Last updated: August 9, 2023
If you have a time-sensitive rental property transaction (purchase or refi), or you're simply interested in learning about DSCR loans, we can confidently welcome you to the most knowledgeable and competitive platform for DSCR loans. There's a lot of conflicting information about DSCR loans -- a lot of noise. As a leading DSCR lender founded by rental property investors, we've set out to make this the most helpful resource for your next DSCR loan.
A DSCR loan is a mortgage for an investment property. DSCR loans are often referred to as a "rental loan". The maximum loan amount is determined by the cash flow of the property. Debt service coverage ratio, DSCR, is a standard cash flow metric.
While the concept of DSCR has been around for many years in corporate finance, the novelty has been its application in the single family (1 to 4 unit) residential rental property asset class. In the aftermath of the 2008 global financial crisis, the DSCR loan market has quickly become a multi billion dollar asset class with growing interest and involvement from Wall Street. Given investor preference for DSCR loans instead of bank loans, we expect to see continued growth in demand, origination volume, and market share for this loan type.
The most common ways to calculate DSCR is Gross Rent ÷ PITIA. PITIA stands for Principal, Interest, Taxes, Insurance, Association dues (i.e. HOA). Let's take a look at an example:
That would be $24,000 ÷ $18,100 or 1.32, indicating that the property generates strong cash flows above its fixed expenses.
📈 Annual DSCR loan origination volume is estimated to be over $100B
📈 DSCR loan market share is growing fast for several reasons:
✅ Terms: interest rate, loan amount, term, amortization schedule are often more attractive than terms offered by banks ✅ Convenience: DSCR loans are "low doc" -- unlike bank loans, you do not need to provide W2, tax returns or financial statements ✅ Speed: as a result of the lower documentation and standardized guidelines, DSCR loans can fund in under 20 days, while bank loans can take months ✅ Reliability: the capital markets for DSCR loans is healthy and highly functional, backed by billions of dollars of demand from private credit investors (i.e. insurance companies, pension funds, mortgage trusts). If the property and borrower meets DSCR loan program guidelines, then you will get funded.
📈 DSCR loan interest rates are priced at 5 Year Treasury + Credit Spread. Learn more about DSCR loan interest rates.
The table of contents contain the most commonly asked questions regarding DSCR loans. As a DSCR lender, we have a unique perspective to answer them with actionable insights that will save you time, money and help you grow your rental property portfolio.
Our DSCR loans are designed for rental property investors who want competitive, transparent and reliable funding based on debt service coverage ratio, credit score and investing experience. Use our DSCR Calculator to determine your maximum loan amount.
Our DSCR Loan Interest Rates Index provides accurate real-time tracking of today's DSCR loan interest rate and how it compares to other rates (i.e. Prime Rate, 30 Yr Conventional Fixed Rate Mortgage). See how OfferMarket's DSCR loan terms compare:
|Guidelines:||Individual DSCR Loans|
|Interest Rates||get instant quote|
|Origination Fees||0.5 to 2 points (% of loan amount)|
|Property Types||Single family (1 - 4 units), townhomes, PUD, warrantable condos, eligible mixed use|
|Loan Amounts||$65,000 - $2,000,000|
|Loan Types: Fixed Rate Mortgage||30 year (fully amortizing)|
|Loan Types: Adjustable Rate Mortgage||5/6, 7/6, 10/6 hybrid ARM (partial interest only or fully amortizing)|
|Maximum LTV for purchase or rate term refinance||80% LTV|
|Maximum LTV for cash out refinance||75% LTV|
|Maximum Loan To Cost if owned less than 3 months:||80% of total cost basis|
|Maximum Loan To Cost if owned 3 - 6 months:||5% haircut on max LTV|
|Minimum Guarantor FICO||660|
|Ownership||LLC (preferred), Corp, Personal (requires exception)|
|Leased Units DSCR||Lower of in-place rent and market rent|
|Vacant Units DSCR||90% of market rent (purchase loans only)|
To get a DSCR loan, you simply need a property and a borrower that meets DSCR loan program guidelines.
