A debt service coverage ratio (DSCR) loan is one that qualifies borrowers based on the property income rather than the borrower’s personal income.
For Example
Debt Service Coverage Ratio = Net Operating Income / Debt Service Net Operating Income = Monthly Rental Income Received Debt Service = Principal + Interest + Property Taxes + Homeowners Insurance + Possible HOADSCR Calculator
*adjust rental income and debt service to your terms* Monthly Rental Income is$
and the Debt Service is...
Principal & Interest$
+ Property Taxes $
+ Homeowners Insurance $
+ Possible HOA $
Total Debt Service: $
we would divide $ by $ to equal % which would be our Debt Service Coverage Ratio.
Quick Pro Tip!
Anytime the DSCR is >1.25% the loan terms improve so consider increasing rents and/or decreasing your loan amount to increase your DSCR for better financing.
DSCR loans are frequently used by real estate investors to finance rental properties. The debt service coverage ratio is the ratio of an investment’s net operating income to its total debt service. It is a way of determining whether the property generates enough income to support its current debt obligations.
This loan is best used to avoid having to submit income documents and having to be qualified with personal income.
