What is a DSCR loan?
A DSCR loan is a Non-QM loan designed specifically for real estate investors. Lenders utilize the debt service coverage ratio (DSCR) to assess the borrower’s repayment capacity without the need for income verification.
Considered one of the Non-QM loan options, the DSCR loan offers an alternative financing route that doesn’t rely on traditional income verification methods. It is particularly advantageous for demonstrating rental income that may not be reflected on tax returns due to legitimate business expenses.
With a DSCR loan, real estate investors can secure financing based on the cash flow generated by their investment properties, rather than relying on pay stubs or W-2 forms, which are not typically available to most investors. The DSCR is used by lenders to evaluate the borrower’s ability to meet monthly loan payments.
Since deductions from properties can lower taxable income, it can be challenging for investors to provide proof of their actual income. The DSCR serves as a measure for lenders to assess loan repayment capacity, enabling investors to meet the eligibility criteria for real estate loans, even if they have significant write-offs and business deductions.
By not requiring pay stubs or tax returns to demonstrate minimum income levels, DSCR loans serve as an excellent alternative for investors with various write-offs and business deductions.