DSCR: Underwrite the Property Cash Flow
DSCR loans are investor-specific non-QM products. There is no single agency rulebook. Teach the student the calculation, REO entry, rent evidence, reserves and the questions to ask before selecting an investor.
Core DSCR Math
Example: $2,500 eligible rent ÷ $2,000 qualifying PITIA = 1.25 DSCR.
A 1.25 ratio means the eligible rent is 125% of the qualifying debt service under that investor's definition. It does not mean every lender will approve the file.
What Varies by Investor
Minimum DSCR
Some permit ratios below 1.00, others require 1.00, 1.10, 1.20 or higher.
LTV / down payment
Commonly lower leverage than owner-occupied agency programs; credit, experience and property type may change max LTV.
Credit score
Investor matrix controls; there is no federal agency minimum.
Seller contribution
Investor-specific; do not import FHA/Fannie limits automatically.
Rent evidence
Lease, appraisal market-rent schedule and current occupancy treatment vary.
Reserves / prepay
Reserve months, prepayment penalty availability and business-purpose requirements vary by state and investor.
REO and the 1003
Even when personal DTI is not the qualifying method, the LO must accurately capture the borrower, subject property and existing real estate. List each REO property separately, its mortgage balance/payment, taxes, insurance, HOA, rent, disposition and supporting documents. Do not hide an REO because “DSCR doesn't use DTI.”
New-LO Checkpoint
- Get the actual investor matrix before promising LTV, credit score, DSCR or seller-credit limits.
- Calculate the ratio using that investor's exact numerator and denominator.
- Verify rent evidence and occupancy.
- List all REO accurately and reconcile mortgage obligations.
- Confirm reserves, prepay, vesting/entity and state restrictions.