DSCR Loans

DSCR loans are mortgages for residential rentals that let borrowers qualify using the property’s income instead of their own. Terms like loan amount and rates are all based on the property’s cash flow potential. This makes them more flexible than conventional mortgages, which have stricter standards.

Check out more on DSCR loans in our Complete DSCR Loan Guide!

1. Find your net operating income (NOI): NOI is the income your property makes per year after deducting all operating expenses, such as repairs and maintenance. Since tenants pay for their own utilities in most rentals, the only operating expenses are maintenance expenses. For this, we can use the One Percent Rule of maintenance, which states that you should set aside at least 1% of the property’s market value at the time of purchase for maintenance each year. Subtract this from its yearly income, and you arrive at the NOI.
2. Find your total debt service (TDS): Your annual total debt service includes all fixed periodic payments that need to be made over the course of a single year, including your mortgage’s principal and interest, as well as property taxes, insurance, and miscellaneous fees such as homeowners’ association dues.
3. Divide your NOI by your TDS: Once you’ve determined both your NOI and your TDS, simply divide the two to arrive at your DSCR. A DSCR above 1.0 means the property makes more than or just enough to cover its annual debt obligations, while a number below 1.0 means that it only makes a percentage of that.

1. Flexibility and Accessibility: DSCR loans have more flexible borrower criteria. Since they don’t require income or work history, they’re more accessible to self-employed individuals or people with non-traditional sources of income. 
2. Options for Foreign Nationals: Depending on the lender, foreign national real estate investors can qualify for a DSCR loan for their investment property. 
3. Faster Approval: Using the property’s income as a qualifying factor rather than personal income streamlines the approval process compared to traditional mortgages. 
4. Alternative Income Documentation Options :A DSCR loan allow for alternative income documentation to be used to help the borrower qualify for the loan, making it ideal for self-employed individuals, real estate investors and those with non-traditional income sources. 
5. Flexibility With Rental Income: Use the rental income generated from your existing real estate investment properties toward loan qualification
6. LLC Ownership: Property can be purchased under an LLC, which can be used as an asset protection strategy. 
7. Potential for Higher Returns: If the property generates more rental income than the mortgage payments, it can lead to higher returns with additional positive cash flow. 
8. Potential for Lower Interest Rates: Since a DSCR loan is secured by the property and its cash flow, borrowers might be able to secure a lower interest rate compared to other types of commercial real estate loans. 
9. Allows Borrowing for Multiple Properties: There’s no hard limit on how many properties you can buy using DSCR loans, unlike traditional mortgages. 

Yes. Since DSCR loans are designed for investment properties, using a DSCR loan to fund an Airbnb or other short-term rental is common. Instead of using the borrower’s income as a main factor to be eligible, lenders use the property’s income from short-term rentals to determine the property’s DSCR. If the property has a strong DSCR, meaning it generates enough income to cover its debt obligation, lenders will heavily take that into account for DSCR loans. However, since income from short-term rentals can fluctuate, lenders will typically consider historical rental performance, occupancy rates, and the location of the property. A DSCR loan recognizes the unique revenue stream of Airbnbs and short-term rentals and offers a tailored financial solution for real estate investors looking for their next venture. 

No. DSCR loans are typically available to real estate investors who want to acquire income-generating properties. The main metric used to determine eligibility is DSCR, which calculates whether an investment property’s income can pay off its debt obligation. Since primary residences are usually owner-occupied, they don’t generate any rental income. 

Have more questions on DSCR Loans? We are here to help. Hit us up!

Most lenders look for a DSCR ratio of at least 1.25, with some going as low as 1.0. DSCR is the ratio of a property’s income compared to its debt obligations after deducting operational expenses. 1.0 means it breaks even, while 1.25 means it makes 25% more than it needs to cover its mortgage payments and other obligations, so a DSCR of 1.25 or more is generally considered good. At Defy Mortgage, however, we offer DSCR loan options for those with no ratios and negative ratios down to .55. This takes away some of the stress here, huh?

• 1) Defy Mortgage: Best Mortgage Lender for Investment Properties
  • Personalized approach: Defy Mortgage takes a full 360-degree look at your finances, goals, and background instead of judging by a standard checklist
  • Innovative lending options: Offers creative financing solutions that allow investors to secure properties with better rates than competitors and no ratio options
  • Minimum loan size: Down to $75,000
  • Max loan size: Up to $6,000,000
  • Flexible LTVs: 85% LTV purchase, 80% LTV cash-out
  • Speed and efficiency: Known for closing loans quickly with a streamlined, hassle-free process
  • Expert team: Over 100 years of combined industry experience among leadership
  • Property Variations: STR, LTR, SFR, Multi-family, 1-4 units, 5-9 units
  • Exceptional customer service: Dedicated point of contact throughout the entire lending process
• 2) United Wholesale Mortgage: Best for Quick Closings

  • Impressive origination volume with over 360,000 loans in 2024

  • Strong customer satisfaction ratings

  • Streamlined technology platform that speeds up the approval process

  • Competitive rates for investment properties

  • Solid reputation among both borrowers and mortgage brokers

• 3) Rocket Mortgage: Best Digital Experience
  • Intuitive digital application process
  • High customer satisfaction ratings
  • Diverse loan products for different investment strategies
  • Strong mobile app experience for managing your loan
  • Quick pre-approvals for investment properties

Check out either of these resources for more information: Best DSCR Lenders OR Best Investment Property Lenders