DSCR Loans ONLY Use Rent To Qualify; Do NOT Need to Cash Flow

With a 25% down payment, almost anyone can get a DSCR mortgage – even if the property does NOT cash flow with rent.

DSCR stands for Debt Service Coverage Ratio Loans – and most readers are aware of them now. BUT – there are two huge misconceptions that I will address below.

DSCR loans use only the potential market rent from the property to qualify; no other income is necessary!

Minimum DSCR Loan requirements include:

1. 680 credit score;
2. investment properties only;
3. rent equals at least 75% of total housing payment – principal, interest, taxes, insurance, and HOA;
4. 20% down payment at least; and
5. must own a primary residence.

Misconception #1: The property must “cash flow,” meaning the rent payments have to exceed the housing payment.

Properties do NOT need to cash flow, as I mention above. I bring this up because it is a question that agents ask us frequently – which is the impetus for this blog in fact.

If a property DOES cash flow, the buyer will get about a 1/4% lower rate and can make a smaller down payment (20% vs. 25% or more). But again, properties do not need to cash flow.

Misconception #2: DSCR loan interest rates are sky-high.

DSCR loan interest rates are about 1% or more higher than standard Fannie Mae and Freddie Mac rates, but they are far lower than hard money or other alternative financing rates.

And – given that these loans are so easy to qualify for, qualified buyers should always use DSCR financing instead of hard money.

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