Generally, if your property is in rent ready condition (appraisal condition rating of C4 or better
The easiest way to get a DSCR loan is to get a quote from OfferMarket. We will show you our full quote with interest rate, loan amount and monthly payment we can fund before asking for any personal information like your email and phone number. The quote is completely online and no one will ever call you from OfferMarket unless you request it from us.
Each DSCR lender will have slightly different process when comes to processing a DSCR loan, but overarching steps are similar.
Qualifying for a DSCR loan requires submitting an online DSCR loan quote and then submitting necessary documents in your Loan File (which is created if you choose to move forward with the quote).
Our process is completely online and our full fee list will be in the first section of your Loan File called "Preliminary Loan Terms". Please note that that, as the name implies, these loan terms are preliminary because they are completely based on self-reported information you provided when you got your online DSCR loan quote. The more accurate the information provided the more accurate our quote will be. Some of our most experienced and well capitalized borrowers often lower their self-reported credit score, after repair value (ARV) and other parameters to get an even more conservative quote. Documentation submitted into the Loan File and appraisal report will be used to confirm all the inputs of the initial quote, if inputs are materially different, the final quote will also be different.
When you get a quote we ask you the following questions to make sure you qualify for a DSCR loan. We need this information to get the best available among the DSCR products we offer. Our online DSCR loan quote system does all the calculations for you so you don't have to calculate your own DSCR ratio. Once you make the inputs we use them to conduct a DSCR ratio calculation and as long as its above or equal to 1.1 then we can fund the loan.
Current standard in the industry is DSCR ratio of 1.2 but our research has shown that our loans remain healthy even at DSCR ratio of 1.1 as long as we control a few other parameters of the loan. If it just so happens that your deal falls below DSCR ratio of 1.1, then you might see a message that says "DSCR too low", however we offer multiple LTVs so this message isn't end of our ability to fund your loan, we just might be able to provide a smaller LTV in this specific case. The most common online DSCR loan quote input mistake we see is landlords or professional money managers inputting an amount for "Annual utility expense" when the tenant is actually responsible for this expense. Excluding this expense and setting it to 0 helped that borrower meet our DSCR loan qualification requirements.
We also ask questions that give us some idea about your experience and creditworthiness. We frequently work with people just starting out with middle to higher credit scores. Track record is very important to us so its one of the first things we ask. The more experience you can show, the better terms we can provide. Your experience with exact same product type tremendously de-risks the transaction from our point of view.
Here is a complete list of questions we ask for an online DSCR loan quote, if you just start typing inputs it will automatically tell you what you qualify and don't qualify for so you don't have to read the rest.
We know this seems like a lot, but honestly, you probably can list all those numbers in your sleep for last like 5 of your flips. This information save us and you valuable time, because now we don't have to ask you all of this again over a phone call. Here at OfferMarket we understand that our client's time is their most valuable resource and we strive to never waste a second of it.
Once you answer all of the questions we will present you with the quote to show you what funding we are able to extend. The quote includes loan amount, interest rate, monthly payment and a range of loan to value (LTV) bands at which we can provide the loan. The full list of fees isn't listed on the initial quote, but if you click 'select' and move forward to account creation (the only step where we will ask you for your personal information and we will never call you unless you request it from us) to your Loan File. The first section of the Loan File is called "Preliminary loan terms" and will contain a much more detailed quote with full list of fees we and other parties have to charge to provide services necessary to close the loan such as origination fee (us), legal document prep (not us), title work (not us), appraisal (not us), appraisal risk review (not us), underwriting (not us). Once you get a quote from us its a good idea to compare it to other quotes you might have received. Our online, low cost approach allows us to not charge any interest rate spread on all our funding products, saving we pass on to our clients.
