DSCR Loan

What is a DSCR loan?

A DSCR loan is a mortgage for an investment property. DSCR loans are also 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.

DSCR Loan Update - June 2024

How to calculate DSCR

For single family rental properties (1 to 4 units), the standard DSCR calculation is Monthly Rent ÷ Monthly PITIA where PITIA is principal + interest + taxes + insurance + association dues.

Let's take a look at an example:

• Monthly rent: $2,000
• Monthly principal and interest: $1,200
• Monthly taxes: $100
• Monthly insurance: $100
• Monthly association dues (i.e. HOA or condo): $0

= $2,000 ÷ $1,400 = 1.43

A DSCR of 1.0 means your property breaks even, without considering monthly maintenance and administrative expenses (which are real expenses). The example above indicates that the property generates strong cash flows above its fixed expenses. Try the #1 DSCR Calculator and run your numbers with confidence.

History of DSCR loans

While the concept of DSCR has been around for many years in corporate finance, the innovation has been its application in the single family residential rental property asset class (1 to 4 units). 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, pension funds, credit funds and insurance companies. Given real estate 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.

DSCR loans for single family residential investment properties, our bread and butter. Everything we do is focused on providing you with remarkably competitive terms and closing timeline. Every month, we serve hundreds of rental property investors who rely on OfferMarket for fast, competitive funding. We want to be your competitive advantage.

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 your most helpful resource for DSCR loans.

Current market conditions are challenging even the best rental investors and DSCR lenders. Accessing capital at the lowest interest rate and fees, understanding your options and structuring your loan terms to achieve your goals may be the difference between getting a deal done or not, cash flowing or not.

DSCR Loan Interest Rates

Today's DSCR loan interest rate is 7.72%. For detailed insights, you can track DSCR loan interest rates with OfferMarket's industry-leading DSCR Loan Interest Rate Index.

DSCR Loan Snapshot

📈 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.

DSCR Loan FAQs

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)
Recourse	Full recourse
Minimum DSCR	1.1
Leased Units DSCR	Lower of in-place rent and market rent
Vacant Units DSCR	90% of market rent (purchase loans only)

How to get a DSCR loan?

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.

1. Get a quote With OfferMarket you get a completely online DSCR loan quote in couple of minutes without anyone calling you. After getting a quote from us, we recommend you use your favorite internet search engine and using keywords such as "DSCR loan" or "online DSCR loan quote" find other DSCR lenders that provide this type of funding. You will be required to submit similar information to what you have submitted for our quote such as "monthly rent", your "investment experience", estimated "credit score", "annual taxes", and so on. Most likely you will have to volunteer your phone number before seeing an amount or interest rate at which your deal can be funded. Once you submit your information on few lender's sites you can expect several phone calls back to inform you of prevailing loan amounts and interest rates that these lenders can fund.
2. Compare quotes Once you have accumulated several quotes its time to compare them. Full list of all comparison points is listed further in the article, but to start you can immediately see the interest rates, loan amounts and loan-to-value (LTV) that each lender can provide. Sometimes a lender can offer several options with varying LTVs to lower the loan amount in exchange for a more attractive interest rate. Our borrowers most often pick the highest LTV we can provide even if interest rate is higher because they want to get as much funding as possible per each time they have to tap financing, thus its important to compare all your quotes across the same LTV band to have a fair comparison. Pick the best deal and proceed to the next step.
3. Submit documents At this steps there is increased variability depending on the lender you have picked to go with. Most likely your lender will need to collect many documents from you to build up your Loan File so the loan can be ready for underwriting. A more complete list will be provided below but generally you will be expected to authorize credit reports and background checks, provide your business entity incorporation and standing documents as well as any operating agreements. Information about other members of your entity will be required as well as property documents if this is a refinance, such as lease, tax bills and insurance.
4. Final underwriting When all the documents are collected they are submitted to a different set of loan professionals called 'underwriters'. These professionals are separated from the initial process on purposes and receive a complete file to review and make a single decision to move forward to to deny the loan. Their guidelines are generally know ahead of the time, so your lenders' processing staff would probably prevented you from getting this far if there were any 'red flags'. This separation servers purpose of independence. Underwriters have a huge responsibility of final sign off on putting $200k into someone bank account and thus their vetting is an important and binding step in the process.
5. Closing Once approval is received from the underwriters, title and closing counsel take over the process. At this point both the title and closing counsel should have already been in contact with you setting up final documents and figuring out notary situation for remote signing (its 2023, after all). After all parties have agreed on final figures and everything has been signed the wire goes out. At this point you have a DSCR loan and the proceeds should be in your bank account.

How to qualify for a DSCR loan?

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.

Questions we ask for the quote

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.

