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Debt Service Coverage Ratio Loans

Debt Service Coverage Ratio
Loans

A DSCR (Debt Service Coverage Ratio) mortgage loan is a type of financing typically used for investment properties, where the qualification is based primarily on the income generated by the property rather than the borrower’s personal income.

The Debt Service Coverage Ratio measures the property’s ability to generate enough cash flow to cover its debt obligations, calculated by dividing the property’s net operating income (NOI) by its total debt service (mortgage payments).

 

For example, a DSCR of 1.25 indicates that the property generates 25% more income than is needed to cover the loan payments. This loan option is ideal for real estate investors who may have complex financial situations or limited documented personal income but own properties with strong cash flow potential. DSCR loans often have flexible qualification requirements and no cap on the number of properties a borrower can finance, though they may come with higher interest rates and larger down payment requirements than conventional loans.

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