What is a DSCR mortgage and how does it work?

Jun 28, 2023

A DSCR mortgage, or debt service coverage ratio mortgage, is a type of commercial mortgage that is used to finance income-producing properties. It is a popular choice for investors who are looking to purchase properties such as apartment buildings, office buildings, and retail spaces.

The debt service coverage ratio is a measure of the property’s ability to generate enough income to cover its debt obligations. The ratio is calculated by dividing the property’s net operating income by its debt service. A DSCR mortgage typically requires a ratio of at least 1.25, meaning that the property’s net operating income must be 25% higher than its debt service.

  • One of the benefits of a DSCR mortgage is that it allows investors to finance properties with a higher loan-to-value ratio than traditional mortgages. This means that investors can purchase properties with less money down and still have a positive cash flow. Another benefit of a DSCR mortgage is that it is typically a non-recourse loan. This means that the lender cannot go after the borrower’s personal assets if the property defaults on the loan. Instead, the lender can only go after the property itself.
  • To qualify for a DSCR mortgage, investors must have a strong credit history and a solid track record of managing income-producing properties. They must also provide detailed financial statements and projections for the property.

A DSCR mortgage is a type of commercial mortgage that is used to finance income-producing properties. It is a popular choice for investors who are looking to purchase properties with a higher loan-to-value ratio and still have a positive cash flow. To qualify for a DSCR mortgage, investors must have a strong credit history and a solid track record of managing income-producing properties. Contact us today to learn more about DSCR Mortgages.

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