1. Investment experience. 0 is a valid input. We work with talented individuals that are just starting out in real estate. Experience to us means number of properties rented, rehabbed or flipped in the last 10 years. For example if you have 2 leased rentals and you've rehabbed and flipped one property each year for last ten years, then your experience is 12.
2. Credit score. 660 is absolute minimum across all funding options for a DSCR loan. While credit score is not a perfect measure of your creditworthiness, its an industry standard, compliance with which lowers overall costs of your borrowing aka your interest rate. If you can pay off some credit cards to get to 721 on your median score across all three agencies, then you are likely to max out all the benefit from having a high credit score for the purpose of a DSCR loan. Raising it any higher won't give you any additional discounts in our experience, but getting it to this sweet spot can of 721 can save you tenths of thousands over the lifetime of the loan.
3. Loan type. We provide the following loan types: "Fix and flip loan", "DSCR loan", "Slow flip", "Short term rental loan", "Ground up construction loan"
4. Borrowing entity. All our loans are for business purposes. This means all of our loans must be in the name of business entity and can't be owner occupied for the exception of house hacking when client's primary residence is one of the units and remaining units are leased.
5. Number of properties. For the purpose of the quote we need to understand if you would like a portfolio loan quote or a single property loan.
6. Address. If you need to protect the full address of the property we completely understand. Please provide us with at minimum a zipcode so we can quote accurate pricing.
7. Loan Purpose. Is this loan going to be used for a purchase or a cash out refinance.
8. Purchase Price. What is, or was purchase price.
9. Estimated AS-IS Value. What is the estimated current market value from the perspective of an appraiser. What do you think your property will appraise for in the current market?
10. Property type. Is it a single family house? A condo? A townhome? Some land?
11. Number of units. How many units are part of this property?
12. Monthly rent. What is the monthly rent for your property. If the property is not yet leased, average of local market rents for comparable properties is an appropriate estimate.
13. Annual taxes. What are the annual taxes on the property?
14. Annual insurance. How much do you pay for insurance?
15. Annual HOA. Do you have an HOA? If no, 0 is a valid input.
16. Annual utility expense. If you have tenants that are responsible for their utilities, input 0.
17. Annual property management expense. If you self-manage, your management expense is 0.

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.

Questions and documents for the Loan File

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):

1. Personal background. On the first loan with our new clients we ask them to fill out a short yes or no questionnaire. We ask a range of questions that bear different levels of importance for the loan and we reserve the right to request a letter of an explanation for some of the questions if necessary. This self-reported information helps us get ahead of any potential issues that might be raised by the underwriters. We would hate to keep our client waiting while building up their file if we already know that the underwriters won't allow certain things, thus answering this portion as accurately as possible may allows us to save you a lot of time and fees.
2. Deal background. Every deal is unique. We require some information to know how to proceed and what underwriters will ultimate choose to move forward with. The most important part of this section is the rural designation. We can't lend of properties that are designated as rural.
3. Personal financial statement. In this section we get an understanding of you financial picture. There is nothing in this section that can prevent the loan from moving forward.
4. Pre-approval Once we receive the information required above you are able to generate a pre-approval letter in this section. Our repeat clients frequently use this section to place multiple offers. These clients comeback to use for a loan quote on a potential property, create a Loan File and we have all of their information from previous loan they have done with us and this way they are able to generate as many pre-approvals, completely online, as necessary for their growth without waiting for someone to generate one for them.
5. Track record List all the properties that you have rented, renting or flipped in the last 10 years. The more example you can list the better! We need to be able to verify this information through property records, deeds or other means for them to count, but its worth the effort. DSCR loan terms will be substantially improved if you have high level of experience and for our Fix and flip loan, 30 and more experience qualifies you for 100% financing, meaning you can buy flips with 0 money down.
6. Credit report We ask for your authorization to get your credit and background reports and we put copies of these reports bag into this section.
7. Purchase contract If this is a purchase transaction, we ask for a signed purchase contract so we have documentation that the transaction is moving forward.
8. Appraisal We order the appraisal for you and we are absolutely open to placing this order with your preferred appraiser. However we always get bids from the local network of appraisers so we have multiple quotes to present to our client. Once we receive the appraisal report, it will be placed into this section.
9. Appraisal review Industry standards require getting a second layer of verification on top of the appraisal report. We work with the most cost effective national provider of this service and we handle this report for you but it does add a required fee of $95.
10. Borrowing Entity Since all of our loans are business purpose loans, we must issue the loan in the name of the business entity that you control. Due to this we collect information about your business entity, including the Operating Agreement, Articles of Organization, EIN Letter, Certificate of Good Standing (or Certificate of Existence in some states). We will also need information pertaining to any and all members that are part of your business entity.
11. Insurance All our loans require that you carry a specific level of insurance coverage for the property for the duration of this loan. The fastest and most cost effective way to get insurance estimates and documentation for your loan is to use our insurance quote however you are free to find your own coverage or loop in your existing real estate agent. We will pass on to them our insurance requirements documentation so they can tailor and adjust their standard policies to fit the underwriting standards.
12. Bank statements To verify your level of liquidity we request that you submit several months of bank statements. In all the cases that you can demonstrate a high cash balance we can adjust your loan terms to be significantly more attractive. Some of our clients present their brokerage statements to show high liquid assets in order to qualify for even better loan terms.
13. Leases Our DSCR loan program requires the property to be tenant occupied with and active lease in place.

