Investment property and DSCR loans
Investors buy homes to rent them out. Some lenders offer a DSCR loan, which looks mainly at whether the rent from the property covers its monthly costs, instead of the buyer's personal income.*
What DSCR means
DSCR stands for debt service coverage ratio. It compares the rent a property earns with its monthly debt payments, such as the mortgage, taxes and insurance. A ratio above 1.0 means the rent covers those costs. Lenders set their own minimum ratio, so ask each one.
What to expect
- These loans are for investment property you will not live in. If you plan to live in it, a different type of loan applies.
- Federal consumer mortgage rules generally treat loans to buy rental property as business-purpose credit, which is handled differently than loans for a home you live in. That does not remove the need to read your loan terms carefully.
- Down payments, reserves, rates and fees on investor loans are often different from owner-occupied loans, and can differ a lot by lender. Compare more than one.
Run the numbers first
Use the calculators on this site to see what a payment looks like, and add taxes, insurance, vacancy and repairs to get a more realistic picture of the rental income.
Questions to ask a lender
- What minimum DSCR do you require, and how do you count the rent?
- How much down payment and how many months of reserves do you require?
- Is there a prepayment penalty?
- What are the rate, points and closing costs?
Sources
* General information only, not a loan offer, a commitment to lend or advice. Program rules, limits and fees are set by the agencies above and can change. Eligibility, rates and approval depend on credit, income, the property and the lender, and are not assured. Investment property loans are for business purposes. This is general information, not investment, tax or legal advice. Sinjo Thomas, NMLS #2680792, C2 Financial Corporation, NMLS #135622. See disclosures.
Talk to Sinjo at C2 Financial Opens C2 Financial's website.