DSCR Loans:

The Debt Service Coverage Ratio (DSCR) is a key metric used by lenders to assess the risk of a loan. It's calculated by dividing the property's net operating income (NOI) by its total debt service.

Net Operating Income (NOI):

This is the income generated by the property after deducting operating expenses (e.g., property taxes, insurance, maintenance).

Total Debt Service:

This includes all the costs associated with servicing the loan, such as principal and interest payments.

A higher DSCR indicates that the property generates more than enough income to cover its debt obligations, making it a less risky investment for the lender. Most lenders look for a DSCR of 1.25 or higher for DSCR loans.

Lenders calculate your Debt Service Coverage Ratio (DSCR) by dividing the property's net operating income (NOI) by its annual debt service (mortgage payments). A higher DSCR indicates a lower risk for the lender, as it shows that the property generates sufficient income to cover the loan payments comfortably.

Lenders use the DSCR to assess the risk associated with a loan. A higher DSCR generally means a lower risk of default, as the property's income comfortably covers the loan payments. This is why DSCR loans are particularly attractive to investors who may not have traditional income sources or prefer to qualify based on the property's potential.

While requirements vary depending on the lender and the specific property, most lenders look for a DSCR of 1.25 or higher. This means the property's net operating income should be at least 125% of the annual debt service.