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DSCR Loans
DSCR loans are real estate loans based on property income, ideal for investors with rental properties
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A DSCR (Debt Service Coverage Ratio) loan is a type of real estate financing that is primarily used by investors to purchase or refinance income-generating properties. The key feature of a DSCR loan is that approval is based on the property’s cash flow rather than the borrower’s personal income. The DSCR is a ratio that measures the property's ability to cover its debt obligations. For example, if a property generates $150,000 annually and has $100,000 in debt payments, its DSCR would be 1.5, which is typically considered favorable by lenders.
Eligibility:
To qualify for a DSCR loan, borrowers usually need to demonstrate that the property they are financing has a DSCR of 1.25 or higher, meaning the property's income is 25% greater than its debt obligations. This makes DSCR loans ideal for investors with multiple properties or those who want to avoid the rigorous income and credit checks associated with traditional loans.
Advantages:
Easier qualification process focused on property income.
Suitable for investors with complex financial situations.
Can finance multiple properties simultaneously.
Disadvantages:
Typically higher interest rates compared to conventional loans.
Larger down payments may be required.
Risky if property income decreases, potentially leading to loan default.
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