What Are DSCR Loans?

Rental property loans in California can be difficult to secure loans for, especially if you don’t have W-2s and pay stubs that you can use to prove your income. For real estate investors who want to qualify based on rental income, non-QM loans like CA DSCR loans are an excellent alternative. Non-QM loans are designed for borrowers who can’t meet the criteria to secure a traditional mortgage for one reason or another.

Debt service coverage ratio (DSCR) is a number used to figure your annual rental income versus the annual debt obligations of the property you want to invest in. If you’re making enough or more than enough in rental income to pay for your mortgage, lenders know it’s safe to loan you money. DSCR is used to determine the risk of a mortgage loan without using W-2s, pay stubs, and tax returns. A minimum credit score is required.

Advantages of California DSCR Loans

If you can’t seem to secure a loan to invest in another rental property, a California DSCR loan may be your best bet. While DSCR loans in California aren’t right for everybody, they offer some distinct advantages over traditional California home loans. Flexibility is what really makes DSCR loans a great option for real estate investors, particularly those who want to invest in several properties. Here are some of the benefits of DSCR loans in CA:

  • Closing times may be quicker
  • You don’t have to verify your job or income history
  • DSCR loans work for both new and experienced investors
  • These loans can be used for long-term and short-term rentals
  • No reserves for cashout loans, 6 months reserves required on other loans (unless DSCR ratio is below 1)
  • Loan amounts up to $5,000,000
  • Unlimited number of properties

Unsure whether a California debt service coverage ratio loan is the right fit for your needs? Our loan specialists can help—call us at (855) 394-8288.

How Is DSCR Calculated?

How Is DSCR Calculated?

Like asset-based loans depend on your current assets, DSCR loans depend on your debt service coverage ratio. Your debt service coverage ratio basically describes how much rental income you’re bringing in versus your debt obligations for a property. Here’s a step-by-step explanation of how DSCR lenders calculate DSCR to determine who’s eligible for DSCR loans in California:

  1. Firstly, a lender will determine your gross rental income by looking at your lease agreement and having an appraiser use a Single-Family Comparable Rent Schedule (Form 1007) to estimate your rental rate, then choosing the lower of the two numbers. You can also use 12 months of rental income history to qualify instead of using an appraiser. It depends on how much documentation you want the responsibility of providing.
  2. The next step is finding your annual debt, which is the amount you must pay each year for a rental property. For loan qualification purposes, the annual debt includes principal, interest, taxes, insurance, and HOA fees (if applicable). This is the number you have to pay annually to maintain the rental property.
  3. The last step is dividing your annual rental income by your annual debt to find your DSCR. If the two numbers are the same, you have a DSCR of 1, if your income is twice as much as your annual debt, you have a DSCR of 2, and so on.

What Is a Good DSCR Ratio?

To qualify for a DSCR loan, lenders will require that you meet a certain DSCR threshold. At Griffin Funding, we offer DSCR loans to borrowers with a DSCR higher than 0.75. However, it’s important to keep in mind that 12 months of reserves are required for loans with a DSCR below 1, so you’ll need cash or other liquid assets that you can quickly access.

Even if you don’t qualify for a debt service coverage ratio loan in California, Griffin Funding offers other types of loans you may be interested in. Bank statement loans are a solid option for individuals who can’t qualify using tax returns and pay stubs but can qualify using bank statements that show a proven history of deposits.

What Are the Requirements for a DSCR Loan in California?

While some types of loans vary quite a bit from state to state, California DSCR loans are more or less the same as DSCR loans in any other state. The biggest difference is the fact that California property values are typically much higher, which means rental rates are too.

Your DSCR ratio is the main requirement when it comes to securing a DSCR loan. You don’t have to worry about providing prior tax returns, pay stubs, or W-2s as long as you have a solid ratio. A minimum credit score is required. In addition to creating opportunities for investors, this also makes DSCR loans a simpler option for many borrowers.

What Down Payment is Required for a DSCR loan?

What Down Payment is Required for a DSCR loan?

As with typical mortgages, you’ll have to make a down payment for a DSCR loan. Down payments reduce the risk that the lender is taking by providing a large sum of money to allow you to buy property. The lowest down payment accepted for a DSCR loan through Griffin Funding is 20%.

If you’re not planning on investing in multiple rental properties but you can’t secure a traditional mortgage, our other non-QM loans like our asset-based loans, jumbo loans, and recent credit event loans are other alternatives with flexible requirements.

Areas We Serve

If a DSCR loan seems like a good fit for you, we can help you get the process started. Griffin Funding serves the following areas and more:

  • San Diego
  • Del Mar
  • Coronado
  • Chula Vista
  • Point Loma
  • Oceanside
  • San Clemente
  • Orange County
  • Los Angeles
  • San Francisco

Begin the application online or request a free quote today!

Apply Now

Apply for a California DSCR Loan Today 

Investing in real estate is a great way to build wealth in California, but securing a loan for expensive California homes can be tough. With a DSCR loan from Griffin Funding, you can get the capital you need to invest in rental properties without having to worry about W-2s, pay stubs, and tax returns. To find out more about California DSCR loans, call Griffin Funding at (855) 394-8288 or apply for a DSCR loan today.