DSCR No-Income Mortgage in the US. Apply online

A DSCR (Debt-Service Coverage Ratio) mortgage is a type of loan primarily used by real estate investors to finance investment properties, particularly those generating rental income. Unlike traditional mortgages, which heavily rely on a borrower's income and creditworthiness, DSCR mortgages assess the property's income potential as the primary factor for loan approval. This type of mortgage is particularly attractive to investors who may face challenges in meeting the strict income verification requirements of conventional loans, such as self-employed individuals or those with multiple investment properties.

The fundamental concept behind a DSCR mortgage revolves around evaluating the property's ability to generate sufficient income to cover the loan payments, including principal and interest, along with other expenses like property taxes and insurance. Lenders calculate the Debt-Service Coverage Ratio by dividing the property's net operating income (NOI) by the total debt service. A ratio of 1.2 or higher is typically sought, indicating that the property's income exceeds its debt obligations by a comfortable margin. This approach allows investors to leverage the income potential of their properties to secure financing, irrespective of their financial situation.

Features

Property-Based Qualification. Lenders evaluate the income potential of the investment property rather than the borrower’s income, making it suitable for self-employed individuals or those with irregular income streams.
Debt-Service Coverage Ratio (DSCR). The loan approval depends on the DSCR, calculated as net operating income divided by total debt service. A ratio of 1.2 or higher is typically required, indicating the property generates more income than the debt obligations.
Flexible Underwriting. Unlike conventional loans, DSCR loans are not bound by stringent federal guidelines, allowing lenders more freedom in their qualification criteria.
Varied Loan Structures. DSCR loans can include options like fixed or variable rates, interest-only payments, and cash-out refinances, providing flexibility in financing terms.

Pros and Cons

Pros

Easier Qualification. Ideal for investors with multiple properties or inconsistent personal income, as it relies on the property's income potential rather than personal financial stability.

Investment Growth. Allows investors to leverage property income to acquire additional properties or make improvements, facilitating portfolio growth and higher returns.

Less Personal Financial Scrutiny. Minimizes the emphasis on personal credit scores and income verification, making it accessible for self-employed individuals or those with less conventional financial backgrounds.

Cons

Higher Down Payment Requirements. Typically requires a larger down payment compared to some conventional loans, often ranging from 15% to 25%, which may be a barrier for some investors.

Cash Reserve Necessity. Lenders often require three to six months of cash reserves to cover potential vacancies or unexpected expenses, necessitating substantial liquidity.

Higher Interest Rates. DSCR loans may come with higher interest rates than traditional mortgages, increasing the overall cost of borrowing.

How to Get a DSCR No-Income Mortgage

Apply for a loan

Research Lenders. Identify lenders that offer DSCR no-income mortgages. Look for those with experience in real estate investment financing and a solid reputation for working with investors.
Evaluate Property Potential. Ensure the investment property has strong income potential. Calculate its net operating income (NOI) by subtracting operating expenses from total rental income. A high NOI increases the likelihood of loan approval.
Calculate DSCR. Determine the property’s Debt-Service Coverage Ratio (DSCR). Divide the NOI by the expected debt service (principal and interest payments). Aim for a DSCR of 1.2 or higher to meet most lender requirements.
Prepare Documentation. Gather necessary documents such as property appraisal reports, rent rolls, financial statements, and operating expense reports. These will help demonstrate the property's income potential and financial stability.
Submit Application. Complete and submit the mortgage application to your chosen lender. Include all required documentation to support the property’s income potential and your financial stability.
Underwriting Process. Work with the lender through the underwriting process. This involves a thorough evaluation of the property’s income potential and financial viability, as well as a credit check and appraisal.
Loan Approval and Closing. Once approved, review the loan terms carefully. Proceed with the closing process, ensuring all legal and financial obligations are met.

Requirements

Minimum Credit Score. Borrowers typically need a minimum credit score of 680. While personal credit is not the primary focus, a reasonable credit score is still required to demonstrate financial responsibility.
Down Payment. A down payment of 20% to 25% of the property's purchase price is usually required. This indicates the borrower’s commitment and reduces the lender’s risk.
Debt-Service Coverage Ratio (DSCR). A minimum DSCR of 1.2 is commonly required. This ratio ensures that the property’s net operating income is sufficient to cover the debt obligations.
Cash Reserves. Lenders often require borrowers to maintain cash reserves equivalent to three to six months of mortgage payments and operating expenses. This acts as a financial buffer for unforeseen vacancies or expenses.
Property Appraisal. A professional property appraisal is required to confirm the value and condition of the property. This ensures that the property can generate the necessary rental income.
Rental Income Documentation. Provide detailed documentation of the property’s rental income, such as rent rolls, lease agreements, and historical income records. This supports the property’s income potential.
Financial Statements. Submit comprehensive financial statements for the property, including profit and loss statements and expense reports. Accurate documentation helps in assessing the property's financial health.
Insurance Requirements. Adequate property insurance is mandatory. This protects the investment and reduces the lender’s risk in case of damage or loss.

Conditions

Loan-to-Value (LTV) Ratio. Typically, lenders offer a maximum LTV ratio of 75% to 80%. This means you can finance up to 75% to 80% of the property's value, requiring you to provide a down payment of 20% to 25%.
Interest Rates. Interest rates for DSCR no-income mortgages can vary but generally range from 5% to 8%. Rates may be higher than conventional loans due to the increased risk for lenders.
Loan Terms. Loan terms usually range from 5 to 30 years. Fixed and adjustable-rate options may be available, allowing flexibility in how the loan is structured.
Prepayment Penalties. Some DSCR loans may include prepayment penalties if you pay off the loan early. These penalties can be a percentage of the remaining balance or a fixed fee.
Cash-Out Refinancing. DSCR loans often allow for cash-out refinancing, enabling you to access equity built into the property for other investments or expenses.
Interest-Only Payments. Some lenders offer interest-only payment periods, typically for the first 5 to 10 years. This can reduce initial monthly payments, although the principal remains unpaid during this period.
Amortization Options. Full amortization options are available, meaning the loan is paid off completely over the term, or partially amortized with a balloon payment at the end.
Property Types. Eligible properties generally include 1-4 unit residential properties that are non-owner-occupied and certain commercial properties like multifamily buildings with up to four units.

Ways to Get the Money

Direct Payment to Seller. Upon approval and completion of all required documentation, the lender directly transfers the loan amount to the seller of the property. Ensures the funds are used precisely for the property purchase, streamlining the transaction and providing security to the seller. Requires coordination between the lender, borrower, and seller to ensure a smooth transfer of ownership and funds.
Escrow Account. Funds are deposited into an escrow account managed by a third-party escrow agent. The escrow agent disburses the funds to the seller upon completion of all contractual conditions. Adds a layer of security, ensuring that all terms of the sale are met before funds are released. Protects both the buyer and seller. May involve additional fees for the escrow service and requires careful management of the escrow process.
Construction Draws. For properties needing renovation, funds are disbursed in stages or "draws" as construction milestones are completed. The lender or a third-party inspector verifies progress before each disbursement. Ensures that loan funds are used for property improvements as planned, reducing the risk of misuse. Requires detailed construction plans and regular inspections, potentially delaying funds disbursement at each stage.
Cash-Out Refinance. If the DSCR loan is for refinancing an existing property, the lender disburses the funds to pay off the existing mortgage. Any additional funds may be provided directly to the borrower or deposited into a specified account for approved uses. Allows borrowers to access equity from their property, which can be used for further investments or improvements. Borrowers need to manage the funds responsibly and ensure they adhere to any terms set by the lender regarding the use of excess funds.

Best Places to Get a DSCR No-Income Mortgage

New Silver is a direct lender catering to real estate investors with a range of loan options, including fix and flip, rental property, and construction loans. Their rental loans, which are DSCR-based, offer 30-year fixed terms for stabilized properties without requiring a minimum DSCR, making them accessible to a broader range of investors.

Kiavi provides fix-flip and rental loans to real estate investors, featuring DSCR loans that do not require tax or income documentation. Kiavi's rental loans come with flexible terms, interest-only options, and rates starting at 7.250% with an LTV of up to 80%. These 30-year fixed-rate loans accommodate single-family homes, PUDs, and 2-4 unit properties, with no pre-payment penalty after three years.

Griffin Funding offers a wide array of loan products nationwide, including DSCR, VA home, traditional mortgages, non-QM, and commercial loans. Their DSCR loan, a type of non-QM loan, does not require personal income verification or job history. Griffin Funding provides loans up to $5 million with a 20% down payment and a DSCR as low as .75%. Interest-only payment options are available, and the loans can be obtained by individuals or LLCs.

Angel Oak specializes in both conventional and unconventional loans through retail and direct lending. Their investor cash flow loan, a DSCR product, is tailored for real estate investors seeking loans up to $1.5 million. This 40-year fixed loan includes interest-only options and does not require income or employment information, allowing investors to finance an unlimited number of properties.

Things to Pay Attention To

Property Type Eligibility. Verify that the property qualifies for a DSCR loan. Typically, non-owner-occupied residential properties and certain commercial properties are eligible, while agricultural or manufactured homes might not be.
Loan Terms and Conditions. Carefully review the terms and conditions of the loan. Understand the interest rate, repayment schedule, and any potential penalties for early repayment.
Cash Reserves. Maintain adequate cash reserves to cover three to six months of mortgage payments and operating expenses. This is crucial for handling vacancies or unexpected costs.
Property Management. Effective property management is essential for maintaining occupancy and income. Consider hiring a professional property management service if you are unable to manage the property yourself.

How to Repay a DSCR No-Income Mortgage?

Monitor Property Income. Regularly track the rental income generated by the property. Ensure rents are collected on time and reinvest any excess income to improve property value and income potential.
Maintain Property. Keep the property well-maintained to attract and retain tenants. Regular maintenance reduces vacancies and ensures steady cash flow, crucial for repaying the mortgage.
Reinvest Profits. Use surplus rental income to reinvest in the property or pay down the principal. This reduces the loan balance and interest over time, making repayment easier.
Consider Refinancing. If interest rates drop or the property’s value increases significantly, consider refinancing the mortgage. This can lower your monthly payments or allow for a cash-out refinance to fund additional investments.
Automate Payments. Set up automatic mortgage payments to ensure timely repayment. This helps avoid late fees and maintains a positive relationship with the lender.

Reasons for Getting Rejected for a DSCR No-Income Mortgage

Low DSCR. A DSCR below the required threshold (typically 1.2) indicates that the property’s income is insufficient to cover the debt obligations, leading to loan rejection.
Insufficient Rental Income. If the property cannot generate enough rental income to meet the lender’s requirements, your application may be denied. Ensure the property is located in a high-demand rental market.
Inadequate Down Payment. Failure to provide the required down payment (usually 15% to 25%) can result in loan rejection. Ensure you have the necessary funds available.
Poor Property Condition. Properties in poor condition or requiring significant repairs may be deemed too risky by lenders. Conduct necessary repairs and maintenance to improve the property’s condition.

Alternatives

Hard Money Loans

Hard money loans are short-term, high-interest loans provided by private lenders or investment groups. These loans are often used by real estate investors for property purchases, renovations, or flipping projects. Hard money lenders focus more on the value of the property being financed rather than the borrower’s creditworthiness or income. These loans can be processed quickly, but they come with higher interest rates, typically ranging from 10% to 18%, and shorter repayment periods, usually 6 to 24 months. They are ideal for investors needing rapid access to funds.

Bridge Loans

Bridge loans are temporary financing solutions used to bridge the gap between the purchase of a new property and the sale of an existing one. These loans are typically short-term, lasting from 6 months to 3 years, and are secured by the borrower’s current property. Bridge loans can be an attractive option for real estate investors looking to quickly capitalize on new investment opportunities without waiting for their current properties to sell. Interest rates on bridge loans are higher than conventional loans but lower than hard money loans, reflecting the transitional nature of the funding.

Asset-Based Loans

Asset-based loans are secured by the borrower’s assets, such as real estate holdings, rather than their income or credit history. These loans are suitable for real estate investors with significant assets but fluctuating or low personal income. The lender evaluates the value of the assets and provides a loan based on a percentage of that value, often around 50% to 70%. Asset-based loans offer more flexibility and quicker approval processes compared to traditional loans but usually come with higher interest rates and shorter terms.

Portfolio Loans

Portfolio loans are offered by banks or credit unions that hold the loans in their own portfolios rather than selling them on the secondary market. This allows for more flexible underwriting criteria and tailored loan products. Portfolio loans can accommodate real estate investors who might not meet the standard requirements for conventional mortgages due to multiple properties or non-traditional income sources. These loans often feature competitive interest rates and terms similar to conventional mortgages but offer greater flexibility in approval.

Editorial Opinion

The DSCR mortgage fills a crucial niche in the lending market, offering an alternative avenue for real estate investors to access financing. By shifting the focus away from personal income and towards the income-generating potential of the property itself, DSCR mortgages provide a pathway for individuals who may not qualify for traditional loans to invest in real estate. However, it's essential to recognize that while DSCR mortgages offer flexibility and accessibility, they also come with their own set of risks and considerations. Investors should carefully evaluate their financial situation and the specifics of their investment properties before opting for this type of mortgage.

Important

Keeping your Debt-to-Income (DTI) ratio below 30-40% of your monthly income is crucial. This will help you avoid potential financial problems in the future. Additionally, always assess the necessity and feasibility of taking a loan, ensuring you can comfortably manage its repayment.

How to Choose a Mortage Lender

Check Associations. Look for lenders who are members of reputable organizations, such as the Mortgage Bankers Association (MBA). Membership in these organizations can indicate a higher level of reliability and professionalism.
Review Terms and Conditions. Carefully examine all the terms and conditions of the mortgage contract. Pay special attention to details like the loan term, fixed vs. variable interest rates, and any prepayment penalties.
Interest Rates and Costs. Scrutinize the interest rates and ensure that your contract includes a detailed breakdown of the total cost of the mortgage, including closing costs, origination fees, and any other charges.
Right of Rescission. Remember you can utilize your right of rescission, which typically allows you to cancel the mortgage within three days after signing the agreement. Additionally, use the "cooling-off" period to thoroughly review the contract and make an informed decision before finalizing the mortgage agreement.
Compare Offers. Shop around and compare offers from multiple lenders to find the best rates and terms that suit your financial situation.