Debt Service Coverage Ratio (DSCR)

Debt service coverage ratio is a property's income divided by its loan payments. DSCR loans qualify a rental on that ratio instead of the borrower's income, and they are the most common BRRRR refinance when conventional rules do not fit: no tax returns, LLC allowed, no property count limit, and often little or no seasoning.

Residential DSCR lenders divide monthly rent by the full payment including taxes, insurance and dues, and want 1.0 or higher, with best terms at 1.25. On the default deal, $2,300 of rent against a full payment near $1,690 is a ratio of about 1.36, comfortably approved.

The ratio is where higher rates bite the refinance. A larger loan at a higher rate means a bigger payment and a thinner ratio, and a thin ratio means a lower LTV or a declined file, which means less cash out. DSCR loans cost about a point more than conventional and usually carry a prepayment penalty, the price of the flexibility.

Further reading: Debt Service Coverage Ratio (DSCR) on Wikipedia.