What DSCR means
Debt service coverage ratio is monthly rent divided by the monthly housing payment: principal, interest, taxes, insurance and HOA dues. Rent of $2,400 on a $2,000 payment is a ratio of 1.2.
What lenders ask for
A credit score in the mid-600s or higher, 20% to 25% down, a few months of reserves and an appraisal with a rent schedule. No pay stubs, W-2s or tax returns.
Closing in an LLC
Most DSCR lenders let the LLC take title and sign the note, with you as guarantor. This keeps the property separate from your personal holdings and, with many lenders, off your personal credit report.
Things to watch
Many DSCR loans carry a prepayment penalty for the first few years. If you plan to sell or refinance soon, I will price options with a shorter penalty or none.
Short-term rental income is treated differently by each lender. Tell me early how the property will be rented.
This article is general education, not financial, tax or legal advice. Guidelines change and vary by lender. Talk with Mike about your own situation.