Glossary
DSCR loan
A DSCR loan is an investment property mortgage that qualifies on the property's rent instead of your personal income. The lender divides the rent by the full payment (PITIA) and wants that ratio at or above its minimum.
DSCR stands for debt service coverage ratio. A conventional loan looks at your pay stubs and tax returns; a DSCR loan looks mostly at the house. That makes it a common way to refinance a BRRRR or to hold several rentals in an LLC.
How lenders size a DSCR loan
- Rent. The lease, or the appraiser's market rent, often the lower of the two.
- Payment. Principal and interest on the new loan plus taxes, insurance and HOA (PITIA).
- Ratio. Rent divided by PITIA. Many programs want 1.0 or more, with better pricing at 1.20 to 1.25 and up.
- Loan to value. A cap on the loan, often lower for a cash-out than for a purchase.
- Monthly rent
- $2,150
- Principal and interest, $200,000 at 7%, 30 years
- $1,330.60
- Taxes, insurance and HOA
- $325.00
- PITIA
- $1,655.60
Illustrative only. Real rates, minimums and LTVs vary by lender and credit score.
What to ask a DSCR lender
- Minimum DSCR, and how the rate changes by tier.
- Max loan to value for a purchase, a rate and term refi and a cash-out.
- Title seasoning: how long you must own it before a cash-out, and which value they use before then.
- Prepayment penalty, loan minimum and whether short-term rental income counts.
Run the ratio with the DSCR calculator, then read the DSCR loan requirements guide.
Questions
Do DSCR loans check income?
Usually not your personal income. They do check credit, reserves and the property. Requirements vary by lender.
Can I get a DSCR loan in an LLC?
Many DSCR lenders lend to an LLC with a personal guarantee. Ask your lender.
Written by Austin Frangoules | Updated
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