DSCR Mortgages

Key Features and Benefits:

Generally available to borrowers with good credit, these mortgages can suit those with irregular income or expecting significant future earnings.

Key Features and Benefits:

1. Cash-Flow Based Approval: Primarily underwritten based on the income generated by the property, not the borrower’s personal income.

2. Simplified Documentation: Often requires less personal financial documentation than traditional mortgages.

3. Applicable to Investment Properties: Typically used for residential rental properties (1-4 units), multi-family, or commercial real estate.

4. Flexible Terms: Loan terms can vary but generally include fixed or adjustable interest rates with terms ranging from 5 to 30 years.

5. Loan Amounts: Typically range from $100,000 to several million, depending on the lender and property type.

Benefits:

1. Ideal for Investors: Particularly beneficial for real estate investors with complex or non-traditional income sources.

2. No Personal Income Verification: Can bypass the need for tax returns, W-2s, or pay stubs.

3. Scalable Financing: Allows investors to expand portfolios without being constrained by personal income limitations.

4. Fast Approval Process: Reduced documentation can lead to quicker underwriting and approval timelines.

Eligibility Criteria:

1. Minimum DSCR: Most lenders require a DSCR of at least 1.20, though some may accept lower ratios (as low as 1.0) for stronger borrowers or properties.

2. Property Type: Must be an income-generating property—usually rental residential, multi-family, or commercial.

3. Credit Score: Minimum FICO score of 620-660, though higher scores may secure better rates.

4. Down Payment: Typically 20%–30% of the purchase price; some lenders may require more for riskier properties.

5. Experience: Some lenders prefer borrowers with previous real estate investing experience.

Pros of DSCR Loans

1. No personal income needed – Ideal for self-employed or those with complex finances.

2. Quick and easy process – Less documentation speeds up approval.

3. Property-centric – Lenders focus on the asset's performance.

4. Scalability – Great for growing real estate portfolios.

5. Flexible use – Available for purchase, refinance, or cash-out purposes.

Cons of DSCR Loans

1. Higher interest rates – Typically more expensive than conventional mortgages.

2. Larger down payment – May require more upfront capital.

3. Strict cash flow requirements – If the property doesn’t generate enough income, you may not qualify.

4. Limited availability – Not all lenders offer DSCR loans.

5. Not for primary residences – These loans are usually restricted to investment properties.