7 Best DSCR Lenders In 2024

While conventional loans and loan options are viable capital sources for real estate investors engaged in various projects, navigating their bureaucratic processing procedures can be daunting.

For instance, to obtain a conventional mortgage, whether for wholesaling or rental property investment, you must verify your pay stubs and employment status.

This raises a pertinent question: are there alternative loan options that don’t hinge on creditworthiness or employment verification? The short answer is yes. One such option is Debt Service Coverage Ratio (DSCR) loans. In this article, we will cover what DSCR loans are, the types, and the best DSCR lenders in the market.

• What Are DSCR Loans?
• Top 7 Debt Service Cover Ratio Loans
• What Do DSCR Lenders Look For?
• Are DSCR Loans Hard Money Loans?
• Final Thoughts: Are DSCR Loans Right For You?

What Are DSCR Loans?

A debt service cover ratio (DSCR) loan is a mortgage loan tailored explicitly for residential real estate investors. Unlike traditional mortgages, a DSCR loan is often qualified based on the income-generating potential of an investment property.

In other words, DSCR loans are strictly designed for investment purposes and are often underwritten based on the expected income from the investment property. That means no income or employment verification is required, and neither will the DSCR mortgage lenders need to assess your tax returns or debt-to-income ratio.

Instead, DSCR loan lenders often assess borrowers' repayability by comparing the annual property net operating income against the principal and annual principal and interest payments. A DSCR above 1 indicates that the property generates enough income to cover its debt obligations, while a ratio below 1 suggests a potential shortfall. Consequently, most lenders require a DSCR ratio of 1:0, which indicates the investment can adequately cover its operating expenses, principal, and interest payments on the loan.

DSCR loans are not limited to real estate investors but are often used for income-generating properties such as rental properties, commercial real estate, or multifamily units. These loans are an excellent option for wholesalers and house flippers starting out because they assess the property's ability to generate income rather than relying solely on the borrower's creditworthiness. Beyond the income verification factor, DSCR loans allow investors to finance their projects without tying up their assets as collateral.

While DSCR loans are typical in real estate, similar principles apply in other industries where a project’s cash flow is critical for loan approval. That said, here are the overall benefits of DSCR loans over other options:

• No income or employment verification is required
• There is no need to provide tax return information
• Streamlined loan processing
• Reduced risk of defaulting
• Multiple loan payments
• Property loans can be used to finance various projects
• Can be owned by an LLC

Types of DSCR Loans

DSDR loans vary based on the repayment plan. The common types offered include:

• Fixed-rate DSCR loans: As the name implies, fixed-rate DSCR loans have a fixed interest rate throughout the loan term, usually 30 years (but the term may vary depending on the lender). They offer the advantage of being predictable and easy to budget for monthly payments.
• Adjustable Rate (ARM) DSCR Loans: Also known as variable rate, ARM DSCR loans feature interest rates that fluctuate based on market conditions. While they may offer lower initial rates, there’s always the risk of an increased rate in the future.
• Interest-Only DSCR Loans: With an interest-only DSCR loan, borrowers often get the grace of only paying the interest for a specified period, typically the first few years, and then covering the principal amount later. This usually means lower initial payments. Interest-only DSCR loans are an excellent option for investors strapped for cash since they can channel the money they would have used to cover principal costs toward other investments or operating expenses.
• Balloon payment DSCR: These loans involve making smaller monthly payments for a set period, followed by a larger “balloon” payment at the end of the term. This category of DSCR loans is commonly used by investors anticipating refinancing or selling the property before the balloon payment is due.

What Kind of Property Can You Buy With a DSCR Loan?

The eligibility criteria for properties you can buy using DSCR loan funding differ from lender to lender. Still, the rule of thumb is that the property should be a fully operational, income-generating asset. That means you cannot qualify for a DSCR loan if you intend to invest in an owner-occupied property. Similarly, these loans are not applicable for speculative investment projects like rental property construction.

