The Lowdown on DSCR Loan...

Why a DSCR Loan?

A DSCR loan (Debt Service Coverage Ratio loan) is tailored for real estate investors and focuses on the property's ability to generate enough income to cover its debt obligations rather than the investor's personal income. Key points include:

• Focus on Property’s Income: The loan is assessed based on the property's net operating income (NOI) and its capacity to service the debt.
• Debt Service Coverage Ratio (DSCR): Calculated by dividing the NOI by the annual debt service. A ratio of 1.0 or higher indicates that the property generates sufficient income to cover its debt obligations.
• Risk Assessment: A higher DSCR reduces risk for lenders, as it demonstrates that the property not only covers the debt but may also provide additional cash flow.
  
  

This type of loan is ideal for investors who want to leverage the income-producing potential of their properties rather than relying on personal financial statements.

An ARM is an Adjustable Rate Mortgage. Unlike fixed rate mortgages that have an interest rate that remains the same for the life of the loan, the interest rate on an ARM will change periodically. The initial interest rate of an ARM is lower then that of a fixed rate mortgage, consequently, an ARM maybe a good option to consider if you plan to own your home for only a few years; you expect an increase in future earnings; or, the prevailing interest rate for a fixed mortgage is to high.