3y
    Quote from @Shiloh Lundahl:

    We use DSCR loans all the time.


     Who do you use?

    0Reply
  • Ruben Zepeda
    Member since 2022 · 4 posts · 0 votes
    3y

    Hello I can help you. I do DSCR loans in al 50 states

    0Reply
  • Christine SnyderPro Member
    Member since 2018 · 12 posts · 4 votes
    3y
    Quote from @Ruben Zepeda:

    Hello I can help you. I do DSCR loans in al 50 states


    I'm looking at a property in Shawnee, KS. and was thinking a DSCR loan would work well due to the fact the house is priced well below market, and the rents in the area could easily cover the PITI

    0Reply
  • Ryan Stuckey
    Lender · Member since 2022 · 217 posts · 148 votes
    3y

    Simple answer as to pros/cons:

    Pros: easier to get approved than conventional without your personal income/employment/taxes/assets/DTI being evaluated, i.e. lighter paperwork and more flexibility, usually faster too. A separation of the property and the personal also allows scaling into more properties as each new property stands on its own for evaluation.

    Cons: higher rates and costs compared to conventional (although still should be reasonable and allow for a profitable deal, i.e. if rates are too high, the rent won't cover the financing costs so the rates have to be sensible and proportionate...)

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  • Shane Ronay
    Wholesaler · Suffern, NY · Member since 2016 · 26 posts · 10 votes
    2y

    Doing my first DSCR loan. Can someone in FL recommend a closing attorney? I want to ensure that I understand the closing documents.

    Thanks in advance. 

    0Reply
  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    2y
    Quote from @Shane Ronay:

    Doing my first DSCR loan. Can someone in FL recommend a closing attorney? I want to ensure that I understand the closing documents.

    Thanks in advance. 


    What are you looking to spend on a closing attorney? DSCR Loans are pretty much standardized and arent really negotiable like CRE loans so people don't usually spend much at all on this

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  • Jacqueline Wright
    Lender · Nashville TN, USA · Member since 2024 · 142 posts · 30 votes
    2y

    DSCR (Debt Service Coverage Ratio) loans are great for real estate investors, especially those buying rental properties. One big benefit is that these loans look at the property's income rather than the borrower's personal income, which can make qualifying easier for investors with multiple properties. It also allows investors to scale up their portfolio faster. However, the downsides are that DSCR loans often come with higher interest rates and require the property to have strong cash flow to meet the lender's standards. For new investors, DSCR loans can be a good option if the property generates enough rental income, but it's important to carefully check the numbers to ensure the deal is profitable.

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  • Chad McMahan
    Residential Real Estate Broker · Sedona, AZ · Member since 2017 · 751 posts · 504 votes
    2y
    Quote from @Jacqueline Wright:

    DSCR (Debt Service Coverage Ratio) loans are great for real estate investors, especially those buying rental properties. One big benefit is that these loans look at the property's income rather than the borrower's personal income, which can make qualifying easier for investors with multiple properties. It also allows investors to scale up their portfolio faster. However, the downsides are that DSCR loans often come with higher interest rates and require the property to have strong cash flow to meet the lender's standards. For new investors, DSCR loans can be a good option if the property generates enough rental income, but it's important to carefully check the numbers to ensure the deal is profitable.

    Correction, they look at (personal/business income + projected property income). That projected property income helps a lot.

    Agreed, about everything else. Many times DSCR is not the cheapest money. But, some strong programs have been surfacing over the last 1-2 years.
    1Reply
  • Drago Stanimirovic
    New to Real Estate · Miami, FL · Member since 2024 · 1k+ posts · 453 votes
    2y

    Hi Tim,

    DSCR loans are ideal for investors because they focus on the property's income, not personal financials.

    Pros:

    • No Income Verification: Lenders focus on the property's cash flow, not your personal income.
    • Flexible Qualification: As long as the property's DSCR is typically 1.0-1.25, you can qualify.
    • Faster Closing: These loans can close quickly, ideal for competitive markets.

    Cons:

    • Higher Interest Rates: Typically higher than conventional loans.
    • Larger Down Payment: Usually requires 20%-25% down.
    • Cash Flow Requirement: Only works if the property generates enough income.

    For new investors, DSCR loans are great if the property has strong cash flow but come with higher costs. Let me know if you need help with lender options!

    Best,

    Drago

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