If you choose to move forward with our online DSCR loan quote, then a Loan File is created from your quote. All your Loan Files will always be listed in your My Loans. For the purpose of a DSCR loan, we ask for documentation to support questions we ask in the loan quote. This documentation will be ultimately passed to our loan underwriters that are independent from us to make a decision to fund the loan. Our goal is to represent your Loan File in fairest way possible to the underwriting committee so they can make an educated lending decision. To facility this, we ask for the following documents (and depending on specific circumstances may ask for more):
We understand that this is a lot of information. However, we never ask for the same information twice. More then half of these sections are pre-filled for your second loan with us so our repeat clients love working with us on their subsequent deals because the amount of paperwork is cut in half.
DSCR loan requirements are subject to change based on market conditions. During periods of economic stability, DSCR program guidelines remain unchanged for prolonged periods of time. Guidelines can change frequently during periods of economic volatility including interest rate volatility, inflation fears, housing market price declines, recession fears, Fed policy uncertainty.
|OfferMarket||Most DSCR Lenders|
|Minimum Rental Property Experience||0||1|
|Hard Credit Pull||Yes, Tri Merge||Yes, Tri Merge|
|Minimum Credit Score||660||680|
|Minimum Loan Amount||$50,000||$75,000|
|Minimum As Is Value||$67,500||$100,000|
|Appraisal Report with Onsite Inspection||Yes||Yes|
|Appraisal Condition Rating||C1, C2, C3, C4||C1, C2, C3, C4|
|Rural Designation||Not Allowed||Not Allowed|
|Maximum LTV: Purchase||80%||80%|
|Maximum LTV: Cash out refi||75%||75%|
|Maximum LTV: Rate and term refi||80%||80%|
|Seasoning Requirement||None||6 months|
|Escrowed Taxes and Insurance||Yes||Yes|
|Portfolio Loan (2+ Properties)||Yes||No|
|Flood Insurance||Yes, if in FEMA flood zone||Yes, if in FEMA flood zone|
🏠 property type, condition, value and location 💰 property cash flow (DSCR)
|OfferMarket||Most DSCR Lenders|
|Property type||1 - 4 unit, warrantable condo||1 - 4 unit, warrantable condo|
|Appraisal Condition Rating||C1, C2, C3, C4||C1, C2, C3, C4|
|As Is Value||$62,500+||$100,000+|
|Max LTV/LTC: Purchase||80%||80%|
|Max LTV: Cash Out Refi||75%||75%|
|Max LTV: Rate and Term Refi||80%||80%|
|Location||Non-rural, no boarded up neighborhoods||Non-rural, no boarded up neighborhoods|
💳 credit 🕵️ background 🏠 rental property investing experience
|OfferMarket||Most DSCR Lenders|
The process of applying for a DSCR loan is identical to the process of qualifying for a DSCR loan with OfferMarket because our process is built to quality as you take steps forward with your application. The quickest way to apply for a DSCR loan is to use our online DSCR loan quote system. We will ask you a range of questions (listed in the section above) to present you with funding terms that we can extend. If you choose to proceed with the quote, we will ask you for your email and phone number but not before showing you the interest rate and loan amount because if our offer is a none starter, we don't deserver your personal information and we will never call you without your explicit request for it.
Once your online DSCR loan quote is complete and you chose to move forward, the second step of the DSCR loan application process commences. Your quote is converted to a Loan File, a collection of documents about you and your deal that we help you assemble to be presented to underwriters. Once we guide you through your Loan File to completion it is submitted for final underwriting review where we get a funding decision. Once approval from our underwriters is received the loan is moved into closing with title and closing counsel. This outlines the steps required to apply for a DSCR loan.
DSCR loans are typically offered by private lenders or hard money lenders. These loans are often used by real estate investors or commercial property owners to finance the acquisition or refinancing of income-producing properties, such as apartment buildings, office complexes, or shopping centers. It's important to note that the specific lenders and terms available for DSCR loans may vary depending on factors such as the borrower's creditworthiness, the type of property being financed, and the loan amount requested.
Private money lenders are individuals or companies that lend money to real estate investors, often for short-term loans with higher interest rates than traditional bank loans. Hard money lenders, on the other hand, are typically private companies that provide short-term financing for real estate investors, based on the value of the property being used as collateral.
