Rental Property

What is a DSCR Loan?

A DSCR Loan is a mortgage loan for a residential income-producing property. It is primarily based on the “Debt Service Coverage Ratio” or the cash flow of the property, rather than the borrower’s income. A traditional mortgage loan will require income verification, tax returns and a “Debt-to-Income” (DTI) ratio. DSCR Loans require none of these! Perfect for real estate investors ready to scale (no more W2!) or are looking leave behind the hassle, paperwork and headaches of conventional financing, DSCR Loans are quickly becoming the go-to loan option for real estate investors.

For a comprehensive definition, “DSCR Loans are mortgage loans secured by residential real estate turnkey properties strictly used for a business purpose and underwritten primarily based on the property.”

Note:

• Mortgage Loans = form of loan that is secured by collateral, collateral = real estate
• Residential Real Estate = properties used for people to live in vs. commercial, which is used to operate businesses (offices, retail, industrial, hotel, self-storage, etc.). In real estate finance, residential also typically refers to “1-4 unit” properties, anything more would be considered “multifamily”
• Business Purpose = DSCR loans strictly do not allow the owner of the property to live in the property, it must be used for “business” or investment purposes. Includes use of “cash-out proceeds”
• Underwritten = How lender evaluates (and then prices) the risk of the loan
• Primarily Based on Property = Mostly based on property, but also look at sponsor
• Turnkey = property doesn’t require any renovation, “turn the key and go”

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