What Is a DSCR Loan?

Debt service coverage ratio (DSCR) loans are a type of loan that is based on the ability of a property’s rental income to cover the annual debts of that property. Instead of facing strict lending requirements that box out a lot of borrowers from Washington home loans, DSCR loans give investors a different way to qualify for property investment funding.

DSCR loans are considered non-QM loans, which means they’re loans that don’t require borrowers to go through the normal qualifying mortgage process. This process is what makes it difficult for many borrowers to secure the funding needed to invest in property because it requires them to qualify based on tax documentation and proof of income, which many borrowers—especially budding investors—don’t have.  

While DSCR loans are much more flexible than conventional mortgages, it’s important to keep in mind that there are limits to what kinds of properties you can invest in with DSCR loans in Washington. Additionally, you must meet certain criteria to qualify for a loan, which we’ll review in more detail in the next section.

DSCR Loan Eligibility Requirements

While Washington debt service coverage ratio loans are considered more flexible than other loans in terms of who qualifies, there are still certain eligibility requirements you need to meet. Of course, the most important eligibility requirement in terms of DSCR loans is your DSCR ratio; this is the number lenders look at to determine if you qualify.

Once you’re approved based on your DSCR, keep in mind that you’ll also need to make a down payment. With Griffin Funding, you can secure a loan with a down payment as low as 20%, but that depends on the terms of your loan. A minimum credit score is also required.

What Properties Are Eligible?

What Properties Are Eligible?

Different types of loans are meant for individual purposes, and DSCR loans are specifically designed for property investors. What this means is that you can only use DSCR loans to invest in rental properties. This is because your DSCR ratio is based on the assumption that you’re investing in a property to rent it out, using the rental income to pay back your loan.

While DSCR loans can’t be used to purchase owner-occupied properties, there are other types of non-QM loans you can use to purchase a home. For example, recent credit event loans allow you to secure a loan even if your credit score dropped significantly due to a recent event.

What DSCR Do Lenders Look for?

Considering your DSCR ratio is the primary metric lenders use to determine your loan eligibility, you should know what lenders are looking for in terms of DSCR. It’s also important to note that different lenders have their own standards when it comes to DSCR ratios. For the most part, however, DSCR loans in Washington require a ratio of at least 1.25. This metric typically applies in most other states as well.

One of the most notable benefits of applying for debt service coverage loans in WA through Griffin Funding is the fact that we have more flexible standards. With Griffin Funding, you can qualify for Washington DSCR loans with a DSCR ratio as low as 0.75. If your DSCR ratio is higher than that, you may be eligible for lower interest rates and other more favorable loan terms.

In addition to DSCR loans, we also offer other non-QM loans for prospective borrowers looking for more flexible underwriting terms. If you’re not eligible for a DSCR loan, you can still apply for asset-based loans and bank statement loans.

Where Are DSCR Loans Available?

Griffin Funding provides DSCR loans to qualifying investors throughout Washington State, including the following areas:

  • Seattle
  • Spokane
  • Tacoma
  • Vancouver
  • Bellevue
  • Kent
  • Everett
  • Renton
  • Gig Harbor

How Do You Calculate DSCR?

How Do You Calculate DSCR?

The first thing a lender will do when you apply for a DSCR loan in Washington is calculate your DSCR ratio. The good news is, calculating your DSCR is fairly simple, so you can make sense of the number your lender gives you when you apply. Here’s the formula for DSCR:

Debt service coverage ratio (DSCR) = annual rental income ÷ annual debt

That might sound a bit complicated, but it’s simpler than it seems. Here’s how we determine your DSCR at Griffin Funding:

  1. We start by calculating your annual rental income, which means using lease agreements and getting an estimate from an appraiser. We take the lower of these two numbers and use it as your rental rate, or you can skip the appraisal if you can provide 12 months of rental income history.
  2. Once we’ve got your rental income, we look at your annual debt. This is the amount you pay toward the principal, interest, taxes, insurance, and HOA payments if applicable.
  3. Finally, we divide your rental income by your annual debt, which provides us with your DSCR ratio. If your rental income and annual debt are the same, your DSCR will be 1.

DSCR Loan Benefits

DSCR loans aren’t just for people who can’t qualify for other types of loans; there are actually lots of good reasons to consider DSCR loans in WA as an investor. Here are some of the key benefits of DSCR loans:

  • You can qualify without proof of income or employment history verification
  • Your closing time may be faster
  • Interest-only loans are available
  • You can invest in an unlimited number of properties
  • Loan amounts can be up to $5,000,000
  • Griffin Funding offers competitive interest rates and down payments as low as 20%
  • Cashout refinance options (use cash to buy more investment properties)
  • Fixed-rate loan terms of 40-years or 30-years

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Apply for a Washington DSCR Loan

Choosing the right type of loan is important if you want to be successful at property investing. DSCR loans in Washington are a smart way to invest in property in a growing region without having to rely on proof of income or your employment history to secure a loan. If you want to learn more about debt service coverage loans in WA, call Griffin Funding at (855) 394-8288. You can also use our online application to start the process.