DSCR Loans for Real Estate Investors

A non-QM DSCR loan (Debt Service Coverage Ratio loan) is a specific type of investment property loan that assesses the property’s ability to generate sufficient rental income to cover mortgage payments and expenses. Unlike traditional loans, non-QM DSCR loans focus on the property's cash flow instead of personal income. This makes them an excellent option for investors aiming to expand their rental portfolios without the need for conventional income documentation.

With a non QM DSCR loan, lenders determine the ratio by dividing a property’s rental income by the total debt payments (PITIA: principal, interest, taxes, insurance, and association fees). A DSCR of 1.0 or higher typically indicates that rental income can adequately cover the mortgage obligation. This is particularly true for most lenders who provide financing for 1-8 unit residential dwellings. In contrast, commercial lenders catering to 9+ units often employ a similar formula but utilize NET Operating Income (instead of gross rents) against total payments, with a minimum required DSCR of usually 1.25 or greater. 

For instance, if a single-family residential property generates $2,000 in monthly rent while the monthly mortgage payment totals $1,800, the DSCR would be 1.11—an amount that many lenders consider a qualifying cash-flow ratio for non QM DSCR loans.

Purchase non QM DSCR loans to acquire rental properties, utilizing the property's rental income and cash flow as a key factor in the qualification process. Refine your investment strategy by refinancing existing properties with a non QM DSCR loan to enhance cash flow, lower monthly payments, access equity, or better position your investment portfolio.

Qualification for a non QM DSCR loan may be based primarily on the property's rental income and cash flow, rather than personal income. There is no minimum employment documentation required, and no traditional debt-to-income (DTI) calculation is considered. This type of financing works for both single-family and multi-family investment properties. Loan terms and structures for a non QM DSCR loan can vary by program and may include options like longer amortization periods, interest-only options, fixed-rate terms, or adjustable-rate mortgages (ARMs). These loans can be utilized for purchasing, refinancing, or cash-out strategies on properties that are rent-ready or currently rented out, although properties requiring extensive repairs or renovations typically do not qualify.

DSCR loans, particularly non QM DSCR loans, are commonly used by real estate investors with rental properties that generate rental income. Typical considerations for these loans include:  

- Property cash flow sufficient to cover mortgage payments  

- Adequate reserves to support down payment and closing costs  

- Property appraisal supporting fair market rent  

- Credit profile and property type requirements that vary by loan program  

- Seasoning requirements for refinances; many lenders require 6 months or more on title before qualifying for a cash out refi. We work with several BRRRR friendly lenders who have zero or as little as 3 months of seasoning required for a non QM DSCR loan.

Building a rental portfolio by utilizing rental income to qualify for a non QM DSCR loan is a strategic approach. You can refinance existing rentals to lower monthly payments or access equity, and acquire multi-family or small apartment buildings. This option is beneficial for investors who are self-employed or lack traditional income verification and have met or exceeded the Conventional lending cap of 10 financed properties. Moreover, you can refinance after completing a Fix and Flip property, as many investors opt to hold long-term as a rental.

If a Purchase Transaction involves a non QM DSCR loan, you will need to provide: 

- The full address of the property you intend to purchase 

- The purchase price or amount you will offer 

- Current rents in place, or an estimated amount of rent that will be collected if currently vacant 

- Current annual property taxes 

- Current annual insurances 

- Current HOA fees, if any 

- How title will be held (as individual, entity, or trust) 

- Borrower's estimated FICO scores 

- Borrower's experience owning or selling rentals in the past 36 months 

- Borrower's current liquidity 

For Refinance Transactions utilizing a non QM DSCR loan, you will need to provide: 

- The full address of the property you intend to refinance 

- The purchase price you paid and date of original acquisition 

- Amount of rehab spent on improvements since acquisition, if any 

- Current debt owed on the property 

- Current rents in place, or an estimated amount of rent that will be collected if currently vacant 

- Current annual property taxes 

- Current annual insurances 

- Current HOA fees, if any 

- How title is currently held (as individual, entity, or trust) 

- Borrower's estimated FICO scores 

- Borrower's experience owning or selling rentals in the past 36 months 

- Borrower's current liquidity

For more information on non QM DSCR loans, please visit our comprehensive FAQ page or complete our Quick App to get your quote started now.