Typically, DSCR loans are designed to acquire short-term and long-term investment properties. Eligible property types commonly include:

• Single-family residences
• Planned urban developments
• Condos
• 2-4 property units
• 2-10 units of multifamily properties
• LLC-owned properties

Read Also: How To Start A Rental Property Business: A Step-By-Step Guide

*For in-depth training on the best DSCR lenders, Real Estate Skills offers extensive courses to get you ready to make your first investment! Attend our FREE training and gain insider knowledge, expert strategies, and essential skills to make the most of every real estate opportunity that comes your way!

Top 7 Debt Service Cover Ratio Loans

1.  Kiavi
2. Griffin Funding
3. Angel Oak
4. Truss Financial Group
5. Lima One Capital
6. Sprint Funding
7. Mortgage Vintage

Do you like the concept but wonder, “Where can I get a DSCR loan?” or “What banks do DSCR loans?” Worry not! As a platform on a mission to fully empower you, we also curated a list of the best DSCR loan providers below:

1. Kiavi

Kiavi is a digital lender that caters specifically to the real estate market. The lender has been in play since 2013 and operates in about 20 states, including Washington, D.C.

Among its diverse range of loan products, the Kiavi DSCR rental loan particularly shines, offering an impressive 80% loan-to-value ratio for various property types, including single-family residences, condos, PUDs, and 2-4 unit structures.

Kiavi primarily offers fixed-rate DSCR loans with an extended repayment period of up to 30 years. Their DSCR is 1.25, the standard among lenders, while interest rates begin at 7.75%. However, for investors seeking flexibility, the DSCR loan company provides alternatives such as an interest-only loan option and fully amortizing adjustable-rate mortgage choices like the 5/1 ARM and 7/1 ARM. While most lenders impose a prepayment penalty throughout the loan period, Kiavi distinguishes itself by waiving prepayment penalties after the initial three years, promoting borrower-friendly terms.

The company also ensures streamlined loan processing by eliminating income, employment, and asset verification. This, coupled with an AI-powered loan prequalification system, ensures investors enjoy a swift loan application process and can access the capital they need to fund fly-by-night investment opportunities.

Additionally, investors seeking to safeguard personal assets will appreciate Kiavi’s policy allowing DSCR loans to be acquired under an LLC. Moreover, Kiavi loans can refinance or fund multiple properties. This empowers investors to seamlessly diversify their portfolios while maintaining a well-structured budget for repayment.

On the downside, this DSCR loan company requires new applicants to commit up to $50,000 for account opening, and customer reviews suggest poor customer support. While these are certainly disadvantages to consider, Kiavi combines competitive loan repayment terms and technological efficiency, making it a reliable and one of the best DSCR loan lenders in the market.

2. Griffin Funding

Griffin Funding is on our list of the top DSCR lenders for compelling reasons. First, this DSCR loan bank operates countrywide, meaning whether you’re a wholesaler in Florida or a rental property investor in Arizona, you can enjoy access to their funding opportunities.

They offer a loan-to-purchase ratio of 80% and interest rates between 3.0% and 7.5%, contingent on the loan amount. Notably, borrowers have the option of an interest-only repayment plan. The origination fee falls within 1% to 3% of the loan amount.

While most lenders cap their DSCR loans at $3 million, Griffin Funding breaks the mold by allowing jumbo DSCR loans of up to $5,000,000! Add in that the company requires only a 20% down payment. Yet, borrowers can use the loans to finance multiple investment properties, and you can leverage these loans to scale your investment portfolio.

As if not impressive enough, this DSCR loan provider accepts a DSCR ratio as low as 0.75 as long as an investor’s credit score is high enough. If your credit score is low, fret not because Griffin Funding approves DSCR loans for borrowers with FICO scores as low as 580. However, you’ll need to put in a larger down payment, and you may incur higher interest rates as you’re a risky applicant.

Like most DSCR loan providers, Griffin Funding requires no income or employment verification but will conduct an appraisal to evaluate property value and potential rental income. Additionally, there’s no prepayment penalty if you repay your loan within three years. While we couldn’t find the option of adjustable-rate mortgage payments, Griffin Funding generally emerges as a noteworthy choice in the realm of DSCR loan lenders.

3. Angel Oak

Angel Oak is an Atlanta-based private lender specializing in traditional and non-QM mortgage products. The company offers DSCR loans between $100,000 and $3 million, but approval and qualification are based on the property’s cash flow.

