Debt Service Coverage Ratio (DSCR) Loans: Requirements and Benefits
A Debt Service Coverage Ratio (DSCR) mortgage, allows investors to purchase or refinance a rental property without having to provide tax returns, W-2s, pay stubs, or any other personal and financial information.
To qualify for a DSCR loan, the rental income generated by the property must meet or exceed the lender’s coverage ratio requirements. The coverage ratio is determined by the monthly rental income divided by the mortgage payment.
Since qualifying for a DSCR loan depends on the rental income produced by the property, rather than the borrower’s personal income, the application process is fairly easy and may take less time than a traditional loan.
A DSCR loan is ideal for investors who are looking to finance a property but don’t have enough personal income to get approved or don’t want to provide their personal and financial documents.
The downside of a DSCR loan includes having to pay a higher interest rate and being required to make a higher down payment in some instances. A DSCR loan also may include prepayment penalties. This is why it’s important to carefully review the loan terms so that you understand any fees and penalties that might be included.
The rate for a Debt Service Coverage Ratio loan is a 30-year fixed rate and it typically takes 30-45 days to complete. The closing costs typically include lender, appraisal, title, and escrow fees—similar to a standard mortgage.
For more information or to determine whether a DSCR loan is right for you, contact our team of experienced loan officers today!