DSCR
Borrower Eligibility

A Debt Service Coverage Ratio (DSCR) mortgage loan is a type of loan typically used by real estate investors to qualify for financing based on the cash flow generated by an investment property, rather than their personal income. The DSCR mortgage is attractive for individuals and businesses focusing on real estate investments because it provides more flexible underwriting criteria compared to traditional mortgages. The following is an overview of the borrower criteria for DSCR mortgage loans:

Credit Score
While DSCR loans place more emphasis on the property’s income-generating potential than on the borrower’s financial situation, the borrower’s credit score still plays a role. Generally, lenders prefer borrowers to have a credit score of 620 or higher. However, DSCR loans tend to be more flexible with credit score requirements than traditional loans. Some lenders may accept lower credit scores, but a lower score could lead to higher interest rates or less favorable terms.

Experience in Real Estate Investing
Lenders often prefer borrowers with experience in real estate investing. A borrower who has a proven track record of successfully managing investment properties is viewed as a lower risk. While prior experience is not always a requirement, borrowers with no experience may face stricter terms or additional scrutiny during the underwriting process.

Income Documentation
One of the key benefits of DSCR loans is that they typically require limited personal income documentation. Instead of relying on tax returns, pay stubs, or employment verification, lenders assess the ability of the property to generate sufficient rental income. Borrowers will need to provide documentation of the property’s rental income, such as a lease agreement, rental history, or rent rolls. In cases where a property is not yet rented, the lender may use market rent estimates to determine whether the property will likely meet the DSCR requirement.

Reserves
Lenders may require borrowers to have cash reserves in addition to the down payment. Reserves are funds that can be used to cover mortgage payments in case the property does not generate sufficient income. The amount of reserves required varies but is typically six to 12 months’ worth of mortgage payments. Strong cash reserves can offset other weaknesses in the borrower’s profile, such as a lower DSCR or credit score.

Interest Rates
DSCR loans often come with higher interest rates compared to traditional loans because they are perceived as higher risk by lenders. Borrowers should be prepared for slightly higher rates, especially if they do not meet all the ideal criteria, such as a high credit score or high DSCR.

DSCR mortgage loans are designed to offer flexibility to real estate investors who prioritize the income potential of their properties over personal income qualifications. Borrowers looking to secure a DSCR loan must meet a combination of criteria, including a sufficient DSCR, a good credit score, a reasonable down payment, experience in managing investment properties, and adequate cash reserves. These loans are especially beneficial for seasoned real estate investors seeking to grow their portfolio without being hampered by personal income limitations.