How does a DSCR loan differ from a traditional mortgage?
DSCR loans focus on the income generated by the property, whereas traditional mortgages consider personal income and creditworthiness.
Related Questions
What is DSCR?
DSCR stands for Debt Service Coverage Ratio. It's a key financial metric used to assess a borrower's ability to repay their debt obligations. It's calculated by dividing the borrower's net operating income (NOI) by their total debt service.
How is DSCR calculated?
DSCR is calculated using the following formula: \n\n DSCR = Net Operating Income (NOI) / Total Debt Service \n\n NOI represents the income generated from a property after deducting operating expenses. Total Debt Service includes principal and interest payments on all loans associated with the property.
How does DSCR affect loan affordability?
DSCR directly impacts loan affordability. A higher DSCR means the borrower can afford a larger loan amount while still maintaining a healthy financial cushion. Lenders use DSCR to determine the maximum loan amount they're willing to offer.