How does a DSCR loan work, and what kind of investor does it help?

Hi, this is Jason Skelton with Pacific National Lending.

Welcome to another Q&A session where I answer mortgage questions from you all on the internet.

Today's question is:

"How does a DSCR loan work, and what kind of investor does it help?"

Summary:

Jason explains that DSCR loans disregard a borrower's other income entirely. The qualifying question is narrower: if the property is an investment, how well does it service its own debt through the rent it generates? He notes an important nuance — the property does not necessarily have to fully cover the payment, because different programs accommodate different levels of coverage from rental income. That variation creates room to structure a deal in more than one way. Jason describes these as enjoyable loans to work on precisely because they demand more creativity and research on the lender's side to identify the best option and make the structure work for the investor.

Answer:

DSCR loans are great because they don't take into account any of your other income. It's strictly, if this is going to be an investment property, how is it going to service its own debt? And it doesn't even have to fully service it. There are different programs depending on how much of the payment would be serviced by the rents that you would receive from the property. And there are different ways for us to structure it. Those are also fun loans to do, because it takes a little more creativity and a little more research on our end to really find the best loan option for you and how to make it work. For an investor whose personal tax returns don't tell the whole story of their financial picture, that's exactly the problem this type of loan is built to solve. We're looking at the property and what it produces, not at everything else going on in your finances.