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DSCR Loans
What does DSCR stand for?
DSCR stands for debt service coverage ratio. It is a metric commonly used in commercial lending (instead of personal credit scoring) to establish whether the borrower's investment makes sense from an economic point of view.
In contrast to private purchases, commercial mortgages are taken with one main objective: generating income. For example, as a real estate agent, you might consider buying a building to rent out the apartments. The rent paid by the tenants will have to cover the loan you've taken (with interest) and provide you with some profit. The lender won't be interested in your DTI : he will be interested in the predicted cash flow to ensure that you will be able to pay back the loan.
Terms For DSCR LOANS
- Up to 80% LTV Purchase and 75% for refinance
- Minimum Loan Amounts down to 75,000
- Minimum FICO down to 620
- Up to 40 Year Amortization Available
- Most loans require 3-6 months reserves
- Must be rent ready
What is a good DSCR coverage ratio?
A good DSCR coverage ratio is 1.25.
This number is ideal because lending institutions typically want to see that you are in a good position to repay your loan and still meet any additional obligations that may come up
How to calculate DSCR
Our debt service coverage ratio calculator uses the following formula:
DSCR = NOI / debt service
- DSCR — Debt service coverage ratio
- NOI — Monthly net operating income
- debt service — Monthly payment towards paying off your debt