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The Lowdown on Debt Service Coverage Ratio (DSCR) Loans...

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DSCR has become the preferred alternative to Conventional Loans

Many investors will run into one of two hurdles using conventional loans; they will max out their DTI or reach exposure limits set by Fannie Mae and Freddie Mac (10 loans). Where do investors turn? DSCR solves both of these issues. Lenders require nearly have the required documents compared to conventional lending requirements. DSCR is a non-TRID loan and is not regulated by the CFPB or any other government agency. This also equals less paperwork! These loans are for non-owner occupied properties only. There are exceptions for commercial properties, but for residential, owners/borrowers/guarantors cannot also occupy the subject properties.

As a borrower, only the following is required to qualify for a loan (Part 1 of 2)

Credit Worthiness

        • Bankruptcy or Credit Event seasoning as little as 2 years
        • Most lenders like to have VOM on your primary residence to verify that you haven’t been late and are current
        • Some lenders do not look at your primary at all nor require you to have one. Some do.Liquidity
        • Most are looking available funds to cover down payment, title fees, prepaids, and reserves
        • Reserves are typically determined by FICO. 3, 6, or 12 months of reserves is common
        • Reserves can be cash, stocks, bonds, crypto, cash value of life insurance policies, retirement funds, etc… Property is not liquid.
        • Some lenders will require a PFS (Personal Finance Statement). This shows your Assets, Liabilities, and Net Worth.

Employment History, Personal Income, and DTI are not calculated, needed, or taken into consideration for these loan types.

The property is the second piece of the puzzle (Part 2 of 2).Debt Service Ratio Coverage (DSCR) is the primary factor.

        • DSCR = Rents / PITIA
        • A DSCR of 1.00 is a break even point, neither positive nor negative cash flow
        • Most lenders require a 1.00 to qualify but some are higher or even different based on the number of units of the property
        • Some lenders do NOT require the property be occupied for purchases but do for refinances
        • If purchasing unoccupied, the lender will ask the appraiser for a Fair Market Rent schedule. This will determine the rents used to calculate the DSCR
        • All DSCR programs require the property to be Non-Owner Occupied (NOO) Investment property. No Primaries nor Vacation Homes allowed.
        • Typically, DSCR programs come with a Pre-Payment Penalty (PPP). Usually these are 3 or 5 years, but you can get rate adjustments by going up or down on them


        • Every DSCR will require an appraisal
        • The lender will order value and fair market rent valuations
        • Certain lenders have lending restrictions on Zoning. Must be Conforming. If non-conforming or grandfathered in, sometimes they don’t lend on them
        • Most will not lend on rural properties, if they do, they will max the LTV at 50-60LTV and jack the rate up by a full 1% or more.
        • Some lenders allow you to recommend an appraiser and will use them. No issue at all. Usually private or capital funding groups.
        • Some lenders require that you use an AMC and pay for the appraisal through the lender. Most common.

Why a DSCR Loan?

DSCR loans have quickly climbed to be one of the most preferred loan types for investors of all experience levels. DSCR loans do not require personal income, employment history, or a Debt to Income calculation. The loan is based on the guarantor’s credit worthiness and the subject property’s cash flows.

  • Residential 1-4 Units
  • Residential 5+ Units
  • MultiFamily 9+ Units
  • Commercial Offices and Retail
  • Mixed-Use
  • Warehouses
  • Self-Storage Facilities

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