Refinancing commercial real estate can be a smart strategy for investors looking to lower monthly payments, tap into property equity, or transition from short-term to long-term financing. One increasingly popular tool for achieving this is the DSCR loan—a streamlined, income-based financing solution that focuses on the property's cash flow rather than the borrower’s personal income.
This guide explains how to refinance an existing commercial mortgage using a DSCR loan, including the benefits, qualification criteria, and steps investors should follow to make the most of this refinancing option.
What Is a DSCR Loan?
A Debt Service Coverage Ratio (DSCR) loan is a type of non-QM (non-qualified mortgage) that evaluates an investment property’s ability to cover its own debt service (i.e., mortgage payments). It’s calculated using the following formula:
DSCR = Net Operating Income (NOI) / Annual Debt Payments
For example, a property generating $120,000 in NOI with annual debt obligations of $100,000 has a DSCR of 1.20. Most lenders require a DSCR of 1.20 or higher for refinance approval.
Why Refinance a Commercial Mortgage with a DSCR Loan?
Refinancing with a DSCR loan provides several strategic advantages for real estate investors and business owners, especially those with unconventional income streams or growing portfolios.
