A DSCR loan, or Debt Service Coverage Ratio loan, allows real estate investors to qualify for financing based on the rental income generated by the property rather than their personal income
A DSCR loan is a type of non-qualified mortgage (non-QM) that enables borrowers, particularly real estate investors, to secure financing based on the cash flow of the rental property. Instead of relying on personal income verification, lenders assess the property’s ability to generate sufficient income to cover its debt obligations. This makes DSCR loans particularly appealing for investors who may not have traditional income sources or who wish to leverage multiple properties for investment purposes.
Read MoreThe Debt Service Coverage Ratio (DSCR) is a key metric used by lenders to evaluate the viability of a loan. It is calculated by dividing the property’s Net Operating Income (NOI) by the total debt service (the total amount of loan payments due). A DSCR greater than 1 indicates that the property generates enough income to cover its debt obligations, while a ratio below 1 suggests insufficient income.
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=Net Operating IncomeTotal Debt ServiceDSCR
=Total Debt ServiceNet Operating Income