With a 25% down payment, almost anyone can get a DSCR mortgage – even if the property does NOT cash flow with rent.
DSCR stands for Debt Service Coverage Ratio Loans – and most readers are aware of them now. BUT – there are two huge misconceptions that I will address below.
DSCR loans use only the potential market rent from the property to qualify; no other income is necessary!
Minimum DSCR Loan requirements include:
- 680 credit score;
- investment properties only;
- rent equals at least 75% of total housing payment – principal, interest, taxes, insurance, and HOA;
- 20% down payment at least; and
- must own a primary residence.
Misconception #1: The property must “cash flow,” meaning the rent payments have to exceed the housing payment.
Properties do NOT need to cash flow, as I mention above. I bring this up because it is a question that agents ask us frequently – which is the impetus for this blog in fact.
If a property DOES cash flow, the buyer will get about a 1/4% lower rate and can make a smaller down payment (20% vs. 25% or more). But again, properties do not need to cash flow.
Misconception #2: DSCR loan interest rates are sky-high.
DSCR loan interest rates are about 1% or more higher than standard Fannie Mae and Freddie Mac rates, but they are far lower than hard money or other alternative financing rates.
And – given that these loans are so easy to qualify for, qualified buyers should always use DSCR financing instead of hard money.