DSCR Loan Requirements
There aren’t any stringent criteria that you need to meet. An advantage is that you have many lenders to choose from, each with its own requirements. So you can pick your lender as you see fit.
✔ Credit Score
Lenders usually need a strong credit score before approving loans. This FICO score is usually 680 or above. The higher the LTV, the greater the credit requirement.
✔ Debt Service Coverage Ratio
This is the most important requirement. It shows lenders precisely how much of the debt can be repaid by the rental income the investment property generates.
Generally, they want at least a 1.2 to 1.5 ratio to ensure that the property can cover its payments and unexpected expenses.
✔ Loan-To-Value Ratio
Usually, lenders accept a Loan-To-Value (LTV) of 75-80% of the investment property’s value.
✔ Down Payment
Down payment requirements vary from 20% to 25% (though some lenders may have lower requirements). As an investor, you need to factor in this percentage of your property’s purchase price.
✔ Property assessment
Lenders assess the property’s income-generating potential using a comprehensive property appraisal. They evaluate factors such as rental demand, location, and existing leases. Positive cash flow is important.
✔ Rental History
Lenders prefer to give a DSCR loan to a successful property. If it's a long-term rental, get a copy of the active lease and rent agreement. A recent gross rental payout history is needed for a short-term rental.
✔ Maximum Loan Amount
The maximum loan amount is $1 million or $2 million. However, some confident lenders can even provide funding up to $5 million. The maximum loan amount highly depends on the investment property’s debt service coverage ratio.