DSCR Loans for **Dummies

[Tyrell Proby]

A DSCR (Debt Service Coverage Ratio) loan is a type of loan that's given to real estate investors who want to buy an income-generating property, like an apartment complex or a Trap House. The lender calculates the DSCR by dividing the property's net operating income (the income generated after deducting expenses) by the total amount of debt payments due on the property each year. The higher the DSCR, the better, because it means that the property generates enough income to cover its debt payments.

...imagine that you want to buy a pet dinosaur to rent out to tourists for rides. The bank is skeptical of your business plan, but you're convinced that it will be a huge success. You apply for a DSCR loan, but the bank is concerned that you won't be able to generate enough income to cover your loan payments. So they calculate your DSCR by dividing your projected dinosaur ride profits by your loan payments. If your DSCR is 1.25 or higher, they might just approve your loan. Who knows, might work.