Designed for property investors, a debt service coverage ratio (DSCR) is a way to finance a property based on its cash flow rather than on the borrower’s income.
What is a DSCR loan?
A typical mortgage is underwritten and approved based on the borrower’s income. A DSCR loan is different – it’s underwritten based on the property’s projected cash flow. For property investors, DSCR loans provide long-term financing for a buy-and-hold strategy.
The debt service coverage ratio (DSCR) gauges the borrower’s ability to repay based on the property’s income and expenses. In some ways, a DSCR loan is similar to a traditional mortgage – the borrower must still meet credit score requirements and make a down payment plus monthly payments.
What is DSCR?
DSCR measures a property’s income against the mortgage payment. The higher the ratio is, the more net operating income is available to service the debt. For example, a 1.3x DSCR reflects that the asset generates $1.30 for each $1 of debt, while a 1.1x ratio reflects income of $1.10 for each $1 owed.
The DSCR takes in the monthly expenses associated with the property (principal, taxes, interest, insurance, and association dues) and compares them to the property’s monthly revenue. The lower the DSCR, the greater the risk that rental income will fail to cover the debt if the property sits vacant, or if an unexpected repair causes operating expenses to spike.
How is DSCR calculated?
A simple way to calculate your DSCR and measure your cash flow is to divide the monthly rent by the PITIA (principal, taxes, interest, insurance, and association dues). The resulting ratio lends insight into your ability to pay back the loan based on your property’s monthly rental income.
DSCR = Gross Rent Lease or Form 1007/216 divided by PITIA
DSCR > 1.0 means there is sufficient cash flow to cover the debt service
DSCR < 1.0 means there is not enough cash flow to cover the debt service
LendSure’s DSCR program
- Up to 85% LTV for Purchase and 75% LTV for R/T or Cash-out Refi
- Available for 5-8 Unit Properties with LTV up to 70%
- Loan amounts up to $1,500,000
- Cash-Out up to $500,000
- Close multiple loans for the same investor at the same time
- No limit on the number of properties owned and can finance up to 10 properties for a single investor
- Industry-leading funding times
- Qualify on Interest Only Payments – Excellent for qualification and cashflow purposes, particularly with our 10-year IO period on our 40-year Term program
- Non-warrantable condos and condotels allowed (up to 70% LTV)
- FICO as low as 660
- Rate buy-down feature available
The LendSure Way
It’s simple. We make loans that make sense. We’re not in-the-box lenders. Of course, there are numbers ratios, and data to consider, but we know that behind every file, there’s an individual with a unique circumstance seeking a loan. We work hard to offer our common-sense take on lending to borrowers seeking funding for the home of their dreams, another addition to their investment property portfolio, or refinancing of a currently-owned property.
Are you ready to benefit from a commonsense approach to lending? Contact us today to learn more about non-QM loans and how partnering with LendSure Mortgage Corp. can help grow your bottom line.
