Unlike traditional loans, DSCR loans are based on cash flow, not your job history, making them ideal for investors.

If you're considering buying a small apartment building, there’s a loan program that can make it easier to get started. Most people believe you need to show tax returns, pay stubs, or W-2s to qualify for a mortgage, but that’s not always true. A debt-service coverage ratio loan (DSCR) loan lets you qualify based on the property's income potential instead of your own. Here’s what you need to know about it:

What is a DSCR loan? A DSCR loan or Debt Service Coverage Ratio is designed for investment properties with five to ten units. With this loan, the lender focuses on the property’s rental income rather than your tax returns or personal income. If the rent covers the mortgage and provides a little extra cushion, you may qualify. It’s the property’s numbers that matter most.

What do you need to qualify? The loan typically covers up to 75% of the property’s price, so you’ll need a 25% down payment, a strong credit score, and some cash reserves. The building must also meet certain regulations. Most importantly, the rental income must be at least 15% higher than the monthly loan payment. For example, if your mortgage payment is $4,000, the property must bring in at least $4,600 in rent each month.

DSCR loans enable you to qualify for 5 to 10 unit properties using rental income rather than tax returns.

How is the appraisal different? A DSCR loan uses a commercial appraisal, which is different from standard residential appraisals. Instead of focusing on recent sales of similar buildings, the appraiser looks closely at the property’s income, reviewing rent rolls and financials. These appraisals cost more, typically ranging from $2,500 to $4,000, and they take longer to complete, usually between one and three weeks.

If you want to invest in real estate but do not want to deal with income paperwork, this may be the right loan for you. To get started, check your credit and ensure you have sufficient funds for the down payment. Next, we’ll help you look at the numbers on any property you’re considering.

If you need help or have questions, feel free to call or text me (616) 532-7200 or email larrymartin.com@gmail.com. We’ll walk you through each step and find the option that works best for you.