Finances 1-8 unit properties!

DSCR LOAN IS ALSO REFERED TO AS BUSINESS PURPOSE LOAN!

A DSCR (Debt Service Coverage Ratio) loan provides a unique advantage for real estate investors by allowing qualification based on the income generated by the property rather than the borrower’s personal income or tax returns. This makes it an excellent option for self-employed individuals, retirees, or those with non-traditional income sources. DSCR loans offer streamlined approvals, flexible underwriting, and are ideal for scaling rental property portfolios. Investors can close faster with fewer documentation requirements and focus on property performance rather than personal financials. This loan type supports long-term investment strategies with options for interest-only payments and non-recourse terms in some cases.

 DSCR loan features, benefits, and caveats  

  • Credit - =>680 or no Credit score for non-permanent resident allien (may need higher down payment), 1-4 units. Min 720 for 5-8 units and 2-8 mixed use units (residence usage must be >50%).
  • Down payment - requires 20% or higher down payment plus min of three month reserves. Both down payment and reserves can be a gift from family members (1-4 units).
  • Income - no personal income is required. Loan is qualified by the lower of current rental income or rental survey income provided by the appraiser. 100% gross rental income is used to divide by mortgage payment, taxes, insurances and association fees (gross rental income / PITIA) the ratio is used to determine the rate, and down payment percentage. For example, the division result can be =>1, =>.75 or lower than .75.
  • Property eligibility - must meet minimum Gross Living Area: SFR 700 sq ft; Condo 500 sq ft; mixed use 400 sq ft per individual unit.

  • Accessory unit allows on 1 unit property. Rental income from ADU excludes from income calculation.

  • LLCs - DSCR loans allow purchases or refinances by LLCs.
  • First time home buyers and first time investors are accepted with conditions (not permited for 5-8 units and mixed use units). 
  • Borrowers must complete the Business Purpose & Occupancy Afidavit and sign personal guarantee.
  • Short term rental income is allowed but subject to 20% expense reduction and meet a min of DSCR ratio 1.25.
  • 40 year amortization term available for 1-4 residential properties.
  • Prepayment penalty applies to each state's maximum allowable period and percentage.

Explore a World of mortgage Answers