DSCR loans are specially designed for rental properties, and <\/span>eligibility is determined by a borrower\u2019s debt service coverage ratio (DSCR) instead of personal income or job history. Instead of reviewing pay stubs, W-2s, and tax returns, lenders <\/span>calculate DSCR<\/span><\/a> to determine a borrower\u2019s ability to repay the loan. <\/span>This makes a DSCR loan a perfect solution for real estate investors who take significant deductions on their taxes or otherwise can\u2019t qualify for a traditional mortgage.\u00a0<\/span><\/p>\n You can calculate DSCR by dividing your gross rental income by the debt service (including principal and interest). A DSCR of 1.0 indicates that you earn enough in rental income to afford to repay the loan.\u00a0<\/span><\/p>\n H<\/span>owever, as you may already know, investors have other expenses, such as operating costs, marketing, payroll, etc. Therefore, lenders like to see a DSCR of at least 1.25 to ensure you can afford to repay the loan and cover costs that may otherwise compromise your ability to pay back your loan.<\/span><\/p>\n Ultimately, the higher your DSCR, the more money you have to repay your debts, which reduces some of the risks for lenders and borrowers.<\/span><\/p>\nDSCR Loans vs Traditional Loans for Rental Properties<\/b><\/h3>\n