Well, it depends. If you are an organized and experienced real estate investors, its probably significantly easier then getting permit for your last flip. We do all we can to streamline and continuous refine our process as we help secure DSCR loan funding for your next deal, however even with our best efforts, right now we do require many documents to substantiate your Loan File. These documents are listed in the section above titled "How to qualify for a DSCR loan?"
Yes, you absolutely can refinance most DSCR loans. Some DSCR loan terms do state that there are prepayment penalties. Common prepayment penalties are 3-2-1 and 5-4-3-2-1. In the 3-2-1 prepayment scenario, if the loan is refinanced in the first year, borrower is penalized with 3% fee of the total loan amount. If they refinance in the second year, the fee is 2%. This pattern is identical for the 5-4-3-2-1 prepayment penalty. DSCR loan closing documents will specify if there are any prepayment penalties. If you are getting an online DSCR loan quote from us, the prepayment penalty (if any) for your loan will be listed in the Loan File's "Preliminary loan terms" section.
Yes, in vast majority of cases (99%+) a DSCR loan requires a down payment. Most DSCR loan terms converge on 70% to 80% loan to value (LTV), meaning that the borrower will have to bring between 30% and 20% of the property as the down payment (not including applicable fees). A more accurate picture of liquidity required to close a DSCR loan transaction is represented by the "cash to close" figure which includes down payment as well as the fees. If you are getting an online DSCR loan quote from us, the "cash to close" figure will be listed in your Loan File's "Preliminary loan terms" section.
DSCR loans are business purpose (to business entities such as LLCs and s-corps) loans used by borrowers who seek to generate income by buying and managing a rental property. Because they are business purpose loans, they are not subject to the same regulations as consumer loans.
One of the primary benefits of DSCR loans is that they do not require the borrower to have a W-2 income a major requirement for majority of bank and credit union lending programs. Instead, the lender evaluates the borrower from the track record perspective, their creditworthiness and borrower's ability to manage the property as well as the deal's cash flow potential. This means that investors without a W-2 job can still be eligible for this type of financing.
To qualify for a DSCR loan, the borrower must provide documentation showing the business entity status, proving their track record (we frequently work with people just starting out), and presenting a deal documentation with attractive economics. This documentation is used to calculate the DSCR and determine if the property generates enough cash flow to support the loan. The lender may also require the borrower to provide information about their experience managing rental properties or with construction depending on the type of the loan.
DSCR loans are usually offered by private lenders rather than traditional banks. Private lenders are more flexible in their lending criteria and are often willing to work with borrowers who do not meet the strict requirements of traditional banks. However, private lenders may charge higher interest rates and fees than traditional banks.
You can get as many DSCR loans as liquidity you have to put down between 20% to 30% of the purchase price since majority of DSCR loan terms are in the 70% to 80% loan to value (LTV) range. DSCR loans are an excellent tool for experienced real estate investors for this reason. When your deal and business entity is getting qualified for a DSCR loan, the details of your existing portfolio do no influence the underwriting of the current transaction. This means that you can keep growing your real estate investment portfolio as long as you keep finding deals and your existing business can keep generating enough cash for the next down payment and fees (also know as "cash to close").
OfferMarket provides DSCR loans. The quickest way to get started and see if you qualify is to start an online DSCR loan quote.
Since most of DSCR loan terms require a Personal Guarantee (PG) a default on a DSCR loan will impact your credit score and show up on a credit report. However, current and performing DSCR loans in the name of the business entities that you control do not necessarily show up on credit report or impact your ability to get more DSCR loans for your future deals, making this feature very attractive for professional and experienced real estate investors.
Between 20% and 30% of the property value in most cases is required for a DSCR loan. However, down payment is not the most accurate value that you should focus on. A much more accurate figure is called 'cash to close'. Often times that figure includes down payment as well as any fees that might be necessary to close the transaction. The 20% to 30% down is required because most DSCR loan terms are priced at 70% to 80% loan to value (LTV).
