DSCR Loan Program
Stop paying too much for DSCR rental loans: access the most competitive DSCR rates, leverage and origination fees in the industry and save thousands up front and over the life of your loan.
The best DSCR loan is waiting for you at OfferMarket.
| OfferMarket | Most Lenders | |
|---|---|---|
| Seasoning | None | 6 months |
| Origination Fee | 1% | 2% |
| Min Credit Score | 640 | 680 |
| Interest Rate | Competitive | Uncompetitive |
| Processing | Online | |
| Quoting | Instant | Slow |
| Pre-Approval | Instant | Slow |
| Time to Close | 15 - 25 Days | 30 - 45 Days |
| Referral Program | Yes | No |
What is a DSCR Loan?
A DSCR loan or "rental loan" is a mortgage loan for a rental investment property. DSCR stands for Debt Service Coverage Ratio, which is a metric that looks at the rental income, operating expenses and mortgage expenses. For more detail, see 'How to calculate DSCR' section below.
Many commercial lenders (private lenders, banks), require a minimum DSCR in order to qualify for a given loan-to-value (LTV). For example, OfferMarket Capital's DSCR loan program requires a minimum DSCR of 1.2 for single family rental properties.
DSCR loans are asset-backed typically with a personal guarantee from the borrower(s) and based on the following:
- subject property DSCR
- borrower's rental investing experience
- borrower's credit score and personal financial net worth
DSCR Loan Interest Rates
Our DSCR Loan Interest Rate Index tracks the prevailing interest rate and origination fees from private lenders across the United States. See how OfferMarket's DSCR terms compare:
DSCR Loan Term
30 year DSCR loan term is the most common. If you would like a shorter or longer term, please reach out via our chat system on the bottom right so we can review your request.
DSCR Loan Amortization
The most popular DSCR loan amortization period is 30 years. You can also select a 5, 7, or 10 year interest only period where annual or semi-annual adjustable rate and amortization begins at the end of the interest only period for the remainder of the 30 year term.
Interest Only DSCR Loan
- 5/1 or 5/6 ARM, Partial Interest Only: 25 year amortization
- 7/1 or 7/6 ARM, Partial Interest Only: 23 year amortization
- 10/1 or 10/6 ARM, Partial Interest Only: 20 year amortization
While the 30 year fixed rate fully amortizing DSCR loan is by far the most popular option among our clients, our partial interest only options are popular among investors who want more cash flow up front and expect to refinance before the end of the interest only period.
DSCR Loan Types
DSCR loan types include:
- Purchase
- Cash Out Refi
- Rate and Term Refi
- Portfolio (2+ properties)
- Multifamily (5+ units)
DSCR Loan: Purchase
If you're purchasing a rental property, you can use a DSCR loan. If the property is vacant, the lender will require the appraisal to include a rent schedule to establish the market rent in order to calculate the DSCR and confirm the LTV that the property qualifies for.
When the property is vacant, it's common for lenders to use 90% of the market rent. So if market rent is $2,000, qualifying rent would be $1,800. This can easily reduce the LTV you qualify for, and bring max LTV out of reach -- it's something all rental investors should be aware of.
DSCR Loan: Cash Out Refi
Cash out refi is commonly used by rental investors who have built up substantial equity over time through appreciation and pay-down of their previous mortgage loan. Cash out refi is also used for what we refer to as BRRR Loans. This is the strategy to use a Bridge Loan to buy, rehab and rent a property, and then a DSCR Loan to cash out refinance, with the goal of pulling out all of the initial capital invested into the deal to optimize cash on cash returns.
DSCR Loan: Rate and Term Refi
A rate and term refi is when you have existing debt on your rental property and you simply want to refinance at a lower interest rate without taking cash out.
If you have $200,000 of debt from a fix and flip loan at 12% interest and you want to lower your interest rate to today's DSCR loan rates. Your new rate will be the fixed DSCR loan interest rate and your term will be 30 years.
DSCR Loan Portfolio
Many real estate investors want to be able to purchase or refinance 2 or more rental properties in one loan. This is called a portfolio loan and is commonly used for cash out refi. Lenders typically require all of the properties to be in held in the same LLC, and each property within the portfolio needs to meet program guidelines for minimum loan amount, DSCR.
DSCR Loan: Multifamily Term
Multifamily Term loans use DSCR to determine LTV eligibility. Lenders may require slightly higher DSCR for multifamily (5+ unit) LTV eligibility, and max LTV may be slightly lower than single family (1 - 4 unit) guidelines.
