DSCR Loans
We have special loans we think real estate investors will love.
What is a DSCR loan?
DSCR stands for “debt service coverage ratio” and is a type of Non-Qualified Mortgage loan or Non-QM loan that allows you to qualify for a home loan without relying on personal income. Another industry name for it is Investor Cash Flow loan. At CrossCountry Mortgage, our product is called Signature Expanded Investor Cash Flow loan.
DSCR loans are ideally suited for real estate investors who can secure a real estate loan based on their rental property’s positive cash flow, not their income tax returns or other financial paperwork.
Non-QM loans
Non-QM loans or Non-Qualified Mortgage loans offer expanded criteria for certain homebuyers, such as real estate investors, to qualify for a home loan without relying on personal income. The exact criteria for qualifying can vary by lender, but a Non-QM loan will offer greater flexibility than traditional loans.
How do DSCR loans work?
DSCR loans allow real estate investors to qualify for a mortgage based on their rental property’s cash flow. This is different from a conventional loan that requires proof of income.
For a DSCR loan, mortgage lenders consider a debt service coverage ratio or DSCR rather than income to qualify a real estate investor for a loan. This ratio gives lenders insight into whether or not the borrower will be able to use the rental income from the property to cover their monthly loan payments.
What is debt service coverage ratio?
A DSCR compares the income of the property to its total debt, which influences the eligibility for the DSCR loan. Lenders require a healthy DSCR to approve a loan. A good DSCR is usually 1.0 or higher, though it can vary based on other criteria.
How do you calculate your debt service coverage ratio?
The formula for calculating your debt service coverage ratio is:
DSCR = Monthly Rental Income ÷ PITIA*
*Principal, Interest, Property Taxes, Homeowners Insurance & Association Dues
DSCR loan requirements
Lenders have specific criteria for both you and the rental property that include minimum credit scores, down payments, and more. While requirements can vary by lender, most borrowers should expect to meet the following criteria to receive a DSCR loan:
- DSCR of 1.0 and above
- Credit scores of at least 620 (though some lenders require higher scores)
- A down payment of 15% (though some lenders may have lower requirements)
- A minimum loan amount of $100,000
- A maximum loan amount of $3,000,000
Some lenders may be willing to work with borrowers with different credit histories depending on the property.
How to secure a DSCR loan
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1
Talk to one of CCM’s loan officers
Our loan officers have experience and expertise in these alternative loans and are happy to assist you with a DSCR loan.
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2
Complete a loan application
At CCM, we offer a convenient online application, or you can contact our loan officers directly to help start the process.
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3
Calculate your DSCR
We can help you calculate the DSCR using the formula above. Your rent schedule will verify the fair market value of the property and show what you can afford as monthly payments on a new mortgage. It will also influence the interest rate.
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4
Get approved to lock in your interest rate
We’ll help you determine if you meet our requirements for a DSCR loan and, if you do, start a streamlined approval process that will enable you to lock in a mortgage interest rate for the duration of your loan.
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5
Receive the loan and make repayments
We’ll help you set up convenient monthly payments according to your repayment schedule. For rental property owners, this means ensuring that your property is occupied with reliable tenants for a positive cash flow to generate income.
DSCR loan FAQs
Here are answers to a few questions you may have, but as with any mortgage, your loan officer is your best resource.
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A simple formula determines if you qualify: Monthly Rental Income ÷ PITIA (Principal, Interest, Property Taxes, Homeowners Insurance & Association Dues).
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Not all lenders offer these Non-QM loans, so you have to find one who does. The lender will review required criteria to determine if you qualify.
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- Higher down payment requirements, usually 20% or higher
- Some lenders may have high credit score requirements
- DSCRs are limited to income-generating properties
- Most DSCR loans come with prepayment penalties
In addition, DSCR loan eligibility is dependent on the property having a DSCR of 1.0 or higher. And good cash flow is essential to qualifying for this Non-QM loan, so tenant occupancy rate is important.
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Yes. Generally, a down payment of 20% is required, though some lenders might require less.
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1.0 or higher, although this can vary by lender based on other criteria.
More on Non-QM loans
How to Qualify for a Self-Employed Mortgage Loan
What Are the Pros and Cons of Refinancing Your Home?
Watch CrossCountry Mortgage’s Year in Review 2023
National Association of REALTORS® Profile of Home Buyers and Sellers 2023