What are the DSCR Loan Requirements?
The factors that will impact if your DSCR loan will be approved are the following:
What is the Minimum Credit Score Requirement for a DSCR loan?
Credit score requirements for DSCR loans can vary significantly among lenders. Some lenders may be lenient and accept a minimum credit score of 620, while others may require a higher score of 660 or even 700. It’s essential to know where you stand before approaching different DSCR lenders.
Impact of a Higher Credit Score
Having a higher credit score generally positions you better for more favorable loan terms. For instance, lenders who accept lower credit scores typically offset this with higher down payment requirements or more stringent loan-to-value (LTV) ratios. Conversely, borrowers with higher credit scores may benefit from lower down payments, better interest rates, and more lenient approval processes.
Credit Score Tiers Among Lenders
Different DSCR lenders categorize credit scores in tiers:
620-659: Generally considered subprime, borrowers may face higher interest rates and stricter loan terms. The maximum LTV in this tier is often 75%, meaning a 25% down payment is required.660-699: Falling into this range might offer more options, but lenders still might implement conservative loan terms. The down payment requirement can be between 20-25%.
700 and above: Borrowers in this tier will likely receive the most favorable terms, including lower interest rates and down payments potentially as low as 15%.
For example, one lender might require a first-time investor to have a credit score of at least 700, whereas another might be flexible down to 660 but offer higher loan costs as a trade-off. It's vital to scrutinize these differences and understand how they impact your particular situation
What are the minimum and maximum loan amounts for DSCR loans?
Debt Service Coverage Ratio (DSCR) loans typically have minimum and maximum loan amounts set by lenders. Most lenders do not offer DSCR loans for amounts below $100,000, as smaller loans may not justify the underwriting and servicing costs.
On the higher end, most lenders cap DSCR loans at around $5 million, though some may consider exceptions for well-qualified borrowers and strong investment properties.
Loan limits can vary depending on the lender, property type, and borrower profile, so it's always best to check with specific lenders to understand their exact DSCR loan requirements.
What are the Eligible Property Types for DSCR loans?
Single-Family Homes
Multi-Family (1 - 4 Units)
Condos - Warrantable and Non-Warrantable
Condotels
Modular
Multi-Family 5+ Units
Residential 5 – 8 Units
Mixed use 2 – 8 Units o Commercial usage limited to Retail/Office*
*2-3 Units: Max 1 commercial Unit
*4-5 Units: Max 2 commercial Units
*6-8 Units: Max 3 commercial Units
*Commercial space must not exceed 49% of the total building area
What does the debt service coverage ratio need to be?
For favorable rates many lenders want a 1.25 ratio or higher on short-term rentals.
On long-term rentals most lenders require a DSCR of at least 1:1, with some accepting as low as 0.75 to 0.99.
The ratio needed will depend on the type or property and if its a short-term or long-term rental.
Do you plan on renting this property on a 12 month lease or as a short-term rental?
Lenders loan based on risk, so a signed 12 month lease is less risky then a short-term rental.
If you are purchasing an investment property that you plan to rent on a 12 month lease, the minimum down payment is typically 20% if you have a credit score over 680 and its a single family home.
What is loan-to-value (LTV) and how does it affect your rate and qualifying?
Loan-to-Value (LTV) is the ratio of the loan amount to the property's appraised value and is a key factor in determining your interest rate and qualification for a DSCR loan. A higher LTV represents a higher risk for lenders, which typically results in higher interest rates or additional fees.
For most lenders, single-family investment properties require a minimum of 20% down (80% LTV) for a purchase and allow up to 75% LTV for cash-out refinances. If the property is a short-term rental, most lenders require at least 25% down (75% LTV) for a purchase loan.
Other factors such as property type, credit score, investor experience, and, most importantly, the DSCR itself will influence the maximum LTV a lender is willing to offer.
What is the minimum square footage?
The minimum square footage for a DSCR loan varies by lender, but most require a property to be at least 600 to 700 square feet. Smaller properties, such as tiny homes or very small condos, may be more difficult to finance with a DSCR loan due to higher perceived risk and limited marketability.
However, exceptions may be made for properties in high-demand areas or those with strong rental income potential. It's always best to check with individual lenders for their specific square footage requirements.
Are you a first time investor?
If you are a you can get DSCR loan, but as a first-time investor. You will likely incur a 5% LTV hit or slightly higher rate.
Instead of 20% down they may require 25% down. Each situation is unique, so its best you talk over your scenario with a DSCR loan specialist who can go over your options in detail.
Do you own a primary residence?
No, you do not have to own a primary residence to qualify for a Debt Service Coverage Ratio (DSCR) loan. DSCR loans are designed for investment properties, and lenders focus on the property's income potential rather than the borrower's personal income.
However, some lenders may have restrictions or require additional documentation if the borrower does not currently own a primary residence. It’s best to check with individual lenders to understand their specific requirements.
If you are renting and can prove you are making rent payments and your investment property will be in another city or state in most cases we can get you approved.
Assets / Reserve Requirements
Reserve requirements for DSCR loans vary by lender but typically range from 3 to 12 months of mortgage payments (PITIA: Principal, Interest, Taxes, Insurance, and HOA, if applicable).
The exact amount depends on factors such as:
Loan amount – Higher loan amounts may require more reserves.
Credit score – Stronger credit may reduce reserve requirements.
LTV ratio – Higher LTVs often require more reserves.
Investor experience – Seasoned investors may qualify with lower reserves.
Property type – Short-term rentals or multi-unit properties may require higher reserves.
Some lenders allow liquid assets (checking, savings, stocks) and retirement accounts (with a percentage counted) to meet reserve requirements. Always check with specific lenders for their guidelines.
Loan Types
The loan type significantly affects the interest rate on a DSCR loan, as different factors impact the lender’s risk.
Here’s how:
Purchase vs. Refinance – Purchase loans typically have lower rates than cash-out refinances, which carry higher risk and may have additional pricing adjustments.
Fixed vs. Adjustable Rates – Fixed-rate DSCR loans offer stability but often have higher initial rates, while adjustable-rate mortgages (ARMs) may start with lower rates but can increase over time.
Loan Term – 30-year loans are standard, but 15-year loans may have lower rates. Interest-only loans often have higher rates due to the increased risk of not paying down principal.
LTV (Loan-to-Value) – Higher LTV loans (less money down) are riskier and result in higher rates or added fees.
Property Type – Short-term rentals (Airbnb), condos, multi-family properties, and mixed-use properties generally have higher rates than standard single-family rentals due to additional risk factors.
Prepayment Penalty – DSCR loans often have prepayment penalty options, and choosing a loan with a longer penalty period may result in a lower interest rate.
Lenders assess these factors when pricing DSCR loans, so choosing the right loan type can help investors secure better rates based on their strategy.
Acerage of the Property
The maximum acreage allowed for a DSCR loan varies by lender, but most lenders prefer properties under 10 acres. Some may go up to 20 acres, but larger properties can be more challenging to finance.
Key Considerations:
Lender limits – Many lenders focus on residential investment properties, so they may limit acreage to avoid financing agricultural or commercial land.
Usability – Lenders prefer properties where the majority of the acreage is residential and income-producing, rather than raw or non-residential land.
Appraisal restrictions – If comparable sales (comps) in the area are limited, it may be harder to get financing for large-acreage properties.
Loan structure – Larger acreage properties might require a portfolio lender or a commercial loan instead of a standard DSCR loan.
If you’re looking to finance a large-acreage investment property ,it’s best to check with DSCR loan specialist that can evaluate the unique property.
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