Introduction to DSCR Loans
If you’re an investor struggling with traditional mortgage requirements, you’re not alone. Conventional loans often disqualify self-employed individuals or those with large real estate portfolios. That’s where Debt Service Coverage Ratio (DSCR) loans step in—a flexible, cash-flow-based financing solution designed specifically for real estate investors.
What Is a DSCR Loan and How It Works
A DSCR loan is a type of mortgage where approval is based on the property's income—not the borrower’s personal income. The key metric is the Debt Service Coverage Ratio (DSCR), calculated as:
DSCR = Net Operating Income (NOI) / Debt Service (Loan Payments)
A DSCR of 1.25 means the property generates 25% more income than required to cover the mortgage payments. Lenders typically require a DSCR of 1.0 to 1.25+, depending on the program.
