DSCR LOANS: Investment Financing Without Personal Income Verification

I. The DSCR Formula: Qualifying the Asset, Not the Borrower

Unlike traditional or government loans where the borrower's income must cover the mortgage payment, the DSCR loan uses the property's anticipated rental income to prove its financial viability. This is known as a property-level underwriting approach.

Understanding the Calculation

The DSCR is a simple ratio that determines how much the monthly gross rent exceeds the total monthly housing expense (PITI).

DSCR Tiers and Requirements

• DSCR 1.00 or Higher (Cash Flow Positive): This is the ideal tier. It means the property generates enough rent to cover 100% or more of the mortgage payment. This typically results in the best interest rates and terms.
• DSCR Less Than 1.00 (Cash Flow Negative): Many DSCR programs allow ratios as low as 0.75 or 0.80. These are often called "No-Ratio" loans. They require a higher down payment (lower LTV) and often carry a higher interest rate, but still allow the investor to close quickly without income documentation.
• "No-Ratio" Loans (DSCR not required): For investors with significant reserves, some programs allow a 0.00 DSCR, meaning the property doesn't need to generate any cash flow, but the risk is offset by a much larger down payment (e.g., 30% to 40%).

II. Scaling Advantages and Key Features

Rapid Portfolio Expansion

The biggest advantage of the DSCR program is its ability to facilitate rapid portfolio growth. Because the borrower's personal DTI is irrelevant, investors can continually acquire new properties, regardless of how many current mortgages they hold, as long as each new property meets its DSCR target.

Recourse vs. Non-Recourse

DSCR loans are typically Recourse Loans, meaning the borrower is personally liable for the debt. However, for highly experienced investors financing through a business entity (LLC or Corporation), some lenders offer Non-Recourse options, where the lender can only pursue the collateral (the property) in the event of default, shielding the borrower's personal assets.

III. Personal Requirements for DSCR Loans

While personal income isn't scrutinized, the borrower's financial stability and experience are still key factors in underwriting:

• Credit Score: Minimum FICO scores are typically in the 640 to 680 range, with the best rates reserved for scores over 720.
• Down Payment & LTV: Minimum down payments start at 20% (80% LTV), though 25% to 30% down is common, especially for non-recourse or lower DSCR ratios.
• Reserves: Like Jumbo loans, reserves are required, usually 6 to 12 months of PITI for the subject property, held in liquid accounts after closing.
• Investment Experience: While first-time investors may qualify, programs favor borrowers who already own one or more investment properties, demonstrated by the higher LTVs and better pricing offered to experienced landlords.