What Is a Debt Service Coverage Loan?

A DSCR loan is a type of non-QM loan for real estate investors. Lenders use a DSCR to help approve real estate investors for a loan because it can quickly determine the borrower's ability to repay without verifying income. Because real estate investors write off expenditures on their properties, some may not be permitted for a conventional loan. The debt service coverage ratio loan allows these individuals to qualify more quickly because they don't mandate proof of income via tax returns or pay stubs that investors either don't have or don't represent.

Who is a DSCR loan for?

The DSCR loan is a good option for investors who do not want to provide employment details, tax returns, payslips, W2s, etc. It's perfect for self-employed borrowers with very complicated incomes looking for an investment property, as it addresses the concern of dealing with complex tax returns. It can also be a great choice if you own several investment properties and say you have reached the standard credit limit of ten.

• Investors who don't wish to provide employment information (tax returns, payslips, W2, etc.)
• Investors who want to buy and trade (as long as payment is not made six months after loan closing)
• Investors who wish to purchase and hold real estate

DSCR Loan Requirements

If you are an investor and looking to acquire a DSCR loan, make sure you meet these fundamental requirements:

• Minimum Credit Score of 680: Most DSCR lenders need a 680 credit score with better rates for increased credit.
• Minimum Down Payment of 25% of the purchase price: Typical DSCR loans have max LTVs of 75%.
• Minimum DSCR of 1.2: Ensure your rent is higher than your property expenses.
• Minimum Property Value: Most lenders have a minimum property value of $150k.