Debt Service Coverage Ratio (DSCR) loans are designed for real estate investors who need to finance income-generating properties. These loans focus on the property’s ability to generate income rather than the borrower’s personal income. The DSCR measures the cash flow of a property in relation to its debt payments, which helps lenders assess whether the investment is capable of covering the mortgage. DSCR loans are especially useful for borrowers who may have complex or non-traditional income streams, such as self-employed individuals or those with multiple rental properties.

To qualify for a DSCR loan, the property must have a DSCR of at least 1.25, meaning the property generates at least 125% of its debt service. In other words, the monthly rental income must cover 125% of the mortgage payment, including principal, interest, taxes, and insurance. Borrowers generally need a credit score of at least 620-680, though some lenders may require higher scores for larger loan amounts or higher-risk properties. Unlike traditional mortgages, DSCR loans do not require personal income verification, which makes them a popular choice for investors with complex financial situations.

Interest rates for DSCR loans are typically higher than conventional or FHA loans, often ranging from 6-8%, depending on the borrower’s credit profile, the property’s DSCR, and the overall market conditions. The higher rates reflect the added risk of using the property’s income, rather than the borrower’s personal income, to secure the loan. DSCR loans can be structured as fixed-rate or adjustable-rate mortgages, depending on the lender’s offerings and the borrower’s preferences.

Loan limits for DSCR loans vary widely depending on the lender, but they typically range from $100,000 to $5 million or more, depending on the value of the property and the income it generates. Most lenders require a down payment of 20-25%, although some may offer lower down payment options for highly qualified borrowers. DSCR loans are ideal for real estate investors looking to expand their portfolios, as they allow investors to focus on the cash flow potential of a property rather than their personal income and financial history.