Unlock the Secrets of DSCR Loans: A Comprehensive Guide


Unlock the Secrets of DSCR Loans: A Comprehensive Guide

A debt service coverage ratio (DSCR) loan is a type of commercial real estate loan in which the borrower’s net operating income (NOI) is used to determine the maximum loan amount. The DSCR is calculated by dividing the NOI by the annual debt service (principal and interest payments). Lenders typically require a DSCR of 1.25x to 1.50x, meaning that the NOI must be at least 125% to 150% of the annual debt service. DSCR loans are often used by investors who are purchasing properties with the intention of generating rental income.

DSCR loans can be beneficial for investors because they can provide access to financing that would not be available with a traditional loan. Additionally, DSCR loans can be assumable, meaning that the new buyer can take over the loan at the same interest rate as the original borrower. This can be a valuable feature for investors who are looking to sell their properties in the future.

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