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City Edge Financial

DSCR Loans

Real estate investors who won’t qualify for a loan based on their income from their W-2s and tax returns often turn to Debt Service Coverage Ratio Loans. These loans use the property’s gross annual rental income to qualify you for the loan.

Why Consider DSCR Loans?

If you’re a real estate investor that writes off a large amount of expenses on your tax returns, your adjusted gross income may not be enough to qualify you for another mortgage. This can make expanding your real estate portfolio difficult.

DSCR loans eliminate this problem by not using your tax returns to qualify you for a loan. Instead, lenders focus on the property’s gross annual rental income compared to the mortgage payment. In other words, does the property produce enough income to cover the mortgage payment?

What’s Included in the DSCR Calculation?

When lenders determine if the property qualifies for a DSCR loan, they look at the mortgage’s principal and interest payments, plus the taxes, insurance, and HOA dues. However, they don’t consider a property’s maintenance costs, management, utilities, or even the vacancy rate.

How to Qualify for a DSCR Loan?

Every lender differs, but on average, lenders want a 1.25 DSCR. This means the property produces enough cash flow to cover the mortgage payment PLUS excess cash flow. Some lenders may allow a lower DSCR for higher interest rates or fees.

How to Get Started

Contact us today if you’re a real estate investor interested in expanding your real estate portfolio. We’ll get to know your situation and the property you’re interested in adding to your portfolio. Then, together we can determine the DSCR, and our professionals can match you with lenders who might accept your criteria.