DSCR loans have become a game-changing financing strategy for real estate investors. With no W-2s or tax returns required, and the ability to qualify based on rental income, they offer incredible flexibility. But with that flexibility comes risk—especially if you're new to the product or scaling fast.
If you're planning to use a DSCR loan to finance your next investment, avoid these 10 common mistakes that can derail your deal or stall your portfolio growth.
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1. Overleveraging the Property
Many investors get excited about the high LTVs (up to 80%) that some DSCR lenders offer. But maxing out leverage leaves no room for error.
Avoid it by:
- Keeping LTV at or below 75% where possible.
- Maintaining 6–12 months of reserves.
- Stress-testing your cash flow with conservative vacancy and expense estimates:contentReference{index=0}.
2. Focusing Only on Rate Instead of Terms
DSCR loan rates are typically higher than conventional loans—but that's not the full picture. Ignoring prepayment penalties, interest-only options, or loan term flexibility can cost you more in the long run.
Avoid it by:
- Asking about prepay penalties (3- or 5-year step-downs are common):contentReference{index=1}.
