Looking for a DSCR loan Pennsylvania? You’re not alone…
Pennsylvania housing prices are up 440% over 40 years. In other words, prices have roughly doubled every 20 years for 4 decades. According to US Census Data, the median priced home in Allegheny County in 2010-2011 was $121,200. Today, Realtor.com claims that the median sale in Allegheny County is $246,900 – more than double.
DSCR loans grant you access to the ever-growing real estate market while locking in immediate cash flow (not to mention the tax benefits associated with owning rental properties).
Imagine you had bought a rental property in 2010 for $120,000 that, after expenses and maintenance, generated just $100/month in profit. It might not sound like a lot, but today you would’ve pocketed $18,000 in total profit while your rental property ballooned in value from $120k to $240k+, a total gain of more than $135,000.
What Is a DSCR Loan?
DSCR loans are a type of real estate financing typically used by investors to purchase or refinance properties. How it works is simple: Instead of requiring personal income documentation, we qualify you for a mortgage based on the property’s cash flow and its ability to generate consistent income.
It’s a type of “non-QM mortgage,” meaning it falls outside the traditional qualified mortgage guidelines, offering greater flexibility for investors who may not meet conventional lending criteria. In a world where entrepreneurship and side gigs are the norm, traditional lenders just haven’t been able to meet people where they are. Non-QM mortgages do that.
How Does a DSCR Loan Work?
DSCR loans are designed to streamline the financing process for real estate investors by focusing on the income-generating potential of the property itself. Unlike traditional mortgages, which require personal income verification and debt-to-income calculations, DSCR loans evaluate the property’s Net Operating Income (NOI) relative to the debt service (loan payments).
This makes them particularly appealing to investors who have complex income streams or are self-employed, as they can qualify based solely on the cash flow of the property.
The process involves assessing the expected rental income of the property and ensuring it meets or exceeds the loan’s annual payment requirements.
Calculating Your Property’s DSCR
So how do you calculate a property’s DSCR? That, too, is relatively simple – although if you’d like to get assistance with your specific property, schedule an appointment with us and we’ll walk you through your options.
DSCR = Total Debt Service (Annual Loan Payments) / Net Operating Income (NOI)
Your total debt service is just how much money you’re going to owe the lender annually. If your mortgage is $1,500/month, you’ll owe the lender $18k annually.
If that property also generates $1,500/month in income, the DSCR is 1.0 – which means the property can technically cover its own debt obligation. This makes it easier for lenders to use it as collateral.
What Do Lenders Consider as a “Good” DSCR?
1.25 or Higher: Great
Lenders typically consider a DSCR of 1.25 or higher to be strong, as it indicates the property generates 25% more income than needed to cover its debt obligations. For some lenders, this is actually where their cut-off point begins.
~1.0: Good
A DSCR of 1.0 means the property’s income is just enough to cover the loan payments, making it acceptable but less ideal.
~0.75: Acceptable
However, some lenders, like Defy, offer flexibility by approving loans on properties with a DSCR as low as 0.75. While a DSCR below 1.0 means the property’s income doesn’t fully cover the debt obligation, this can still be a viable option for investors focused on appreciation potential or other long-term strategies rather than immediate income.
~0.5 or Lower: More Difficult
The lower the DSCR, the more likely it is that a lender will have to require other personal income documentation in order to make a loan work. As we mentioned, many lenders require a DSCR of 1.25 or higher. If the property only covers half of the debt obligation, it’s harder to qualify.
Using a DSCR Loan Pennsylvania to Level Up Your Portfolio
As we mentioned in the intro, if you bought a property in Allegheny County (home to Pittsburgh) in 2010, that property’s value would’ve likely doubled by today.
Here are other compelling stats that highlight the strength of Pennsylvania’s real estate market:
- Median Home Sale Price: As of 2024, the median home sale price in Pennsylvania is approximately $230k to $260k as of January 2025, with the Pennsylvania Association of Realtors estimating it at $300k, but there’s significant variation depending on the region.
- Median Rent: The median rent is approximately $1,500/month, with higher averages in urban areas like Philadelphia, where it can exceed $1,700/month. This ensures consistent cash flow for landlords.
Pros and Cons of a DSCR Loan Pennsylvania
Pros:
- Simplified Qualification Process: No need to provide personal income documentation or tax returns.
