What is a DSCR loan?
Debt-Service Coverage Ratio (DSCR) loans enable real estate investors to qualify for an investment property based on rental income generated rather than personal income. These loans are ideal for self-employed investors, investors with multiple mortgaged rental properties, and investors looking to grow their portfolios. Unlike traditional mortgages that focus primarily on the borrower’s credit score and income, DSCR mortgages look at the cash flow of the property itself to determine the borrower’s ability to repay the loan.
How is a DSCR ratio calculated?
The DSCR is calculated by taking net operating income and dividing it by total debt service (which includes the principal and interest payments on a loan). For example, if a property has a net operating income of $100,000 and a total debt service of $75,000, its DSCR would be approximately 1.25.