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

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 DSCR	1.1	1.2
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
Landlord Insurance	Yes	Yes
Flood Insurance	Yes, if in FEMA flood zone	Yes, if in FEMA flood zone

Deal-specific

🏠 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+
Loan amount	$50,000+	$75,000+
DSCR	1.1+	1.2+
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

Borrower-specific

💳 credit
🕵️ background
🏠 rental property investing experience

	OfferMarket	Most DSCR Lenders
Credit Score	660+	680+
Background	Clean	Clean
Investing Experience	0+	1+

How to apply for a DSCR loan?

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.

Who offers DSCR loans?

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.

Are DSCR loans hard to get?

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?"

Can you refinance 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.

Do DSCR loans require down payment?

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.

How do DSCR loans work?

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.

How many DSCR loans can I get?

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").

Where can I get a DSCR loan?

OfferMarket provides DSCR loans. The quickest way to get started and see if you qualify is to start an online DSCR loan quote.

Do DSCR loans show on credit report?

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.

How much down for a DSCR loan?

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).

How to calculate loan amount using DSCR?

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.

How to calculate maximum loan amount using DSCR?

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.

Are DSCR loans non recourse?

The industry standard for 1-4 unit property DSCR loans is that at least one member of the borrowing entity that holds title to the property (typically an LLC) personally guarantees the loan. Therefore, DSCR loans for 1-4 unit residential investment properties are considered to have full recourse.

DSCR loans for multifamily properties of 5+ units may be eligible for non-recourse structuring with a bad boy carve out. Non-recourse loans generally carry a higher interest rate than personally guaranteed loans.

In the case where one member does not own a majority of the borrowing entity, multiple members representing a majority (typically 51% to 81% depending on the guidelines of the institutional investor that would be buying the loan) would need to be a personal guarantor. In the event of default, the property would be subjected to recourse (i.e. foreclosure) by the owner of the loan and liquidated in order to pay back the unpaid principal balance, and any fees incurred associated with recourse. If the liquidation proceeds are insufficient to cover this balance, then the personal guarantor(s) would be responsible for covering the shortfall. Because DSCR loans have a maximum LTV of 80%, borrowers generally have a margin of safety to avoid personal involvement in recourse because the liquidation proceeds are usually sufficient to cover the amount owed. We work with most of the largest institutional investors that buy DSCR loans for 1-4 units and all require personal guarantee.

This said, the default rate for DSCR loans is remarkably low, a testament to the soundness of industry standard underwriting guidelines and the creditworthiness of OfferMarket's clients.

How to appeal appraisal for DSCR loan?

If your appraisal report comes in below expectations for As Is value and/or market rent opinion, you can submit a reconsideration of value appeal form to the appraiser or appraisal management company. We recommend using one of our appraisal appeal form templates. Below are some best practices to give you the best chance of a successful appeal:

• Provide verifiable sales and sources (e.g. MLS, HUD 1, etc.)
• Do not reference a final dollar amount of market value or a range of values desired (appraiser independence requirement)
• Do not provide comps that are already in the report
• Do not provide comps with larger square foot differences than those utilized by the appraiser
• Do not provide comps with significantly different floor plans (BR/BA, architectural style)
• Do not provide comps that closed after the effective date of the report
• Do not provide comps outside the subject’s market area or comps further in distance than those already utilized - the appraiser cannot overlook homes in the immediate market and will only look in similar markets when none are available within.
• Use the COMMENTS field for each comp to explain why you believe each of your comparable sales are a better representation of the subject than what was already in the report.

What is a DSCR loan program?

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
Term	30 Year
Rate Options	Fixed, Adjustable
Amortization Options	20 Year, 23 Year, 25 Year, 30 Year
Rural	Not Allowed
Minimum Credit Score	660
Experience Required	No
Borrowing Entity	LLC, Corporation, Personal Name
Personal Guarantee	Yes
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

DSCR loan qualifications are deal-specific and borrower-specific.

DSCR Loan Pros and Cons

Pro: Limited documentation

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.

Pro: Fast processing

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.

Con: Landlord insurance requirement

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.

Landlord Insurance	Requirement
Property Insurance	Yes
General Liability Insurance	Yes
Business Interruption Insurance (Loss of Rent)	Yes
Mortgagee Clause	Yes
Lender as Additional Insured	Sometimes

Con: Prepayment Penalty

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

DSCR loan interest rates are determined by the following factors:

• 5 year interest rate swap
• borrower credit
• borrower experience
• specific deal

5 Year Interest Rate Swap

The 5 year interest rate swap serves as the benchmark rate upon which a premium is added based on borrower and deal-specific risk.

Best Markets for DSCR Loans

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.

DSCR Loan Program

Learn more about OfferMarket's industry-leading DSCR loan program for your state:

• DSCR Loan Florida
• DSCR Loan Indiana
• DSCR Loan Maryland
• DSCR Loan New York
• DSCR Loan Ohio
• DSCR Loan Texas

Videos about DSCR loans

DSCR Loan Update - April 2024

DSCR Loan Update - May 2024

DSCR Loan Update - April 2024

DSCR Loan Update - March 2024

DSCR Loan Update - February 2024

DSCR Loan Update - January 2024

DSCR Loan Update - December 2023

DSCR Loan Update - November 2023