DSCR Loans: Lending Parameters, Key Features, and Up to 10 Units

[Tristan Pearrow]

Hey BP Community, a lot of you have had questions since I posted about DSCR loans last week. So...

Here's a follow up on my last post. This time I'm going to highlight some of the features of a few DSCR options for various property types and investor experience levels.

(If you're not familiar with DSCR, refer to my last post about how DSCR could open a lot of doors and eliminate a lot of problems for you as an investor.)

A brief recap of what DSCR loans are: A DSCR, or debt service coverage ratio, is calculated by lenders when qualifying a borrower. When calculated, it is a measurement tool that lets the lender know if the investment at hand will generate enough cash flow to, at minimum, cover the proposed debt amount.

How does this benefit you, the investor?

One of the main benefits of a DSCR loan is that a personal income calculation is not required. The lender is instead focused on the cash flow that the real estate investment at hand is predicted to generate.

This eliminates the need to turn in those paystubs and the need for employment verification. If you're self-employed or have a gap in employment history, this loan product is the solution to either, or both.

Some Features, Parameters and Types of DSCR Loans:

1-4 UNITS RESIDENTIAL

First-Time Investors, Experienced Investors

Max 85% LTV

• Max $3.5M Loan

• Min $100K Loan

• Min 600 FICO

• Purchase, Rate and Term, Cash Out

• Max Cash Out 75% LTV

• Cash In Hand: LTV < 65% $1M, LTV > 65% $750K, LTV > 70% $500K

• Property Types: SFR, 2-4 Units, Condos, Condotel

• First-Time Investors Allowed (Must Own a Primary Residence)

• Interest-Only Options Available

• Stabilize DSCR with Interest-Only Feature

• 40-YR Term Available with Interest Only

• Housing History: Up to 1x30x12

• Housing Event Seasoning: 24+ Months

• Gift Funds Allowed (Min 10% Borrower Contribution)

• Close in LLC or Corporation

2-8 UNITS MIXED-USED

Experienced Investors

Max 75% LTV

• Max Loan $3.5M

• Min Loan $250K

• Min 660 FICO

• Min DSCR >=1.00

• Purchase, Rate and Term, Cash Out

• Max Cash in Hand: $1M

• Property Type: + 2-3 Units: Max 1 Commercial Unit + 4-5 Units: Max 2 Commercial Units + 6-8 Units: Max 3 Commercial Units

• Max 2 Acres

• Interest-Only Options Available

• Stabilize DSCR with Interest-Only Feature

• 40-YR Term Available with Interest Only

• Housing History: 0x30x24

• Gift Funds Allowed (Min 10% Borrower Contribution)

• Close in LLC or Corporation

5-10 UNITS RESIDENTIAL

Experienced Investors

Max 75% LTV

• Max Loan $3.5M

• Min Loan $250K

• Min 660 FICO

• Min DSCR >=1.00

• Purchase, Rate and Term, Cash Out

• Max Cash in Hand: $1M

• Property Type: Residential 5-10 Units

• Max 2 Acres

• Interest-Only Options Available

• Stabilize DSCR with Interest-Only Feature

• 40YR Term Available with Interest Only

• Housing History: 0x30x24

• Gift Funds Allowed (Min 10% Borrower Contribution)

• Close in LLC or Corporation

As a lender who works heavily with investors, DSCR is one of my favorite go-to loan types that I use to get investment loans closed quickly and easily.

Unfortuntely, many lenders never present this option to investors, either because they don't know about, because they don't know enough about it, or they just don't want to offer or are not able to offer the product.

Take away: Don't sweat if your project or income doesn't fit into the conventional guidlines. Find a lender who understand DSCR and other non-QM loans who can help you learn how to use these loans to your benefit.