DSCR-Investors (NON QM)

The Debt Service Coverage Ratio (DSCR) loan program stands out in the real estate financing landscape as a unique tool that prioritizes a property’s ability to generate income over the borrower’s personal financial status. Designed with real estate investors in mind, this specialized lending option encompasses both residential and commercial investment properties, extending to various types of real estate like single-family residences, condos, and multifamily or mixed-use properties.

Understanding DSCR loans:

The cornerstone of the DSCR loan is the debt service coverage ratio itself, which is a financial metric that compares the property’s net operating income (NOI) to its total debt service payments. To qualify, a property must generate enough income to cover its debt obligations, with lenders generally preferring a DSCR of 1.0 to 1.25 or higher. In some instances, our lender partners allow us to go into a negative DSCR ratio. This ratio is dynamic and can change over time with fluctuations in the property’s NOI and market conditions.

Loan features:

  • Property-Focused Evaluation: Lenders assess the property’s income potential rather than the borrower’s personal finances. As such, no income documents are required.
  • Higher Borrowing Limits: Compared to traditional loans, DSCR loans often offer more substantial financing for larger investments. Loans can range from $300,000 to $6 million, accommodating a wide range of investment sizes.
  • Down Payment: A substantial down payment, generally at least 20%, is required, and for refinances, a maximum loan-to-value (LTV) ratio is commonly set at 80%.
  • Credit score: Our lenders partners typically require a minimum credit score, often around 640, though this can vary by lender.
  • Interest Rates: Interest rates may be higher than conventional loans due to the specialized nature of DSCR financing.

DSCR Calculation Example:

To illustrate, if a rental property generates a NOI of $120,000 annually and incurs total debt service payments of $95,000 per year, the DSCR calculation would be:

DSCR = NOI / Total Debt Service Payments DSCR = $120,000 / $95,000 = 1.26

In this example, the DSCR of 1.26 suggests that the property’s income exceeds its debt obligations by 26 percent, indicating a healthy coverage ratio that would likely satisfy most lenders.

At Expansion Mortgage, we offer tailored DSCR loan programs catering to a wide range of investors, from novices to seasoned professionals, including offerings for foreign nationals. These programs allow for financing multiple properties, with the flexibility of choosing between different loan structures and terms to best fit the investor’s strategy and goals.