The Best Tool for Investors: How to Qualify for a DSCR Loan
5 minute read
August 16, 2023


Are you struggling to secure financing for your next long-term rental property due to your unique financial scenario?

The key to fast, flexible financing that caters to your needs as a real estate investor is the Debt Service Coverage Ratio (DSCR) loan.

A DSCR loan unlocks opportunities for investors because it is focused on a property’s cash flow rather than personal income.

Park Place Finance is a private money lender that offers DSCR loans to qualified investors.

Let’s take a look at how a DSCR loan works and what you need to do to qualify.

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What is a DSCR loan?

DSCR loans are non-qualified mortgage (non-QM) loans, which means they don’t have to meet the qualified mortgage criteria established by the Consumer Financial Protection Bureau (CFPB).

QM loans are more concerned about an investor’s personal income or property requirements, while non-QM DSCR loans are approved based on the property’s expected cash flow or rental income.

DSCR loans are offered by hard money lenders—such as Park Place Finance—as a flexible alternative to QM loans.

This means investors can qualify without W-2s, tax returns, or employment verification.

How does a DSCR loan work?

Your debt service coverage ratio compares your future property’s income and your total debt service, including your monthly principal, interest, taxes, and insurance (PITI) payments.

In most cases, your ratio needs to be above 0.75. A ratio above 1.25 is considered a strong figure. It means that your property brings in 25% more per month than the PITI payment.

Calculate your DSCR with the following formula:

DSCR = Net operating income / Total debt service

For example, if you are bringing in $3,000 in rental income per month and paying $2,000 per month, your DSCR is 1.5.

What are the benefits of a DSCR loan?

DSCR loans are ideal for both new and seasoned investors who are seeking financing for a rental property but lack the income and employment documentation required by other types of loans.

Real estate investors may not have a “traditional” source of income, and their tax returns often will not accurately reflect the income they need to qualify for a rental property loan.

DSCR loans also are ideal for investors who just need to close on a deal fast. It effectively fills a gap in the industry for investors seeking financing in unique lending scenarios.

Consider the following benefits:

  • Competitive interest rates
  • Ability to close in 2-3 weeks
  • No income or employment verification required
  • 30-year fixed rate option
  • Purchase and refinance options

DSCR lenders also are not required to limit the number of rental properties an investor finances, and they can be given to an LLC rather than an individual.

How do I qualify for a DSCR loan?

DSCR loan requirements vary by lender, but investors can generally expect to meet the following in order to qualify:

  • Must know your expected cash flow and monthly payment — including annual property tax and insurance information — so the lender can calculate your ratio
  • Must have a ratio above 1.00 in most cases, but the higher the better
  • Credit requirements vary by scenario, but generally, you should have a score of at least 680 or higher
  • Down payment equaling around 20-30% of the loan amount
  • Closing costs and fees, including appraisal and loan servicing fees
  • Proof of three months of reserves in a liquid format

DSCR loans can be used for both long-term and short-term rentals, and properties up to four units. This includes single-family properties, duplexes, and three to four-unit properties.

If a DSCR loan doesn’t sound right for you at this time, Park Place Finance also offers fix-and-flip loans, bridge loans, and ground-up construction loans.

We will work closely with you to determine the best course of action for your scenario.

How to increase your chances of qualifying for a DSCR loan

Hard money lenders are not like traditional lenders. Due to the nature of the deals, open communication, transparency, and honesty are essential to your success.

Investors have the opportunity to build a relationship with their hard money lender for years of deals to come.

Leverage the expertise of your account executive at Park Place Finance to help you qualify for a DSCR loan, and consider the following as you search for your next property:

  • Build a team of mortgage experts, including a trusted hard money lender, accountant, and real estate attorney
  • Carefully consider the location and cash flow of your properties
  • Create a plan for attracting responsible tenants
  • Determine whether you want to be a landlord or hire a management company

A strong application demonstrates your ability to repay the loan by generating sufficient income from your property.

If your DSCR is too low, consider the following adjustments:

  • Increase your rent
  • Boost occupancy
  • Reduce your expenses
  • Streamline your operations

Maintain open and consistent communication with your lender to understand their specific requirements, including any required documentation you may need to supply.

Not only will this increase your chances of qualifying for a DSCR loan, but it will help the process move as quickly as possible.

Qualify for a DSCR loan today with Park Place Finance

Park Place Finance offers DSCR loans nationwide to investors who need fast, flexible financing for their next rental property.

We are a direct hard money lender with in-house capital. We have been in business for over 17 years, with more than $1 billion in loans funded.

When you work with us, you will have access to a dedicated account executive to provide you with a personalized and efficient lending process.

Ready to get started with your application? Fill out our simple online application form, or call 866-407-1599 to talk to one of our account executives now.

We can’t wait to help you fund your next real estate investment.

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