DSCR, or Debt Service Coverage Ratio, loans are non-QM (non-qualified mortgage) loans that provide real estate investors with financing options beyond traditional QM loans. Unlike traditional loans, DSCR loans do not have strict income and employment requirements, making them ideal for investors who are self-employed or have non-traditional income streams.

In a DSCR loan, the lender calculates the borrower’s ability to repay the loan based on the property’s cash flow rather than the borrower’s personal income. This means that the lender looks at the rental income generated by the property and compares it to the loan payments and other expenses associated with the property.

The DSCR loan’s main criteria is that the property’s cash flow must be enough to cover the loan payments, hence the term “Debt Service Coverage Ratio.” To determine this, the lender calculates the DSCR by dividing the property’s gross rental income by the annual loan payments, taxes, insurance, and HOA (if applicable). If the DSCR is 1.25 or higher, the loan is typically approved. (However, Everest will go as low as .75 in some cases).

Some of the benefits of DSCR loans for real estate investors include:

  • Flexibility: DSCR loans offer more flexibility than traditional loans, as they do not have strict income and employment requirements. This makes them ideal for self-employed investors or those with non-traditional income streams.

  • Fast Approvals: DSCR loans can be approved quickly because they are based on the property’s cash flow, not the borrower’s personal income. This can be a major advantage for real estate investors looking to close deals quickly.

  • Higher Loan Amounts: Because the lender is basing their decision on the property’s cash flow, they may be willing to lend higher amounts than they would with a traditional loan.

Apply Now for a DSCR Loan with Everest Funding.