Debt Service Coverage Ratio: 6MO SOFR ARM No-Income Mortgage Loan
Qualify for a 6-Month SOFR ARM home loan without using your tax returns. As a real estate investor, you can avoid high rates and high points of private loans, lengthy approval processes, and strict lending criteria with a debt service coverage ratio loan, which is a type of no-income loan. Qualify for a loan based on your property’s cash flow, not your income.
Securing a 6-Month SOFR ARM debt service coverage ratio loan can help you expand your investment portfolio more easily than ever before.
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What Is a 6-MO SOFR ARM Debt Service Coverage Loan?
A 6-month SOFR ARM DSCR loan is a type of non-QM loan for real estate investors. Lenders use a DSCR to help qualify real estate investors for a loan because it can easily determine the borrower’s ability to repay without verifying income.
Secured Overnight Financing Rate (SOFR) is the index that replaced the London Interbank Offered Rate (LIBOR). The SOFR index is used to calculate the interest rate on most adjustable-rate mortgages. Index plus margin equals the fully-indexed rate.
For example, the 30-day SOFR average as of March 2025 is 4.35%. If the bank’s margin is 3.5%, the fully-indexed rate would be 7.85%, which is on par with current fixed-rate DSCR mortgage rates. However, unlike a fixed-rate DSCR loan, the rate on a 6-month SOFR ARM DSCR loan can potentially drop if market conditions change. The 6MO SOFR adjusts every six months based on the 30-day SOFR average at the time.
To ensure that your adjustable rate won’t go up like a rocket ship, the loan has safety caps in place. The initial adjustment cap is 2% over the start rate, subsequent caps are 1%, and the life cap is 5% over the start rate.
How Does a 6-MO SOFR ARM DSCR Loan Work?
Because real estate investors write off expenses on their properties, some may not qualify for a conventional loan. The debt service coverage ratio loan allows these individuals to qualify more easily because they don’t require proof of income via tax returns or pay stubs that investors either don’t have or that don’t represent their true income due to write-offs and business deductions.
The advantage of the 6-MO SOFR ARM is that the rate and payment start out lower than a fixed-rate mortgage, thus giving you more buying power.
This loan is an adjustable-rate mortgage. The interest rate and principal and interest payments are subject to increase after consummation. After the initial period, the interest rate and payment will adjust every 6 months based on the sum of the 30-Day Average SOFR index plus a margin of 3.5% up to a maximum initial cap of 2%, subsequent 6-month caps of 1% and lifetime cap of 5%.
DSCR ARM Loan Interest Rates
Because DSCR loans are qualified based on a property’s rental income rather than a borrower’s personal income – and therefore do not require tax returns or pay stubs – they’re considered high-risk loans. As a result, they tend to have higher interest rates compared to conventional mortgages.
DSCR loan interest rates tend to be best for those with a DSCR of 1.25 or higher. If your DSCR is below .75, you will likely pay a higher rate, make a larger down payment, and demonstrate strong reserves in order to qualify. Thus, it’s always a good idea to maximize your DSCR before applying in order to get the best rate on a DSCR loan.
Factors That Impact DSCR Interest Rates
The exact interest rate of a DSCR loan will vary based on a range of factors, including:
- Debt service coverage ratio: Your DSCR plays a key role in determining the rate you qualify for on a DSCR loan. Those with an excellent DSCR (above 1.25) will qualify for the best rates.
- Credit score: A minimum credit score of 620 is required, but a higher credit score can help you secure a better rate.
- Lender: Different lenders offer different rates, so make sure to shop around. Keep in mind that
- Market conditions:
Benefits of the 6-MO SOFR ARM DSCR Loan
Benefits of 6-MO SOFR ARM DSCR Loans for real estate investors include:
- Potentially quicker closing times
- No income or job history verification required
- No limit on the number of properties
- Loan amounts up to $2,000,000
- Unlimited cash out up to 75% loan-to-value
- Qualify with as little as a 20% down payment
- 6-MO SOFR fully-amortized loans require a minimum credit score of 680
- Interest-only 6-MO SOFR available up to 75% LTV w/ 740 credit score
- Suited for new and seasoned real estate investors
- Long-term rentals are eligible (no short-term rentals under this program)
- 3 months reserves required on cashout loans, 18 months required on all other loans, unless interest-only 24 months.
What Is the Debt Service Coverage Ratio (DSCR)?
The debt service coverage ratio (DSCR) is a ratio of a property’s annual net operating income and its annual mortgage debt, including principal and interest. Lenders use DSCR to analyze how much of a loan can be supported by the income coming from the property as well as to determine how much income coverage there will be at a specific loan amount.
Think you qualify for a loan? Contact us today to find out!
Contact UsWhat Is a Good DSCR Ratio?