- Flexible Terms: Options for interest-only payments, fixed or adjustable rates, and longer loan terms.
- Scalability: Ideal for building or expanding a real estate portfolio without traditional income restrictions.
- Tax Benefits: Enjoy deductions on property expenses, depreciation, and mortgage interest.
- Appreciation Potential: As shown earlier, properties in Pennsylvania have historically appreciated significantly over time.
- Low Vacancy Risk: Strong rental demand in cities like Philadelphia and Pittsburgh minimizes the risk of prolonged vacancies.
Cons:
- Higher Interest Rates: DSCR loans often have higher interest rates compared to conventional loans.
- Larger Down Payment: Lenders may require a down payment of 25 – 30%. (We here at Defy go as low as 15%).
- DSCR Requirements: While lenders like Defy accept DSCRs as low as 0.75, some may require a higher DSCR for approval.
- Risk of Negative Cash Flow: Properties with a DSCR below 1.0 may result in the investor covering shortfalls out of pocket.
DSCR Loan Pennsylvania Requirements
To qualify for a DSCR loan in Pennsylvania, here are the general requirements from Defy:
- Minimum DSCR ratio: 0.75
- Minimum FICO score: 620+
- Maximum LTV: 85%
- Cash reserves: 3 months of mortgage payments
- No maximum loan amount
- No income documents or tax returns required
- Interest-only options available
These flexible terms make DSCR loans a go-to option for investors looking to expand their portfolios without traditional income documentation.
DSCR Loan Pennsylvania Down Payment
The down payment for a DSCR loan typically ranges from 15-25%, depending on the lender’s criteria and the borrower’s credit profile.
At Defy, the minimum down payment required is 15%, provided the borrower’s credit score meets certain thresholds. This low entry point allows investors to access the market with minimal upfront costs.
DSCR Loan Pennsylvania Interest Rates
Interest rates for DSCR loans are slightly higher than conventional loans, reflecting the additional flexibility and reduced documentation requirements.
However, most investors find the higher rates worthwhile to unlock the benefits of real estate investing, such as consistent cash flow, appreciation, and tax advantages.
What Property Types Are Eligible for a DSCR Loan in Pennsylvania?
DSCR loans can be used to finance a wide variety of property types, including:
- Single-family properties
- Multifamily properties (duplexes, triplexes, etc.)
- Vacation rentals
- Short-term rentals (Airbnb, Vrbo, etc.)
- Some commercial properties (e.g., mixed-use buildings)
The exact property types and conditions may vary by lender, so it’s best to discuss your specific property with a mortgage expert.
DSCR Loan Pennsylvania Lenders
Finding the right lender is critical when securing a DSCR loan.
Look for lenders that specialize in investor-focused products and have flexible underwriting guidelines. A lot can change during the underwriting and appraisal process. One appraiser might say that the estimated rent is $1,300/month and another might say it’s $1,600/month – that could mean the difference between a DSCR that doesn’t work and one that does.
To explore your options, schedule a time to talk with a mortgage expert about whether or not a DSCR loan is a good option for your investment strategy.
DSCR Loan Pennsylvania FAQs
- What’s a DSCR loan?
A DSCR loan is a type of real estate financing that qualifies borrowers based on a property’s cash flow rather than personal income.
- How can I calculate my property’s DSCR?
You calculate DSCR by dividing the property’s Net Operating Income (NOI) by its annual debt service (loan payments).
- What property types are eligible for a DSCR loan Pennsylvania?
Eligible property types include single-family homes, multifamily properties, vacation rentals, short-term rentals, and some commercial properties.
- Can DSCR loans in Pennsylvania be used for short-term rental properties?
Yes, DSCR loans can be used for short-term rental properties like Airbnb and Vrbo, depending on the lender.
- Are DSCR loans in Pennsylvania available for first-time investors?
Yes, many lenders offer DSCR loans to first-time investors if they meet the qualifications. We at Defy certainly offer DSCR loans to first-time investors.
- What are the advantages of using a DSCR loan for real estate investments?
DSCR loans offer flexible qualification requirements, no income documentation, and the ability to scale your portfolio.
- Do I need tax returns to apply for a DSCR loan?
No, DSCR loans do not require tax returns or personal income documentation.
