What is the meaning of a DSCR Loan?

Hi, Shawn Fehily with Novus Home Mortgage based out of Dallas, Texas. We’re here today to talk about something that is really exciting in the market, a DSCR loan. Can you start by explaining what a DSCR loan is? It is a newer product.

DSCR stands for a debt service coverage ratio, which, in technical terms, is very easy. It’s simply how much your mortgage payment is, how much your rent is. It’s a great product for investors.

It allows you to qualify with minimal paperwork and is an excellent product when you’re looking at purchasing or refinancing investment properties. So you talk about investment properties. So that’s like a lot of people now are doing Airbnb and VRBO and things like that.

So this is a really good opportunity for somebody who might be interested in their first investment property, but is still trying to figure out, like, can they afford to get that initial property? I know sometimes in real estate, getting the first one is the thing that is really what starts the keys to a different sort of kingdom, right? Correct. So whether it’s your first or your 10th investment property, we allow as many as you would like. So if you’re the fix and flipper, if this is your first property coming out, the qualifications are very easy, a lot less stringent than your traditional conventional mortgage.

This simply looks at how much rent you receive. And as long as that’s more or the same as how much the principal interest taxes and the insurance payment are, then you’re in good shape, and you can qualify. So what would you say are the benefits to somebody using a DSCR loan over a traditional mortgage? Sure.

So a DSCR loan is strictly designed for an income-producing real estate, residential real estate. So, utilizing this, this allows real estate investors who are scaling beyond their first or second property. It could be for self-employed borrowers, maybe somebody that has a little bit more write-off from the self-employed factor, high net worth individuals, that don’t wanna deal with a lot of personal income scrutiny, right? Nowadays in qualifications, it takes quite a bit more paperwork to get a loan.

This limits the amount of scrutiny that they look at from the income perspective. What it does is it looks at the actual property as opposed to the person. Interesting.

So what types of properties are best suited? Can you get a single-family property, a multifamily unit? What are the types of properties or does it really depend on the state, or are there really no restrictions necessarily with the property type, it’s more around the income generation? Correct. So DSCR loans are basically going to be single-family properties, condos, and two to four units. We do up to four units and this is a national perspective, all 50 states, small multifamily, up to four units.

So whether it’s short-term rentals, Airbnb, VRBO, we could do that. If it’s something that you had fixed up, you have hard money loans that have come to fruition, and you’d like to get out of those, we can easily get into that, the debt service coverage ratio loans. Awesome.

So if you have somebody in Arizona that wants a DSCR loan for maybe a snowbird type of house to use a couple months of the year, but the rest of the time they want to rent it out, that’s like a really good option from that standpoint, or maybe your first beach shack in California for a DSCR loan, right? Correct. So we look at, when you purchase the place, if you do not have a rental agreement, that’s fine. We order what’s called rent schedules.

So what that does is take the area that you’re purchasing in, it looks at the average rents and that’s the number that we utilize based on the appraisal and the area’s zip code, kind of the region that you’re purchasing in. So it doesn’t have to be immediately rented when you do purchase it for qualification purposes. Nice.

We were actually just talking about some rental properties in the Poconos here in Pennsylvania. And I’m curious, when you start to look at a property like that, is there something that is more likely to qualify or do you have any tips for potential buyers who are interested in getting their first DSCR loan that is likely to make a property more appealing to the lender? Sure. Whether you’re buying in Colorado, Connecticut, California, Dallas, Texas, or the Poconos.

The debt service coverage ratio or the DSCR loan, simply looks at the property itself. It does not look at the individual as much. So there’s no personal income verification, no debt-to-income verification.

There’s faster underwriting and fewer conditions. The ability to close in an LLC, that also is also important to some people. And it’s flexibility for short-term rental income.

Whether you choose to rent that out or as you mentioned, go to it at different times. Nice, that’s great. What do you think are some of the biggest misconceptions about DSCR loans? Just like any loan, I’d say misconceptions would be, where to start? How do I qualify? It’s a harder loan.

It’s more difficult. All of these are fallacies. So they don’t exist in this.

I would say they’re a much more suitable loan. Nowadays in purchasing investment property with less scrutiny and less paperwork, you can allow prepayment penalties on these, which will incentivize your rate options and get them even lower. Those prepayment penalties can be as little as zero years, one year, three years, or five years.

Awesome, that’s a great option. I think something with the DSCR loans that as somebody who’s been in the space for a while, didn’t really understand that it was out there and then coming back into it, it’s like, oh my gosh, this is a great loan option for people, especially who are at the point in their first or next investment property to be able to purchase something that is immediately generating income for them in a full-time or part-time capacity. And take, for example, somebody who currently owns a rental property.

You’ve had it on the books, say you’re retired, say you don’t, it’s just income driven, it’s income producing monthly. However, that house is paid in full. You’d like to tap into that equity.

Real estate has appreciated. You can easily do that. So, from that perspective, you can certainly do.

We do multiple of those across the nation, whether you own one property or you’re a company that owns hundreds. So we can tap cash out of that. And you could take that and move it on to purchase more or pay off debts.

Nice, so you can start your own little nest egg if you’d like. There you go. So the question around documents, right? People always wanna be prepared.

I know the last time the rates were really low, I had all my stuff ready, and I watched the rates, and I went, oh my gosh, okay, we’re gonna refinance today and lock it in because the rates kind of dipped over a specific day. We got a really good 30-year fixed rate. But I know recently the market has been a little bit up there in terms of interest rates, and things are starting to come back down.

