What Are DSCR Mortgages?

Steps to Follow Before You Take Out a Debt Service Coverage Ratio Loan

A Debt Service Coverage Ratio (also known as a DSCR) mortgage loan is a loan that a property investor can apply for to help them be able to afford a property using the cash flow generated from the rental property they want to buy, rather than using their own personal income.

This type of loan is ideal if you’re looking to buy investment properties in California. But before you jump in, it’s important to understand that different financial institutions calculate your ratio differently. For example, a result of 1.5 is excellent, 1.2 is more general and 1.0 means that your rental properties are bringing in the same amount as you would spend on the loan. Lenders want to make sure your properties are profitable before they’ll approve your loan.

Benefits of DSCR Mortgage In California

If you can’t find a loan to invest in another rental property, a California DSCR loan could be your best option. While California DSCR loans aren’t for everyone, they do have some distinct advantages over traditional California home loans. The flexibility of DSCR loans makes them an excellent choice for real estate investors, particularly those looking to invest in multiple properties.

Here are some of the benefits of DSCR loans:

  • Closing times may be faster.
  • You are not required to verify your employment or income history.
  • DSCR loans are suitable for both new and experienced investors.
  • These loans are available for both long-term and short-term rentals.
  • There are no reserves required for cashout loans, but other loans require 6 months of reserves.
  • Loan amounts of up to $5,000,000 are available.
  • Unlimited number of properties

Not sure if a California debt service coverage ratio loan is right for you? Contact our office for a free consultation.

Basic Requirements For DSCR Loan Limits

If you’re thinking about applying for a DSCR loan, you might be wondering how California’s versions of these loans compare to ones offered in other states.
The biggest difference is probably the fact that property values in California are notoriously high, which means that rental rates are too.

Fortunately, you don’t have to worry about providing prior tax returns, pay stubs, or W-2s as long as you have a solid DSCR. A minimum credit score is required, but in general, the higher your DSCR, the better your chances of qualifying for a loan. In addition to creating opportunities for investors, this also makes DSCR loans a simpler option for many borrowers.

That said, as long as you have a strong DSCR ratio, you should be able to qualify for a loan here just as easily as you would anywhere else. And who knows, with all that extra money you might make from your high-priced rental property, you could even buy a second home in another state!

So don’t let high property values deter you from considering a DSCR loan in California – it could turn out to be a great investment.

What Else To Know About DSCR Loans

If you’re considering a DSCR mortgage, the important thing to remember is that different lending institutions calculate them differently. Generally speaking, it divides PITIA (monthly principal, interest, taxes, insurance, and association dues) by the gross monthly rent.

Anything above 1.5 is great, but 1.2 is also a good number. 1.0 simply means that the investor is getting the same amount of rent as their monthly payments on the property.

Understandably, most lenders want to know that your rental property will pay for itself. If you’re at that level, you still have other options, which is why it’s a good idea to contact LBC Mortgage for details. We work with a wide range of lenders that specialize in California DSCR loans and other types of alternative financing.

Down Payment for DSCR Loans

As with any mortgage, you’ll have to make a down payment for a DSCR loan. The size of the down payment will depend on the lender, but the average is 20%. Down payments help to reduce the risk that the lender is taking by loaning you a large sum of money.

For DSCR loans in California through LBC Mortgage, the minimum down payment accepted is 20%.

DSCR Coverage Ratio

The coverage ratio is the most important aspect of a DSCR mortgage loan in California. It uses the rental income according to the lease agreement or projected rental income according to a recent rent schedule from an appraisal report.

Coverage ratios are calculated differently depending on the lender and can range from 1.0 (the rental property is earning the same amount that is spent) to 1.5 (the rental property is profitable). The coverage ratio may not be required at all if you have a down payment of at least 30% but this requirement varies from lender to lender.


The LTV or Loan to Value ratio is around 80%. This is lower than the amount for a standard single unit investment property but higher than a rental property refinance. The lower this number, the higher your down payment will be (or in the case of a refinance, the more equity you need to have in the property.

Apply For California DSCR Loan Today

Looking to invest in California real estate but worried about securing a loan? A DSCR loan from LBC Mortgage could be the perfect solution. With this type of loan, you don’t have to worry about W-2s, pay stubs, or tax returns. That means you can focus on finding the perfect property to invest in without worrying about your financing.

At the end of the day, the most important step in the process of taking out a DSCR loan in California is to work with a knowledgeable California mortgage broker who understands the process and who can guide you through it step by step while helping make sure you get the best possible deal.

At LBC Mortgage, our experienced mortgage lender understands exactly how the DSCR loan process works and will help you use it to invest in rental properties without needing to go through the time consuming hassle of the traditional mortgage process.

Contact our experts today with any questions you may have about DSCR loans in California and let us help you take the next steps with confidence and certainty!

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