A DSCR (Debt Service Coverage Ratio) loan is a type of financing typically used by businesses or real estate investors where the propertys income is analyzed to determine the ability to cover debt obligations.

How is DSCR calculated?

DSCR is calculated by dividing net operating income (NOI) by total debt service. A ratio above 1 indicates that income exceeds debt obligations, which lenders prefer.

Why is DSCR important for lenders?

Lenders use the DSCR to assess risk; a higher ratio suggests lower risk as it indicates sufficient income to cover debt payments, influencing approval and terms of the loan.

What is considered a good DSCR for commercial real estate loans?

Generally, a DSCR of at least 1.25 or higher is considered favorable for most commercial real estate loans, indicating strong financial health and repayment ability.

Can individuals obtain DSCR loans for residential properties?

Yes, some lenders offer DSCR loans for investment properties owned by individuals, focusing on rental income rather than personal income for qualification.