With a Debt Service Coverage Ratio (DSCR) loan, you can refinance your rental property – and even take cash out – without supplying personal income information.
Investors and self-employed individuals have a hard time qualifying for conventional loans from Fannie Mae and Freddie Mac. Documenting personal income is too onerous, and rates are sky-high.
That’s where a DSCR loan comes in. Whether you want to refinance a recent rehab project into a long-term loan, or take cash out to expand your portfolio, a DSCR cash-out refinance has you covered.
How does a DSCR loan work?
Lenders can approve a loan based on the property’s income instead of your personal income.
They rely on the debt service coverage ratio, or DSCR, for qualification. DSCR is the comparison between a property’s income and the full payment.
DSCR = Income / Payment
For example, a property has a $1,500 payment – including principal, interest, taxes, insurance, and HOA. Its rental income is $2,000 per month. It has a DSCR of 1.33. A DSCR over 1.0 can often be approved, however, some lenders require 1.1-1.5 depending on the property and borrower characteristics.
In short, if your property will cash flow after the cash-out refinance, you may be approved.
For a complete overview of DSCR loans, see our guide.
Why real estate investors like DSCR cash-out refinances
There are plenty of ways investors are leveraging this program to improve their portfolios.
Replace other financing: Use a 30-year fixed DSCR cash-out or no-cash-out refinance to replace short-term financing like a .