Who uses DSCR Loans?
DSCR loans are used by experienced real estate investors who:
- do not have a W2 (salaried employment) and therefore do not qualify for a conventional mortgage for an investment property
- do not have tax returns available
How to Calculate DSCR
Use our DSCR Calculator. There are two ways that DSCR is calculated:
Method 1: NOI ÷ Debt Service
NOI = Rent - Taxes - Insurance - Utilities - HOA - Property Management - Maintenance
Debt Service = Mortgage Principal + Mortgage Interest
For example, you have a property with the following conditions:
- Annual Rent: $24,000
- Annual Taxes: $5,000
- Annual Insurance: $1,000
- Annual Utilities: $0 (paid by tenant)
- Annual HOA: $0
- Annual Property Management: $0 (self managed)
- Annual Maintenance: $1,500
- AS IS Value: $250,000
- Interest Rate: 4.75%
- LTV: 75%
- Loan Term: 30 years
NOI = $24,000 - $5,000 - $1,000 - $0 - $0 - $1,500 = $16,500
Debt Service = $978.09 x 12 = $11,737.08
DSCR = $16,500 ÷ $11,737.08 = 1.4
Method 2: Monthly Rent ÷ PITIA
PITIA = Principal + Interest + Taxes + Insurance + Association Fees
Using the example above:
DSCR = ($24,000 - $5,000 - $1,000) ÷ $11,737.08 = 1.25
As you can see from these examples, the DSCR value is different -- it's important to understand how your lender calculates DSCR to avoid confusion and frustration. The second example does not factor in operating expenses such as property management, utilities and maintenance yet it still produces a lower DSCR.
DSCR Loan Guidelines
When you work with OfferMarket, you have access to the most flexible DSCR loan guidelines:
| Guidelines: | Individual Rental Property Loans |
|---|---|
| Interest Rates | [get instant DSCR loan quote](https://www.offermarket.us/loans) |
| Interest Rate Buydown | available |
| Origination Fees | 1 point (1% 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 | 5/1, 5/6, 7/1, 7/6, 10/1, 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 |
| Seasoning | None |
| Minimum Guarantor FICO | 640 |
| Ownership | LLC (preferred), Corp |
| Recourse | Full recourse |
| Minimum DSCR | 1.1 |
| Leased Units DSCR | Lower of actual rent and appraisal market rent |
| Vacant Units DSCR | 100% of appraisal market rent |
What is a delayed financing?
Delayed financing is when you purchase a rental property using cash and then do a cash out refinance. We allow you to cash out refi your rental property on a loan-to-cost (LTC) basis at 80% of your purchase and rehab cost. So if you buy a property for $180,000 and you invest $20,000 to renovate it, using your own cash, then we can provide up to a $160,000 ($180,000 + $20,000 * 80%) loan as soon as you are ready to cash out. You don't even need to rent the property out.
While delayed financing is an attractive option if you want to close a deal fast in cash and then quickly refinance, many investors prefer to cash out on an LTV basis. Using the example above, while your cost basis is $200,000, the ARV might be $250,000 once the rehab is completed. Since you can cash out at 75% LTV, your loan would be $187,500 ($250,000 * 75%). That additional $27,500 makes a big difference for many of the BRRR investors we serve.
What is seasoning for DSCR loans?
Seasoning means the amount of time you own your rental property before you can do a cash out refinance. If you buy your property
What is the seasoning period for DSCR Loans?
While most DSCR lenders require 6 months of seasoning, OfferMarket allows cash out refi at 75% LTV with no seasoning requirement.
Have any questions about DSCR loans? Use the chat message feature on the bottom right of your screen an a member of our private lending team will assist you.
Can you refinance a DSCR loan?
Yes, you can refinance a DSCR loan. When doing a DSCR refi, you need to be aware of the prepayment penalty on your current DSCR loan, as that will affect the cost to refi.
The two types of DSCR loan refi:
- Cash out refi
- Rate and term refi
Cash out refi vs Rate and term refi
| Cash Out | Rate and Term | |
|---|---|---|
| Interest Rate | Get Quote | Get Quote |
| Max LTV | 75% | 80% |
| Term | 30 Years | 30 Years |
| Cash Out | Yes | No |
| Seasoning | None | None |
Sometimes it makes more sense to do a rate and term refi instead of a cash out. This is because the maximum LTV is 80% for a rate and term compared to 75% for a cash out. If you have a high loan amount, you may be only able to do a rate and term instead of a cash out -- it ultimately depends on the appraised As Is value of your rental property.
