DSCR Loan
Unlike a consumer or owner-occupied mortgage loan, but similar to a commercial real estate mortgage, a DSCR loan is underwritten based on property-level cash flow, rather than personal income. DSCR or Debt-Service Coverage ratio is a tool to help lenders understand a borrower's ability to pay back a loan based on the monthly rental income of the property. DSCR is a simplified way to measure cash flow and is calculated by dividing the monthly rent by the monthly principal and interest payments, taxes, insurance, and association dues (PITIA). ratio is a tool to help lenders understand a borrower's ability to pay back a loan based on the monthly rental income of the property.
For a commercial or multi-family property, DSCR is calculated by dividing the annual Net Operating Income (NOI) by the annual debt service (same thing as the annual PITIA). The formula for commercial property DSCR is:
DSCR = Net Operating Income / Annual Debt Obligations
DSCR Loan Property Types:
-
Single-family (1-4 unit) residential
-
Condo & Co-op
-
Vacation or short-term rentals
-
Commercial or multifamily property
DSCR Loan Requirements:
LOANS to $3.5M for DSCR >= 1.0 LOANS TO $3M for DSCR < 1.0
-
NO RATIO! (NO minimum DSCR) Limited restrictions.
-
No income and no job required
-
No assets seasoning requirement
-
Foreign Nationals accepted
-
Transfer appraisals accepted
-
First-time investors: Up to 80% LTV
-
Cash out can be used to meet reserve requirements
-
Texas cash-out is allowed
-
Only one appraisal required up to $2M
-
Closed in LLC or Personal name
-
30-year fixed, SOFR ARMs 5/6 & 7/6 with Interest-Only options
-
Purchase up to 80% LTV and cash-out up to 75% LTV
