DSCR Loans:

This is the income generated by the property after deducting operating expenses (e.g., property taxes, insurance, maintenance).

A higher DSCR indicates that the property generates more than enough income to cover its debt obligation, making it a less risky investment for the lender.

Lenders calculate your Debt Service Coverage Ratio (DSCR) by dividing the property's net operating income (NOI) by its annual debt service (mortgage payments). A higher DSCR indicates a lower risk for the lender, as it shows that the property generates sufficient income to cover the loan payments comfortably.

Lenders use the DSCR to assess the risk associated with a loan. A higher DSCR generally means a lower risk of default, as the property's income comfortably covers the loan payments. This is why DSCR loans are particularly attractive to investors who may not have traditional income sources or prefer to qualify based on the property's potential.

While requirements vary depending on the lender and the specific property, most lenders look for a DSCR of 1.25 or higher. This means the property's net operating income should be at least 125% of the annual debt service.