Additionally, to qualify for high loan amounts, borrowers must have a minimum credit score of 680 and own a primary residence. On the upside, no personal income or job verification is required, and the lender offers quite generous repayment periods of up to 40 years where the interest-only option is applicable.

Moreover, Angel Oak accommodates various properties, including non-warrantable condos, short-term rentals, Airbnb, and VRBOs. They also place no limit on the number of properties you can finance using a single DSCR loan, and investors looking to separate personal assets from their business operations can apply for the loans and register the investment properties under an LLC's name.

Beyond purchase, Angel Oak DSCR loans can be used for cash-out and rate-term refinancing, allowing investors to access cash from their existing equity or improve the terms of their current mortgage.

The catch? Compared to lenders like Griffin Funding and Kiavi, their credit score requirements for DSCR loans are high, and borrowers must pay for a second appraisal when applying for loan amounts greater than or equal to $1.5 million. Additionally, they operate in only about ten states. However, other than that, their general DSCR mortgage policies make them an excellent option.

4. Truss Financial Group

If a proven track record is always your priority when comparing DSCR loan banks, Truss Financial, established by Jason Nicholas and Jeff Miller, is where to get a DSCR loan for your investment. The California-based DSCR lender has been in the game for two decades and even survived the 2008 global recession that saw countless businesses permanently close their doors.

Beyond its stellar record, Truss Financial offers DSCR loans with impressive terms. Operating on the standard 1.0 coverage ratio, the lender also eliminates the need for tax returns, income, and asset verification.

Investors with extensive capital requirements will be glad to know that Truss Financial offers DSCR loans of up to $30 million—the most substantial amount offered by any DSCR loan lenders on our list. Furthermore, Truss Financial DSCR loans come with a 30-year repayment period and a fixed interest rate tailored to your specific loan amount. In cases where you have an existing investment property but its rental income doesn’t cover the debt service cost, Truss Financial accommodates you by underwriting a no-ratio loan, provided you have 25% equity in that property and a healthy FICO score. Additionally, Truss Financial operates countrywide, ensuring capital accessibility for various investors.

5. Lima One Capital

Lima One Capital offers rental loans from $75K up to $ 1 million, with repayment options of 5, 10, and 30 years. They offer quite a generous loan-to-value ratio of up to 80% on investment property purchases and allow a 75% LTV on cash out.

If you need flexible repayment options, Lima One Capital might be one of the best DSCR lenders for your investment needs. Besides fixed rates contingent on your required loan amount, this lender offers interest-only, adjustable-rate mortgages, and even balloon repayment options.

However, unlike most lenders, they require a higher-than-average debt service coverage ratio of 1.5 or more. Investors must also have a FICO score of 700 or more to access Lima One Capital DSCR loans.

6. Sprint Funding

Just got awarded a lucrative investment opportunity and only need short-term financial assistance because your profits will soon roll in?

Sprint Funding is your best DSCR lender. This California-based mortgage provider offers six-month DSCR loans designed for investors needing short-term financing. Your investment must meet a minimum debt service coverage ratio of 1.25 to qualify.

However, the company is still a good option for investors who prefer long repayment periods. It also offers DSCR loans of up to $3 million with a 30-year term and a fixed rate tailored to the amount borrowed and the anticipated cash flow. If you meet credit and DSCR requirements, Sprint Funding can approve you for a DSCR loan within a week.

7. Mortgage Vintage

Mortgage Vintage is yet another California-based lender to consider if you’re in the market for the best DSCR loan companies. The eligibility criteria include a FICO score of 620 or higher and a focus on residential investment properties.

With loan amounts ranging from $70,000 to $3.5 million, Mortgage Vintage caters to a broad spectrum of capital needs, making it a versatile choice for modest and extensive financing requirements.

The lender permits a loan-to-value ratio of up to 80% for purchases and 75% for cash-out refinancing. While Mortgage Vintage predominantly offers 30-year fixed-rate loan terms, they also provide the option of fully amortized 7/6 ARM and 10/6 ARM terms, showcasing their commitment to loan repayment flexibility.

*Before we continue our guide on the best DSCR lenders, we invite you to view our video on How To Get Into Real Estate With No Money! Host and CEO of Real Estate Skills, Alex Martinez, provides the perfect guide for beginners to invest in real estate using no capital of their own!

