12 Frequently Asked Questions (And Answers) About DSCR Loans

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Check out this latest DSCR article on BP!

We have published several articles on DSCR loans, a loan product that continues to grow in popularity among real estate investors. These included an overview of how to get the best rate and terms, how to use advanced strategies to maximize returns, and an overview of the new small multifamily DSCR loan niche, which expands the loan product to properties with up to 10 units!

As many seasoned real estate investors know, while investing in real estate and obtaining loans is a generally straightforward process, there always seem to be unique situations and wrinkles to every deal! The BiggerPockets forums routinely include questions related to DSCR loan qualifications. This overview will help consolidate helpful information for investors curious about this loan option!

This article will walk through many examples of frequently asked questions on all things DSCR loans and provide all the answers you will need to navigate the lending process and scale your portfolio on the road to financial freedom.

1. What are DSCR Loans?

DSCR loans are loans secured by residential investment properties, typically from one (single-family rental) to four units, but sometimes on properties up to 10 units. The loans are typically originated to be included in securitizations, either in securitizations of all DSCR loans or along with other non-qualified mortgages ("Non-QM" meaning not qualified under conventional guidelines required by quasi-government agencies such as Fannie Mae or Freddie Mac). These loans are full recourse to the borrower (or guarantor, if the borrower is an entity like an LLC) and qualify primarily based on the property's cash flow potential rather than the income or financial situation of the investor.

Note that "DSCR loans" should not be confused with commercial real estate loans that utilize the debt-service-coverage ratio in their underwriting or similar products offered by banks and credit unions that may have similar products. Those loans are better classified as commercial real estate loans or "portfolio lender loans," – whereas the moniker of "DSCR loan" should be reserved for this specific non-QM securitizable loan product.

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12 Frequently Asked Questions (And Answers) About DSCR Loans