But what documents would somebody wanna have ready before applying for a DSCR loan? And are there advantages to calling the Novus Texas branch and saying, hey, we’re interested in this. Can we talk to somebody? And then what should we have prepared if we find an investment property in the next, say a couple of weeks or a couple of months that we’re interested in moving forward with? No, absolutely, all great points. From the perspective of if this loan is right for you, we always say talk to one of the loan professionals with us at Novus Texas.

So for sure, reaching out to our team, talking to myself, or any of the staff here is important. What we do is we set up your initial application, all of which costs you nothing, including the documents that are needed. That’s done as soon as you finish your initial application with us.

That could be done over the phone or virtually. Once that’s done, you get a list of a few documents that need to be uploaded into a secure portal, or those can be emailed over to us. Typically, what we like to look at is if you’re purchasing, obviousl,y a purchase contract.

If you own a house, we’d like to see any type of payout statement or mortgage statement that you have. If not, unless you own it free and clear. If you have a lease in place, we like to see that.

If not, we can, as I mentioned prior, get rent schedules. An insurance quote is definitely necessary. You need homeowners’ insurance on the property.

Any type of entity documents, if you are closing in an LLC, we need to verify those. Bank statements to determine where the money’s coming from and your ID. From there, that’s a majority of them.

Awesome, so not too difficult, right? How long does it take from, oh my gosh, I found this house I want to buy, to funding? You know, typically I’d say your, excuse me, application takes anywhere between one and three days. You can get it done in a matter of a few hours if you upload your documents. But really, from appraisal, underwriting, clear to close, your timeline expectations can be anywhere from 21 to 30 days, sometimes faster.

And just depending on if we have the documents in place in the application, a client can come to us and fill out the application, and go house hunting. We can have all their items in place. And if they want to do a quick close, in some cases, we can get that done in as little as two weeks.

Typically,y that’s not a problem on our end. Yeah, that’s great. I know my aunt last year decided to buy a house and then ran into a bit of a pickle when she decided she was going to close in like seven days.

And the mortgage company was like, well, that’s aggressive. But they were able to get it done up here. But I told her next time she needs to call Novus Texas.

That’s right. Okay, so a coupleof other questions. Can you share your feedback on, I know you’ve done a lot of this from a Novus Texas standpoint with the DSCRs, what you would encourage buyers to look for in properties that they might overlook.

I think sometimes people want this perfect pearl when they open it up. And sometimes I think there’s an opportunity hidden out there in a market that is a little bit volatile right now. Just in your experience, what you’ve seen in 2026 and the housing industry, where do you think those hidden gems are? Sure, I mean, finding a hidden gem, finding a lower-priced property or something that’s maybe a little more dilapidated, if you have it in you, coming in and doing that loan, whether it’s a renovation loan to start.

We at Novus Texas have multiple products. What we’ve done is simply take renovation loans on investment properties and then turn them into DSCR loans. So we have multiple-tier products that you can walk through and get into a property that isn’t move-in ready for a renter.

Or you can find one that’s currently being rented, and those are on th liste, that are listed and you’ve now taken over the rent, and you’re the landlord. So typically, when you look around, what we like to do is show you what the mortgage payment would look like in your area. I know in Dallas, Texas, our property taxes are significantly higher than in Boise, Idaho, or in Denver, Colorado.

So when you look at your mortgage payment, you have to determine, can I get that amount in rent? And that’s something that our professionals at Novus Texas walk you through. You can do a little bit of research. However, most of it will come from us determining what your payment would look like on a particular loan amount.

So we back into that number, that way you go into the market, and you’re one step up, and you have a competitive advantage that you know you can purchase in this particular zip code based on the rents that you’ve received and based on what you can qualify for. Yeah, that’s super helpful because I think people at the market are so diverse in property types, in loan types, right? And I know at Novus Texas, you service a ton of different loan types. You have conventional loans, VHA loans, there’s a lot.

So I would say for somebody who is watching this or listening, it is super important to call Novus Texas and talk to Sean, talk to Marcus, or talk to the team about what types of loan options you have, and then you’re prepared and ready. You get your credit score checked, you take a look at your loan docs, depending on the type of loan, right? So what would be the best next steps for somebody who says, I wanna reach out to you and just understand what my options are, whether it’s your first time home or investing in potentially a DSCR type loan? Absolutely, we’ll include the link and phone number,s and how to contact us, but at novustexas.com, you can get my contact information. Just a simple phone call, we can walk through the steps.

You’ll also see an Apply Now link that really gets the process started, and you’ll be contacted by one of our professionals in as little as a few hours once receiving the application. A lot of people who own investment properties, they might not know about this product. This opens up a whole new realm to be able to get more.

A traditional person who is an investor that say own four rental houses, you could be maxed out when it comes to conventional financing. There’s a limit on how many you can do when it is conventional. There is a debt-to-income constraint that comes with that.

So, despite having strong cash flow, millions of dollars, maybe you can’t get into that conventional loan. This is one of the realms that we can open up that can acquire that fifth, sixth, seventh, and tenth property that can allow you to close in an LLC for asset protection. And you can use market rent to qualify.

So it’s a very simple product that really looks at the property itself as opposed to the individual. I love it. This is great.

I hope everybody takes a minute to start browsing some potential investment properties, reach out to Novus Texas, and I’m sure if you have any questions, Sean and his amazing team will be happy to help. Thanks so much for sharing this information in this first session here to educate the market on the amazing products available at Novus Texas.