What Do DSCR Lenders Look For?

Now that you're familiar with DSCR loans, their types, eligible properties, and top lenders, the crucial question arises: Do you meet the qualifications for one? Explore the criteria that DSCR lenders assess to ascertain whether it's a feasible financing option for your envisioned investment:

• A healthy credit score: Although DSCR loan lenders will not verify your income or employment status, they often prioritize investors with a healthy credit score, usually from 620 and above. However, some lenders may approve you for a DSCR loan even with a lower credit score, but this often comes with higher interest rates and down payment requirements since you’re essentially a risky borrower.
• Debt service coverage ratio: The debt service coverage ratio is one of the most essential factors DSCR lenders look for when processing a loan application. The majority of lenders require a DSCR of 1.25 or more as this often means the investment property can generate 25% more profit than expenses, allowing the investor to service their debt comfortably. However, as with the credit score, some lenders are willing to approve your loan with a DSCR as low as 0.75. Unfortunately, that often means tighter loan requirements, such as a higher down payment, higher interest rates, and a lower loan amount. You’ll also need a minimum credit score of 700 if you’re to be approved for a DSCR loan for an investment project with negative cash flow.
• Down payment: Although DSCR loans provide a valuable earning opportunity for lenders, they’re typically high-risk since repayment depends on the anticipated cash flow rather than the borrower’s income. Consequently, most DSCR loan lenders also often consider a borrower’s ability to provide a down payment. Most lenders require a down payment between 15% and 25% of the property’s purchase price. The down payment required may even be higher depending on the borrower’s financial qualifications, credit history, and experience in real estate investing.
• Property type: While most properties are eligible for DSCR loans, most DSCR lenders will not approve your application if you want to finance mobile homes, boarding houses, resorts, houseboats, or log homes. They prioritize single-family residences, PUDs, condos, 2-4-unit properties, and modular homes.
• Minimum loan amount: Some lenders, notably those catering to commercial real estate borrowers, may impose specific minimum loan amounts to make the underwriting process efficient and cost-effective. This is common, where smaller loans may not justify the administrative costs.
• A good primary guarantor: While DSCR loans may be more focused on the property's performance, some borrowers often use corporate entities, for instance, LLCs, to hold and manage investment properties. In such cases, most lenders may require a personal guarantee from the entity’s principal owner.

Are DSCR Loans Hard Money Loans?

No, DSCR loans aren’t hard money loans.

Hard money loans are short-term loans typically tied to an asset as collateral. They’re underwritten explicitly by private lenders or companies over traditional banks or financial institutions. Hard money lenders are often more concerned with the asset’s/property’s equity than the borrower’s creditworthiness.

They have a quick turnaround time and are commonly used for quick financing, such as when a wholesaler must quickly rehabilitate and sell a property. Due to the risk involved and their short-term nature, hard money loans typically have higher interest rates than traditional or non-QM loans. Additionally, if borrowers cannot repay, they face the risk of property foreclosure.

DSCR loans, on the other hand, are long-term loans, often tied to terms as long as 30 years. Additionally, they’re underwritten based on projected cash flow rather than an asset.

Read Also: 9 Best Hard Money Lenders For Beginners & First-Time Investors

Final Thoughts: Are DSCR Loans Right For You?

DSCR loans are a good option. They unlock access to funding even for investors just starting because they don’t require pay stubs or employment verification. Unlike traditional loans, they have a quick turnaround time and allow self-employed investors to capitalize on multiple investment opportunities because a single loan can finance various properties.

Additionally, DSCR loans enable investors to separate their personal from business assets because they can be borrowed under an LLC. However, as with any other loan, DSCR loans have disadvantages. For instance, some lenders call for larger down payments and may charge harsh prepayment penalties. So, while DSCR loans are an excellent capital source, weigh the benefits and the risks against your situation to determine if they’re right for you.

Looking to take the first step into real estate investing? Contact Real Estate Skills today and let our team of experts guide you on your path to becoming a successful real estate investor. Whether you're a seasoned pro or just starting, we offer personalized strategies and support to help you achieve your goals.