DSCR Mortgage Loans at Park 65 Lending

A DSCR loan is a type of investment property loan that allows you to qualify for financing based on the rental income that a property earns. Park 65 does not look at your current employment to make loan qualification decisions on a DSCR loan, which makes it easier for you to qualify for financing.

“DSCR” stands for debt-service coverage ratio. The ratio itself measures how much of the total monthly payment is covered by the projected rental income the property earns. The estimated rent is determined by dividing the rental income by the PITIA (principal, interest, taxes, insurance, and homeowner’s association dues). For example, if a property rents for $2,000 per month and has an all-in monthly PITIA of $1,900, the DSCR ratio is 1.0526.

Qualification Decisions:

• Credit Score - Credit scores above 660 are typically required for DSCR loans. Like other loans, your rates will improve as you get closer to a 780 credit score.

• Down Payment — DSCR loans like 20-25% down payments on most programs. Similar to conventional, 30% down is a typical sweet spot for optimal rates.

• DSCR Ratio — Ratios above 1.0 get the best rates. As the ratio drops below that, rates tend to get worse.

Best Rates would be achieved for a 780 FICO borrower putting 30% down with a DSCR ratio of 1.0 or greater.

Benefits of a DSCR Loan:

• No Employment Required - You don’t need a job to qualify for a DSCR loan.

• Minimal Underwriting — Many of the traditional steps in underwriting such as pay stub and tax return verification are skipped, creating a smoother borrower experience.

• Scales Easily — Because there is no debt-to-income ratio like a conventional investment mortgage, investors can purchase many properties in a short period of time using these loans.

• Minimal Asset Verification — Although our DSCR programs come in many varieties depending on the investor situation, we generally don’t require a full two months of asset sourcing like a conventional loan would. This makes it easier to use gift funds, which aren’t allowed on a conventional investment loan.

• Point Financing Available — Our DSCR loans allow investors to finance points into their loan amount. This provides greater leverage, lower rates, and better cash flow.

• Short-Term Rental OK - Our DSCR loans can also accommodate short-term rental investors.

• LLC Closing is Allowed - Unlike conventional investment loans, our DSCR loans allow you to close in an LLC.

A DSCR loan allows investors to purchase homes quickly by skipping the income-gathering process found in conventional loans. In other words, there is no debt-to-income ratio that limits an investor’s ability to scale into multiple homes.

Downsides of a DSCR Loan:

1. Requires Larger Down Payment — DSCR loans are not possible for low down payments, such as 5% or 10%. Investors need at least a 20% down payment to make these types of deals work.

2. Appraisal is More Variable — the appraisal will collect both purchase value information as well as rental value information. Because of the importance of the rental value information in the DSCR ratio, this can make the appraisal doubly important to holding the deal together.

3. Credit Score Thresholds are Lower — Investors with credit scores below 660 will struggle with DSCR qualification in most cases.

Is a DSCR Loan Right For You?

DSCR loans are a great option for many borrowers, especially those who can’t qualify for a conventional investment loan. However, every financial situation is unique. To determine if a DSCR loan aligns with your needs, please call a Park 65 Lending loan officer today.