Debt Service Coverage Ratio (DSCR) Loans: What Are They?

Debt Service Coverage Ratio (DSCR) loans allow real estate investors to qualify for a loan based entirely on the cash flow generated by the investment property, rather than their personal income. 

It can be used to close the mortgage on a 1-4 unit residential property as an LLC. Investors prefer this because typically they have to close a mortgage as a personal loan, which affects their personal purchasing power. 

This loan is ideal for seasoned investors, meaning those that have had a rental property for at least two years or who have had multiple properties for at least a year. These investors can put down as little as 15%, whereas those that are not considered “seasoned investors” have to put down 30%. 

If the investor is using the property as a rental, it has to be considered a long-term rental. If the investor is wanting to rent the property as a short-term rental, such as an Airbnb or VRBO, they have to put down an additional 5%. 

When determining whether to close on the property, the bank orders an appraisal which determines what the market rent is for the property. Then they calculate the market rent, divided by the total monthly payment. If the rent is greater than the monthly payment, they close on the deal. 

Determining the DSCR is important because it gives the lender information on whether the investor has enough cash flow to service the debt. When the DSCR is high enough, the lender has reassurance that the borrower is not likely to default on the loan payments. Not to mention, the higher the DSCR is, the more leverage the borrower will have with the lender. 

This loan program is centered around the future cash flow on the property. There are no income requirements, all you need is your Business Information, LLC paperwork, two months of bank statements, and the title/insurance. 

Does a DSCR loan sound like something you would be interested in? Georgia Platinum Mortgage has you covered!