Maximize the DSCR Ratio
Negotiating a lower purchase price or making property improvements can increase your Net Operating Income (NOI) and the DSCR.
DSCR Loan: Powering Your Real Estate Portfolio with Cash Flow
Unlock faster portfolio growth & secure a specialized DSCR Loan (Debt Service Coverage Ratio Loan) designed for investors.
What is a DSCR Loan?
A DSCR Loan is a non-qualified mortgage (non-QM) product specifically designed for real estate investors. Unlike a traditional mortgage that analyzes your personal W-2 income and debt-to-income (DTI) ratio, this loan underwrites the investment based on the property’s ability to generate cash flow.
Debt Service Coverage Ratio (DSCR) measures how easily a property can pay its debts using its income.
It lets investors skip the strict personal income of paperwork that usually requires.
A DSCR loan looks at the property's income and value, not the borrower's personal finances.
Benefits of DSCR Financing
Choosing a Debt Service Coverage Ratio Loan is a strategic move for investors seeking to scale quickly and efficiently. It removes the restriction that can paralyze growth when relying on personal income documentation. The benefits maximize leverage and speed.
Simplified Qualification
Qualify based on the property’s projected or actual rental income, avoiding the need for tax returns, W-2s, or employment verification.
Faster Portfolio Scaling
Remove limits on the number of mortgaged properties you can own, allowing you to scale your rental portfolio far beyond.
Keep Personal Finances Separate
Finance your DSCR Loan for Investment Property through an LLC or business entity, enhancing asset protection.
High Leverage Potential
A strong DSCR ratio (e.g., 1.25x or higher) can qualify you for better terms and higher loan amounts, increasing your purchasing power.
Refinance Flexibility
Utilize a DSCR Cash-Out Refinance to easily tap into the equity of existing rentals without complex personal income verification.
Types of DSCR Loan Financing
We offer various structures designed to fit different investment strategies and property types. Whether you are purchasing a new asset or refinancing an existing one, the focus remains on the cash flow potential.
DSCR Purchase Loan :
Used to acquire a new rental property based on market rent projections.
DSCR Cash-Out Refinance :
Allows investors to access equity from a rental property using its rental income to qualify.
DSCR Rate-and-Term Refinance :
Helps improve the rate or adjust the term of an investment property loan based on property performance.
Short-Term Rental DSCR Loan :
Specialized programs for Airbnb or VRBO properties, using projected gross rental income.
Fixed-Rate DSCR Loan :
Provides payment stability with an interest rate that stays fixed for the entire loan term.
DSCR Loan Requirements
While DSCR Loans are known for their flexible underwriting, they still require a strong financial profile focused on asset performance. If you want to know how to qualify for a DSCR loan, the primary requirements revolve around the property's cash flow and your credit history as an investor.
Debt Service Coverage Ratio (DSCR)
We require a minimum DSCR of 1.0x (income equals debt), but a ratio of 1.15x to 1.25x is needed for the most favorable rates.
Strong Credit Score
A FICO score above 680 is generally required, demonstrating responsible financial management, even with complex income.
Required Down Payment
Investors should be prepared for a larger down payment, typically 20% to 25% for purchase loans.
Sufficient Reserves
We require liquid cash reserves to cover three to six months of the PITI (Principal, Interest, Taxes, Insurance) payments for the new loan.
Investment Experience
Seasoned investors often qualify for better terms, though programs exist for first-time investors who meet the other core requirements.
Property Appraisa
A mandatory appraisal that includes a formal rent schedule (Form 1007) is required to determine the property's accurate market rental income.
How to Qualify for a DSCR Loan with Rize Mortgage
Rize Mortgage provides a streamlined, investor-focused path to secure the best DSCR loan financing. Our expertise in non-QM lending simplifies the process, helping you maximize your investment potential.
Initial Cash Flow Assessment :
Contact a Rize Mortgage specialist to quickly calculate the projected DSCR of your target property.
Pre-Qualification Based on Asset :
We estimate your credit profile and the property's potential income with minimal income documentation.
Secure the Best DSCR Loan Rates :
We help you lock in competitive rates based on your DSCR strength, credit profile, and down payment.
Specialized Property Underwriting :
A dedicated underwriting team evaluates cash flow using rent schedules and property performance metrics.
Closing and Funding :
Once approved, you close quickly and secure funds to purchase or refinance your DSCR investment property.
Tips to Secure the Best DSCR Loan Terms
Securing optimal terms for your Debt Service Coverage Ratio (DSCR) loan requires careful planning and maximizing the property’s cash flow profile. Follow these strategies to impress DSCR Loan Lenders and lower your borrowing costs:
1
Increase Your Down Payment
Putting down more than the minimum reduces the Loan-to-Value (LTV) ratio, which can directly result in a lower interest rate.
2
Boost Your Credit Score
Aim for a FICO score above 740. Credit score is a big pricing factor for non-QM loans; a higher score can lock in premium terms.
3
Borrow in an Entity Name
Use an LLC or corporation to hold the loan; while this is a standard feature, it signals professionalism to the Lenders.
4
Research Market Rents
Provide us with well-documented, verifiable market rental comparisons to support the appraiser's rent estimate.
5
FAQ (Frequently Asked Questions)
How is DSCR Calculated?
DSCR, or Debt Service Coverage Ratio, is calculated by dividing a property’s net operating income (NOI) by its total annual debt payments. The formula is: DSCR = Net Operating Income ÷ Total Debt Service. For example, if your rental property earns $120,000 annually and your total mortgage and debt payments are $100,000. Your DSCR is 1.20. Most lenders require a DSCR of 1.0 to 1.25 or higher, meaning the property generates enough income to cover its loan payments with some buffer.
Can You Refinance a DSCR Loan?
Yes, you can refinance a DSCR loan to lower your rate, tap equity, or adjust loan terms. DSCR loan refinancing works similarly to other real estate loans, but the approval is based primarily on the property’s cash flow, not your personal income. Investors often refinance to reduce monthly payments, pull cash out for new investments, or improve cash-on-cash returns.
Who is a DSCR Loan Best Suited For?
DSCR loans are ideal for real estate investors who earn income from rental or commercial properties rather than traditional employment. Because DSCR loans are based on property income, not personal W-2 income or tax returns, they’re popular among investors, self-employed borrowers, and those building rental portfolios. These loans allow you to qualify based on cash flow strength, making them flexible and scalable for investment growth.
Do DSCR Loans Require a Down Payment?
Yes, most DSCR loans require a down payment of 20% to 30%, depending on the lender and property type. The required amount varies based on your credit score, DSCR ratio, and market risk. A higher down payment can lead to better loan terms and lower interest rates. Investors who use it for short-term rentals or multifamily units may face higher down payment requirements due to increased risk.
What Are the Pros and Cons of a DSCR Loan?
DSCR loans offer flexibility and accessibility for investors but come with stricter property performance requirements.
Pros:
- Qualify based on property income, not personal income.
- Ideal for self-employed borrowers and real estate investors.
- No personal income verification or tax returns are required.
Cons:
- Higher interest rates than conventional loans.
- Larger down payments (20–30%) are often required.
- To qualify, Property must generate sufficient rental income.
Ready to Elevate Your Investment Strategy?
The DSCR Loan is a reliable option for investors who understand that property performance, not personal tax returns, drives real estate wealth.
