Investor Debt Service Coverage Program Requirements

You might be fustrated by the mountain of paperwork required for an investment property mortgage.  Finance your investment 1 to 30 unit residential or mixed use property in most 50 states.   The solution for Investors to purchase residential investment property using the Debt Service Coverage Ratio (DSCR) loan program.  The DSCR is a calculation that helps us determine if a rental investment is generating enough income to pay its loan payment obligations.  The gross monthly income must cover the subject property Principal, Interest, Tax, Insurance and Association payment (PITIA).  No need to verify personal or business income, and No tax returns required for underwriting decision,  Loan options for purchase, refinance or cash out on a 30 year fixed term, Adjustable Rate or Interest Only program. 

Benefits of a Debt Service Coverage Loan (DSCR)

The debt service coverage ratio loan allows borrowers to qualify more easily because underwriting does not require employment history or proof of income via tax returns.  Borrowers can be novice and seasoned investors. No limitation on the number of properties you own.

Disadvantage of a Debt Service Coverage Loan

 Although the DSCR loan involves less paperwork for the borrower, the Lender incurs high risk.  Therefore, the DSCR loan may require a larger down payment. In addition, DSCR loans have a higher interest rate to compensate for the risk (ie. no income, no employment verification).  In addition, you cannot occupy the property as your primary or secondary residence. Prepayment penalty may be a condition of the loan and sometimes you can buyout the prepayment penalty.

DSCR Formula

Gross Monthly Income / Principal, Interest, Tax, Insurance

Example:  Gross rents $5,000 / $4,000= 1.25% dscr ratio

Required Underwriting Documentation
  • Application competed by borrower
  • Two (2) months bank statements
  • List of all properties currently owned (REO schedule)
  • Lease(s) for subject property or Appraisal Operating Income Statement
  • Sales Contract
  • Entity Operating Agreement and Articles of Incorporation
  • Photo Identification (State or Federal Document issued license or passport)
  • Other supporting documents may be requested based on borrower's circumstances and collateral
Eligible Borrowers
  • Citizens / US persons and foreign borrowers permitted
  • Limited Liability Companies and Corporations organized in one of the fifty states or the District of Columbia
Other Factors
  • Minimum DSCR ratio: 0.75% of PITIA
  • Minimum credit score 575
  • No foreclosure, bankruptcy, deed in lieu or short sale permitted in past 24 months
  • If foreclosure, bankruptcy, deed in lieu or short sale between 24 and 48 months, then maxiumum 65% LTV and reserves increased by 6. months from Note date
  • Mortgage and Rental History: Maximum 1 x 30 lates with 0 x 30 in last 6 months from Note Date
  • Acceptable occupancy: Investment / business purpose only
  • Acceptable Property LTV Types: 1 unit 85LTV, 2-4 unit 80LTV, 5-30 unit 75LTV, 2-8 unit Mixed Use 75LTV with 720 fico 
  • Condotels not permitted
  • Short and long-term rentals allowed
Required Reserves
  • 6 months PITIA for loan amount <$2 million 
  • 12 months PITIA for loan amounts >= $6.25 million
Loan Options
  • 30 year fixed (Interest Only option available)
  • ARM index based on 1 year CMT. Caps 2% initial, 2% annual and 5% lifetime. Floor is start rate
  • Prepayment Penalty (buyouts may be available) required for investor occupancy where permitted by law

 If you want to learn more about the DSCR loans,  call us toll free 877-539-1697 to discuss your investment property loan scenario or complete the inquiry form.