When considering what a good DSCR ratio is, lenders need to ensure that a borrower is able to pay back the loan. Many lenders will require a 1.25 DSCR to qualify for a DSCR mortgage loan. However, Griffin Funding allows real estate investors to qualify for a 6-MO SOFR ARM loan with a DSCR below 1. Please note that interest rates are better on DSCR ratios of 1 or above and that a DSCR ratio of less than 1 requires more reserves.
DSCR Formula Calculation
The debt service coverage ratio formula is the annual gross rental income divided by the debt obligations of the property. Griffin Funding does not take the expenses of management, maintenance, repairs, vacancy, and utilities into account when calculating DSCR.
- To find your gross rental income we take your annual rental income based on your lease agreement and the appraiser’s comparable rent schedule (form 1007) and use the lesser of the two. In some cases, if you can prove a twelve month history of rental income you can qualify off of that rather than the appraiser’s market rent.
- Next, you’ll need to find your annual debt. Your annual debt for loan qualification purposes equals the total annual principal, interest, taxes, insurance and HOA (if applicable) payments. Annual Debt = Total Annual PITI payments
- Next, you’ll divide your annual gross rental income by your annual debt to calculate your debt service coverage ratio.
Please note that Net Operating Income (NOI), Capitalization Rate (Cap Rate), Cash on cash return (COCR), Return on Investment (ROI) is not considered for mortgage loan qualifying purposes.
Example of Debt Service Coverage Ratio Calculation
A real estate investor might be looking at a property with a gross rental income of $50,000 and an annual debt of $40,000. When you divide $50,000 by $40,000, you get a DSCR of 1.25, which means that the property generates 25% more income than what is necessary to repay the loan. This also means that there is a positive cash flow in the lender’s eye.
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Contact UsWhy Does DSCR Matter?
The DSCR lets the lender know how to determine a borrower’s ability to pay off their DSCR mortgage. Lenders must forecast how much a real estate property can rent for so that they can predict a property’s rental value.
If you have a DSCR of less than 1.0, it means that a property has potential for negative cash flow. DSCR loans can still be made on properties with less than a 1 ratio however they usually are purchase loans with home improvements / upgrades / remodeling to be made to increase the monthly rent or for homes with high equity and potential for higher rents in the future. You also can potentially get the property above a 1.0 ratio with a DSCR interest only loan.
Alternatives to DSCR Loans
If a 6-MO DSCR SOFR ARM mortgage doesn’t align with your goals, explore some of our other non-QM mortgage 6-MO SOFR loan offerings:
- Asset-Based Loans: 6-MO SOFR ARM Asset-based mortgages are another loan product for investors who want to qualify for a loan without taking income into account. These loans allow you to use your assets instead of your income to qualify, which means you won’t have to provide a tax return or proof of income.
- Bank Statement Loans: A 6-MO SOFR ARM bank statement loan allows investors to verify their income using bank statements instead of tax returns. These are beneficial for investors who have write-offs and deductions on their taxes that may make lenders believe that they bring in less money than they actually do each month.
- Interest-Only ARM Loans: 6-MO SOFR Interest-only loans offer investors the option to pay lower monthly payments for the first portion of the loan. During this time, payments only apply to interest, not the principal balance.
- Private Money Loans: Apply for a hard money loan to access quick financing for your next real estate investment venture. Whether you’re looking for a bridge loan, a construction loan, or a purchase loan, we can help you get the funding you need.
Apply for a 6-MO SOFR ARM Non-QM Investment Property Loan
Begin or continue building your real estate investment portfolio without the need for a private loan. Our 6-Month SOFR ARM DSCR loans are an excellent mortgage option for new and seasoned investors to help you build your real estate portfolio. Get started today!
Want to learn more about our non-QM loans before applying? Contact us online or call us at (855) 394-8288 to speak to one of our experienced loan specialists.
Frequently Asked Questions
Griffin’s SOFR ARM DSCR loans require a minimum 20% down payment. Some factors may affect the required down payment of your loan, like the type of property you’re purchasing, its associated risk, and more.
DSCR ARM loans are non-QM mortgages, so they’re considered to be riskier loans. Because of this, they tend to have larger down payments requirements and higher interest rates than traditional loans. DSCR loans are also available for a more limited range of purchases. These loans can only be used to purchase income-producing investment properties. Primary residences, fixer-uppers, and unique properties may not qualify. And lastly, DSCR ARM loans have adjustable interest rates.
As long as you meet the requirements of a DSCR loan, they aren’t hard to get. Requirements for a DSCR loan include proving that you’ll be able to pay off your loan with your property’s rental income, that you have good credit, and that your property meets the loan requirements.
Interest rates for 6MO SOFR ARM DSCR loans are constantly changing based on market conditions. To see today’s DSCR loan rates, take a look at our DSCR loan interest rates module near the top of this page or explore rates on our DSCR loans page.