DSCR versus No-DSCR Loan Products

Lending is a pretty boring business devoid of genuine innovation.  Some refer to it as the second oldest profession.  Very little is new under the sun with it.  Nonetheless, us lenders sometimes try to employ the left sides of our brains.  The end result often either is a poorly conceived loan product or a terribly named loan product.  Such is the case with the burgeoning class of single-family rental loan products that refer to themselves as “DSCR or No-DSCR” loans.  What in the world does that mean?  DSCR stands for “debt service coverage.”  That is about as clear as mud.  Debt service coverage is fancy lender speak for “does the monthly rent for the property generate enough cash flow to pay the monthly mortgage payment, property taxes and property insurance.”  So what is a DSCR loan and what is a No-DSCR loan?  A DSCR loan is a loan where the ratio of the monthly rent to the monthly principal, interest, taxes, insurance and association dues drives the overall size and pricing of the loan.  A No-DSCR loan is a loan where that same ratio is considered but is not the only, or maybe not even the primary consideration that the lender uses to price and size the loan.  The No-DSCR loan is a DSCR loan, it is simply poorly named.

Why is this important now?  This week we announced a new loan offering, the LTRFlex Custom, a low or flexible DSCR product.  This new offering is designed for the active real estate investor that may not be seeking only cash flow, but instead long-term property appreciation, when they assess the health of their buy and hold portfolio.  So, when we consider customer applications for the LTRFlex Custom, we consider a blend of the cash flow and appreciation potential of the property, as well as the creditworthiness and investment experience of the customer. 

If you'd like to get more information on our LTRFlex Custom program, you can contact your Account Executive or fill out a form here to have a representative get in touch with you.