DSCR Loan Requirements: Credit, Down Payment and Rent

DSCR loan requirements are the conditions a rental property and its buyer have to meet for a loan that qualifies on the property's rent instead of the borrower's income. Because the property carries the file, the list is shorter than a bank's. Here is what we look for on a DSCR rental loan:

This is the test that gives the loan its name. The lender adds up the full monthly payment on the property, then compares it with the monthly rent. The rent comes from the appraisal, which includes the appraiser's estimate of market rent, not only from the lease you hand in.

Take a property with a full payment of $1,850 a month. If it rents for $2,000, the rent covers the payment with $150 to spare, and the loan works. If it rents for $1,700, the rent is $150 short, and something has to change: a bigger down payment, a lower rate, or a different loan structure. A loan officer walks through those options with you before you spend money on an appraisal.

We require a minimum 620 FICO score. Your credit still matters even though your income doesn't: it tells the lender how you've handled debt before. As with most loans, a higher score usually means better pricing.

A common question is whether a DSCR loan shows up on your personal credit report. It depends on the lender and on whether the loan is in your own name or an LLC's. Many business-purpose loans aren't reported to the consumer credit bureaus, but some are, so ask before you close. Your loan officer can tell you how we handle it.

On a purchase we lend up to 80% of the property's value, so plan on a down payment of at least 20% plus closing costs. The money has to be yours and documented, usually with a couple of months of bank statements.

Some lenders also want to see a few months of payments in reserve after closing. Ask your loan officer what applies to your file, because it varies with the property and the deal.

Our DSCR rental loans cover single-family homes, warrantable and non-warrantable condos, and 2 to 4 unit properties. Buildings with five or more units go through our multifamily program instead. We fund short-term rentals as well as long-term ones.

Two things rule a property out. First, you can't live in it: DSCR loans are for investment property only. Second, it has to be ready to rent. A property that needs a major renovation first belongs with a fix and flip loan, with a DSCR refinance once the work is done.

Expect a short list. Most investors can gather it in a day:

Yes to both. We lend to LLCs as well as to individual investors, and many of our clients close in a company's name. Expect the people behind the LLC to have their credit checked, since the 620 minimum applies to them.

First-time investors also qualify. Because the property carries the file, a DSCR loan is one of the more accessible ways to buy a first rental. The same goes for investors without a job or with income that doesn't show up on paper: the lender isn't looking at your income, so what matters is your credit, your down payment and the rent covering the payment.

The process runs in four steps: