DSR Loan for Investment Properties | Calculating Debt-Service Ratio
- The DSR loan, also known as a DSCR loan, is a way to qualify for an investment mortgage without personal debt-to-income ratios.
- DSR stands for debt-service ratio.
- DSCR stands for debt-service coverage ratio.
- The DSR mortgage comes in 30 year fixed rates and a ARM whether refinancing or purchasing.
- Calculating debt-service coverage is not difficult, which is determining the cash flow coverage of the subject property.
What is a DSR loan?
- Often investors are self employed or debt-to-income ratios are too high and want to buy an investment property.
- Instead of using personal income, the DSR mortgage uses debt-service ratio of up to 100%.
- These loans are not Fannie Mae and Freddie Mac loans, but made available through wholesale portfolio lending also known as Non-QM lending.
- This Non-QM lending program allows properties to close in an LLC (Limited Liability Company) or Corporation.
Property Types for the DSR Loan
- Single Family Residences and Condos
- Duplexes and townhomes
- 3 to 4 multi-unit properties
- Also have portfolio blanket loans
- Multi-unit 5-20 units for blanket loans
Calculating Debt-Service Ratio for a DSR Mortgage
- Gross rental income is determined by the lower of the:
- Rental value of the property prepared by an appraiser (Market rent of subject property); or
- If the subject property is leased, the actual rent for which the property is leased for.
- If the subject property is not rented, the market rent of the subject property prepared by an appraiser is used.
- When calculating debt-service ratio, a lender will use the equation:
- (Principal and interest (P&I) + taxes + insurance + home owners association dues (HOA) / Rent = the debt-service coverage ratio.
- The total mortgage payment (PITIA) added and divided by the rent.
- The DSR mortgage goes up to 100% debt-service ratio, but having a better ratio often can result in better terms.
- (Principal and interest (P&I) + taxes + insurance + home owners association dues (HOA) / Rent = the debt-service coverage ratio.
