How They Work, DSCR Calculator, and Pros & Cons

DSCR Loan Requirements

As mentioned above, lenders who offer a DSCR loan program don’t typically require personal income documentation, such as tax returns and pay stubs. But they still require plenty of other documentation.

All lenders run your credit history to see how well you’ve paid your debt obligations in the past. For rental property loans, many lenders have a minimum credit score of 660, although some go as low as 620 or set the minimum credit requirement at 700.

Lenders send their own appraiser out to perform an appraisal, which includes the market rent (used to calculate DSCR).

If you apply for a mortgage as an LLC, the lender of courses needs your articles of organization, EIN, and operating agreement.

Lenders may also require bank statements to show proof that you have the cash reserves needed to meet DSCR loan requirements.

And, of course, you need to come up with the down payment.

 

DSCR Loan Down Payment

Like conventional mortgage lenders, DSCR lenders typically require a down payment of at least 20% on rental property mortgages.

In some cases, they may accept as little as 15% down, or they may require 25%, 30%, or even more down depending on your creditworthiness.

However, most DSCR lenders allow you to borrow the down payment from elsewhere, unlike most conventional lenders. That means you can open unsecured business credit lines through a service like Fund&Grow, and tap them to cover some or all of the down payment or closing costs.

Try these other creative ideas to cover the down payment on a rental property if you’re strapped for cash.

 

DSCR Loan Rates

Like all loan types, DSCR loan rates fluctuate based on benchmarks like the 10-Year Treasury rate or the LIBOR.

Lenders price their loans with a margin over the benchmark. For example, lenders might aim for roughly 300 basis points (3%) higher than the 10-Year Treasury rate. If the 10-Year Treasury sits at 3.5%, they would aim to price their loans around 6.5% in that example.

Here’s an overview of current DSCR loan rates for rental properties:

	Conventional Mortgage Lenders	Kiavi (formerly LendingHome)	Conventus	Visio	LendingOne	RCN Capital	New Silver	Lendency
Where to Check Rates	Try Credible	Kiavi Rates	Conventus	Visio Rates	LendingOne Rates	RCN Capital Rates	New Silver Rates	Lendency Rates
Loan to Value (LTV)	80-97% owner-occ, 75-80% rentals	Up to 80%	Up to 80%	Up to 80%	Up to 80%	Up to 80%	Up to 80%	Up to 80%
Credit Score	580+	660+ (no hard credit pull)	620+	680+	680+	660+	680+ (no hard credit pull)	660+
Debt-to-Income Ratio (DTI)	28% – 36%	No income docs required	No income docs required	No income docs required	No income docs required	No income docs required	No income docs required	No income docs required
Cash Reserve Requirements	6-12 mos.’ payments	None	3-6 mos.’ payments	6 mos.’ payments	6 mos.’ payments	9 mos.’ payments	6 mos.’ payments	6-12 mos.’ payments
Min. Interest Rate	4.75-8.25% owner-occ, 6.15-8.9% rentals	7.25%+	7.375%+	7.25%+	7.25%+	6.825%+	7.0%+	6.375%+
Repayment Term	15 or 30 Years	3/1 ARM, 5/1 ARM, 7/1 ARM, 30-year fixed, or interest-only	30-year fixed	5/1 ARM, 7/1 ARM, or 30-year fixed	5/1 ARM, 7/1 ARM, or 30-year fixed	3/1 ARM, 5/1 ARM, 7/1 ARM, 30-year fixed, or 10-year interest-only	30-year fixed	5/1 ARM, 7/1 ARM, 10/1 ARM, or 30-year fixed
Time to Funding	30-60 Days	10-30 Days	30-45 Days	21-30 Days	10-30 Days	14-21 Days	5 Business Days	20-30 Days
Loan Limits	$50,000 – $424,100	$75,000 – $2M	$150,000 – $9 million	$75,000 – $2M	$75,000 – $2M	$50,000 – $2M	$100,000 – $2M	$55,000 – $2M
Prepayment Penalties	Varies by lender; as high as 5% within 1 year	3% first year, 2% second year, 1% third year, none after 3 years	3 Year Stepdown (3-2-1%)	5 years typical, 3 years optional	80% of 6 months’ interest within first 3 years	5 years typical, 3 years optional	3 or 5 year options	2, 3 or 5 year options
States Serviced	All	AL, AR, AZ, CA, CO, CT, DC, FL, GA, IL, IN, KS, KY, MA, MD, MI, MN, MO, NC, NJ, NV, NY, OH, OK, OR, PA, SC, TN, TX, VA, WA, WI & WV	All except: AZ, DC, MN, MT, ND, NV, SD, VT & UT	All Except: AK, DE, ID, MN, ND, NE, NV, OR, RI, SD, UT, VT	All Except: AK, NV, ND, SD & UT	All Except: AK, HI, MN, NV, ND, SD & VT	All Except: AK, AZ, CA, CO, DC, ID, MN, NV, ND, OR, SD, UT & VT	All Except: AK, AZ, CA, ID, MN, NC, ND, NV, OR, RI, SD, TN, UT, VA,VT
Report to Credit Bureaus?	Yes	No	No	No	No	No	No	No
Where to Apply	Try Credible	Kiavi (no hard credit pull)	Conventus	Visio Lending	LendingOne	RCN Capital	New Silver	Lendency

 

How to Get a DSCR Loan

Borrowing money is like anything else in life: it helps to have relationships.

Aim to start building relationships with portfolio lenders such as Kiavi, Visio, New Silver, LendingOne, and Conventus. The more deals you do with them, the more flexibility they’ll give you on pricing and underwriting.

Lenders price and underwrite their loans based on perceived risk. Your goal as a borrower applying for a loan is to reduce that perceived risk as much as possible.