What is a DSCR Loan?
DSCR stands for Debt Service Coverage Ratio. It's a way for lenders to evaluate whether a rental property generates enough income to cover the mortgage payment.
DSCR = Annual Rental Income ÷ Annual Mortgage Payment
Example:
If your rental property generates $24,000/year in income and your mortgage payment is $20,000/year:
DSCR = $24,000 ÷ $20,000 = 1.2
A DSCR of 1.2 means your property generates 20% more income than needed to cover the mortgage.
Key Advantage:
You qualify based on the property's income, not your personal income. Perfect for investors with complex income situations or multiple properties.
Frequently Asked Questions
1. What is a DSCR loan?
A DSCR (Debt Service Coverage Ratio) loan is a type of mortgage designed for investment properties. Instead of qualifying based on your personal income, you qualify based on the rental income the property generates. The lender evaluates whether the property's income covers the mortgage payment.
2. What DSCR ratio do I need?
Most lenders require a minimum DSCR of 1.0 (property income equals mortgage payment). However, better rates are available at 1.25x or higher. A DSCR of 1.25 means the property generates 25% more income than needed to cover the mortgage payment.
3. What are current DSCR loan rates?
DSCR loan rates vary based on market conditions, your DSCR ratio, down payment, and property type. Generally, DSCR rates are 0.5-1.5% higher than traditional mortgages due to the increased risk to lenders. Contact us for current rate quotes.
4. What down payment is required?
DSCR loans typically require 20-30% down payment, depending on your DSCR ratio and property type. A stronger DSCR ratio (1.5x or higher) may qualify for lower down payments. Investment properties generally require more down payment than primary residences.
5. Can I use DSCR for short-term rentals?
Yes, DSCR loans can be used for short-term rentals (Airbnb, VRBO). Lenders will require documentation of rental income (booking history, lease agreements, or property management statements) to verify the property's cash flow.
6. Do I need a U.S. credit score for DSCR?
Most DSCR lenders prefer a U.S. credit score, but it's not always required. If you don't have U.S. credit, we can work with lenders who accept alternative credit documentation or Canadian credit history. Contact us to discuss your specific situation.