Is A DSCR Loan Right For You?

What Is A DSCR Loan?

• Debt Service Coverage Ratio (DSCR) loans are a type of financing that is commonly used by businesses and individuals to borrow money for various purposes, in our case we would mean specifically for investment real estate properties. The DSCR is a key metric that lenders use to determine the creditworthiness of a borrower and their ability to repay the loan.

How Is The DSCR Calculated?

• The DSCR is calculated by dividing the net operating income (NOI) of a property or business by the annual debt service, which is the total amount of money required to pay off the loan. For example, if a business has an NOI of $100,000 and an annual debt service of $75,000, its DSCR would be 1.33. This means that the business generates enough income to cover its debt payments 1.33 times over.

What Is Required For Loan Approval?

• Our guidelines typically require a minimum DSCR of 1.2 to 1.5 for a loan to be approved. This means that the borrower must have a sufficient amount of income to cover their debt payments, with some extra room for cushion. However, with our wide array of underwriting options – we can even do DSCR loans with a coverage ratio as low as 0% (a vacant property – because we can underwrite based on what the market rents of the unit would be if the property were rented in the future.)

ARRRR strategy (Acquire, Renovate, Rent, Refinance, Repeat)

• DSCR loans are often employed with the ARRRR strategy (Acquire, Renovate, Rent, Refinance, Repeat) for building a real estate portfolio. We have been helping our clients do this for almost 20 years to achieve their real estate financing goals.  To learn more, reach out to Bill Halick or one of our other mortgage professionals to learn all the ins-and-outs of DSCR financing today!