A debt service coverage (DSCR) loan is one that qualifies borrowers through an investment property’s cash flow rather than the borrower’s income. DSCR loans — also known as investor cash flow loans — are frequently used by real estate investors to qualify for mortgages and buy investment properties.
Mortgage lenders may use a borrower's cash flow to qualify them for a mortgage. This approach is known as cash flow underwriting, and it is typically used for borrowers who have non-traditional income sources or who are self-employed.
To qualify for a mortgage using cash flow underwriting, the lender will evaluate the borrower's income and expenses to determine their ability to make mortgage payments. The lender may consider a variety of income sources, including wages, self-employment income, rental income, and investment income. The lender will also consider the borrower's debts and expenses, including credit card payments, car loans, and other loans.
The lender will typically calculate the borrower's debt-to-income ratio (DTI), which compares the borrower's monthly debt payments to their monthly income. A lower DTI indicates that the borrower has more income available to make mortgage payments, while a higher DTI suggests that the borrower may have difficulty making mortgage payments.
Cash flow underwriting can be a useful tool for borrowers who have non-traditional income sources, but it may also result in higher interest rates or stricter lending requirements. Borrowers who are interested in using cash flow underwriting to qualify for a mortgage should work with a lender who has experience with this approach and can help guide them through the process.
Below are some states we offered DSCR loans (The list may change please contact Ferrari Lending to find out if we can originate in your state)