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(217) 691-5400
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jack luttge,
mortgage advisor
(217) 691-5400
Home
About Me
What is a Broker?
Mortgage Calculator
SpreadSheets for Sale
DSCR Loans
More
  • Home
  • About Me
  • What is a Broker?
  • Mortgage Calculator
  • SpreadSheets for Sale
  • DSCR Loans
  • Home
  • About Me
  • What is a Broker?
  • Mortgage Calculator
  • SpreadSheets for Sale
  • DSCR Loans

What is a DSCR Loan?

 A DSCR (debt service coverage ratio) loan, or Investor Cash Flow loan, is a "Non-QM" loan that allows you to qualify for a home loan without relying on personal income.


DSCR loans are perfect for real estate investors who can secure a real estate loan based on their rental property’s cash flow, not their income tax returns or other financial paperwork. Here’s how a DSCR loan works and what it takes to qualify.


How Does a DSCR Loan Work?


A conventional loan requires proof of income, usually in the form of tax returns or pay stubs. Alternatively, DSCR loans allow buyers to qualify for a mortgage based on their rental property’s cash flow.


Instead of using income to qualify a real estate investor for a loan, mortgage lenders will look at what is called a debt service coverage ratio or DSCR ratio. This ratio gives lenders insight into whether or not a borrower will be able to use the rental income from the property to cover their monthly loan payments.


In addition to the DSCR ratio, investors may also have to meet certain credit score requirements or even offer a down payment, though the exact requirements vary between lenders.


There is no limit to the number of DSCR loans you can qualify for. This means that investors who own multiple real estate properties can take out multiple loans to generate income from many tenants. This feature makes this a flexible option for beginner investors as well as seasoned real estate professionals.


The DSCR Ratio


To qualify for a DSCR loan, lenders require you to have a healthy DSCR ratio. This ratio relates the income of the property to its total debt, which influences the eligibility for the DSCR loan.


A good DSCR ratio is usually one or above, though lenders can be flexible depending on other criteria. To calculate your DSCR ratio, simply use the following DSCR formula:


DSCR = Monthly Rental Income / PITIA (Principal, Interest, Property Taxes, Homeowners Insurance & Association Dues)


Who Are They For?


DSCR loans are for investors in residential real estate rentals. They are a great option for anywhere from first-time investors to experienced investors with a large existing portfolio.


Investors can use DSCR loans to purchase additional income-generating properties, which makes this an ideal loan type for those looking to tap into additional revenue streams.

Is a DSCR loan right for me?

Pros of DSCR Loans

Pros of DSCR Loans

Pros of DSCR Loans

No personal income needed

Lower waiting period for cashout refinance

Can close in an LLC

Unlimited number of loans

Better cashflow options

Interest Only options available

Unmatched flexibility on terms

Options available for Foreign Nationals

Can use Long Term rents or Short Term Rents to qualify


Can be used for wide variety of property types:

Single Family

2-4 Family

Blanket or Cross-Collateral

Apartment Complexes

Mixed Use Commercial

Condotels

Non-Warrantable Condos

Cons of DSCR Loans

Pros of DSCR Loans

Pros of DSCR Loans

Typically higher rates than Conventional

Higher closing costs

PrePayment Penalties

Minimum 15% Down Payment for Purchases

Minimum 80% LTV for Refinance

Personal Guarantees usually required, even when closing in LLC


Rate and Fees are typically higher for certain scenarios, such as:

Property in rural area

Property is vacant

Mixed Use or Non-Warrantable Condo

Manufactured Home

New/Inexperienced Investors

Needing Non-Recourse

Loan Amounts under $100k


Copyright © 2024 Jack Luttge Mortgage Advisor LLC - All Rights Reserved.

Jack Luttge, Mortgage Advisor - NMLS# 1103420
(217) 691-5400
Jack Luttge Mortgage Advisor LLC - NMLS# 2579573
2528 Highway K Ste 204F, O'Fallon MO 63368
Equal Housing Opportunity
Licensed in Missouri 

https://www.nmlsconsumeraccess.org/

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