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DSCR Loans (Debt Service Coverage Ratio)

When you can't qualify for a conventional loan due to personal finances, a DSCR loan can provide a way to keep buying investment properties. Available for 1-4 unit rental properties.

Apartment or Condo Building

Do you have a positive cash flowing property, but traditional lenders have turned you down due to your debt to income ratio?  Have you found your next rental but can’t get pre-approved?

Maybe you’ve been able to qualify for conventional loans in the past, but your situation has changed and now you can’t qualify for another purchase.  

Some common reasons for this may include:

  • Too much monthly debt without sufficient income
  • Newly self employed (less than 2 years in business)
  • Recently started renting the property short term on Airbnb

Whatever the reason, DSCR loans allow you to qualify on the rental income of the property you’re buying or refinancing.  You won’t need tax returns, pay stubs, W2s, or any of the other traditional income documentation.

Properties with Positive Cash Flow

Rentals qualify for a DSCR loan with positive cash flow, both for purchases and refinances.  When purchasing a property, no lease is needed.  This means the property does not currently need to be rented, and you do not need a tenant lined up to move in at closing.  Lenders realize it’s not possible to rent out a property before you own it, and many sellers live in their home until the sale is finalized.  It’s not practical to expect the buyer to find a renter before closing.  The fair market rent will be determined by an appraiser during the loan process. 

Properties with Negative Cash Flow

Rental properties with negative cash flow may still qualify on our No Ratio product.  Please see the details on the No Ratio product page.

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Determining Monthly Rent

Standard Long Term Lease

A standard long term lease agreement is the most common type of lease for rental properties.  The lesser of the lease amount, or the appraiser’s opinion of market rent will be used.  In cases where the monthly lease amount is higher than the appraiser’s opinion of fair market rent, the higher amount may be able to be counted depending on the length of the lease and recent payment history.

Vacant Property

As mentioned above, when purchasing a home to rent, there does not need to be a tenant in place.  An appraisal will be ordered during the loan process, and the appraiser will find comparable rental properties in the area to determine an estimated monthly rental amount.  This is the amount that will be used to calculate the DSCR.

Short Term Rentals

For refinances only, properties rented on platforms such as Airbnb, VRBO, or other vacation rental sites may be able to qualify with an average of 12 months rental income.  The unit must have a stable rental history to use this method.  If rents are not consistent and stable, market rent determined by an appraiser may be used instead.    

Short term rental income is not allowed on purchases.  Since the success of a short term rental is more dependent on the landlord’s management skills, it’s not possible to show a 12 month history for that particular property on a new purchase.  Purchases must qualify based on current long term market rents.

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Other Program Features and Qualifications
  • Must currently own your primary residence
  • Must have a minimum 620 credit score (*higher score may be needed for maximum financing)
  • On cash out transactions, loan proceeds may be used as reserves
  • Interest only payments available
  • Qualify on the interest only payment
  • DSCR loans are strictly for business purposes only, and any cash out proceeds obtained must be used for business purposes
  • Property may not be occupied by the borrower, or relatives of the borrower
  • No limit on number of financed properties
  • Minimum loan amount of $100,000