There are several ways you can calculate the exact DSCR. If you want an exact figure you can user our online DSCR loan calculator. However, if you are ultimately looking for a DSCR loan, you don't need to manually calculate the DSCR since it will be done for you. If you get an online DSCR loan quote from us, we automatically calculate your DSCR for you. If DSCR for your deal is above 1.1, we finalize the quote and present you with our quote terms that include loan amount, interest rate and LTV we can offer. If DSCR is below 1.1 threshold our quote is returned with the message "DSCR is too low", which means we can't offer a loan for a property with the parameters. The most common input mistake we see is our clients fill out "Annual utility expenses" when their tenants are responsible for covering those expenses and should have been entered as 0.
If you get an online DSCR loan quote from us, we will automatically calculate the maximum loan to value (LTV) and loan amount for you. We will present those figures at the end of the quote for your review. We won't ask you for any personal information such as email or phone number before showing you the funding quote that we can provide.
The term "DSCR loan program" refers to the specific guidelines and requirements of a specific lender. While each DSCR loan program may vary slightly in as far as guidelines, because DSCR loans are aggregated and securitized (packaged into mortgage-backed securities), there is a high degree of consistency across lenders and programs. When comparing DSCR loan programs, the most important distinction to be aware of is the specific asset class -- i.e. 1-4 unit, 5-8 unit. For this guide and our private lending platform, we focus on 1-4 unit residential.
|Asset Class||1-4 Unit|
|Rate Options||Fixed, Adjustable|
|Amortization Options||20 Year, 23 Year, 25 Year, 30 Year|
|Minimum Credit Score||660|
|Borrowing Entity||LLC, Corporation, Personal Name|
|Portfolio Loan (2+ Properties)||Yes|
|Minimum As Is Value||$62,500|
|Minimum Loan Amount||$50,000|
There is a lot of inaccurate and misleading information online about DSCR loans. This article is continually updated in an effort to share clear, accurate, insightful and actionable information so you can grow your rental property portfolio cost effectively and avoid common mistakes.
DSCR loan qualifications are deal-specific and borrower-specific.
Many people refer to DSCR loans as "no doc" loans but the truth is they are "low doc" loans. You do not need personal income verification or tax returns. That means you can get a DSCR loan without a W2 and without having your most recent taxes filed.
Because there is limited documentation, you can get a DSCR loan faster than a bank loan or a conventional loan. We have funded DSCR loans in as little as 14 days, and every DSCR loan time to close target is 25 days or less.
DSCR loan programs generally have strict landlord insurance requirements. Technically this is a good thing because it protects your investment, but it will be more expensive than personal lines homeowners insurance coverage. First time DSCR loan borrowers are often surprised by insurance requirements and frustrated by the increased annual premium and insurance review. A common mistake is using a personal lines insurance agent to shop for and bind coverage for your rental property. Personal lines insurance agents have limited experience with commercial policies and you can end up over-paying and wasting a lot of time. To streamline the insurance component of DSCR loans and save you money, we launched OfferMarket Insurance, our in-house insurance agency specialized in landlord insurance for DSCR loans.
|General Liability Insurance||Yes|
|Business Interruption Insurance (Loss of Rent)||Yes|
|Lender as Additional Insured||Sometimes|
Most DSCR lenders require a prepayment penalty period where the borrower is charged a fee for paying off the loan early. This is a common practice because it allows lenders to provide a more competitive interest rate in exchange for the certainty that the borrower will either hold the loan or pay a fee to payoff the loan early. Watch this short video to learn more about prepayment penalty options and how they affect your interest rate.
DSCR loan interest rates are determined by the following factors:
The 5 year interest rate swap serves as the benchmark rate upon which a premium is added based on borrower and deal-specific risk.
A DSCR loan is an excellent financing option for rental properties nearly all non-rural markets. Industry standard DSCR loan guidelines strongly prefer properties to be non-rural.
Learn more about OfferMarket's industry-leading DSCR loan program: