DSCR Loan for Multifamily Property [2024]: How to Qualify?

Buying a multifamily property with DSCR loans is a great investment strategy because qualification is based on the rental income of the property. Explore our guide to learn the steps and tips for qualifying with ease.

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Financing your multifamily property with DSCR loans is a smart move, as it combines the advantages of DSCR loans with the income potential from renting out multifamily units. To maximize this opportunity, you should understand the DSCR loan requirements, the application steps, associated expenses, loan limits, the perks of financing as an LLC, and most crucially, how to connect with leading lenders for multifamily DSCR loans.

Today, we’ll go over all the details you need to secure a DSCR loan and connect you with top DSCR lenders for your multifamily property.

DSCR Ratio and Multifamily DSCR Loan

A DSCR ratio is a financial tool that lenders use to assess your multifamily property’s performance and its ability to pay debt. To secure a DSCR loan, you need a ratio of 1 or more – it can be higher, which is great.

DSCR Ratio = Net Operating Income (NOI)/ Total Debt Service (TDS)

  • Net operating income: Income after deducting operating expenses and vacancy loss.
  • Total debt service: Your property’s mortgage payment.

DSCR Ratios Explained:

  • Below 1: Insufficient to cover DSCR debt payments.
  • Equal to 1: Just enough to cover debt payments.
  • Above 1: Enough to cover debt payments with financial security.

Use our DSCR calculator to determine your DSCR ratio and find out which category your DSCR ratio falls into.

Debt Service Coverage Ratio (DSCR) Calculator

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Know the viability of your investment property with our DSCR calculator. Ensure you have the financial capacity to meet your debt obligations.

Requirements for Securing a Multifamily DSCR Loan

Here’s a checklist to ensure your eligibility for a DSCR loan for your multifamily property.

1. DSCR Ratio of 1 or Above

For your multifamily property to meet the eligibility criteria for a DSCR loan, it should maintain a DSCR ratio of at least 1 or above. With multifamily properties, you often have a steady stream of gross rental income or cash flow thanks to multiple units. The more rental income you generate, the higher your net operating income becomes.

Minimum DSCR ratio requirement

Since net operating income and the DSCR ratio go hand in hand, an increase in your net operating income naturally results in a higher DSCR ratio. However, if you find that your DSCR ratio falls short of the required threshold, you can consider implementing these techniques:

  • Decrease existing debt
  • Improve property management
  • Enhance tenant retention
  • Seek higher-quality tenants
  • Efficiently manage cash flow
  • Consider rent increases

2. A Credit Score of 620 or Above

It’s true that DSCR loans mainly focus on your property’s cash flow. However, you need to have a credit score of 620 or above to qualify for the loan. This is because if your property can’t generate sufficient cash flow to cover the debt obligations, lenders may require you to step in. While credit score matters to them, they typically won’t scrutinize your personal income.

DSCR loan credit score requirement

Keep in mind that you may still secure a DSCR loan with a credit score under 620. However, it depends on your lender and individual circumstances.

3. A Downpayment of 20% to 25%

Having a down payment of 20% to 25% is something lenders usually look for. It might seem a bit higher, but remember, these lenders are all about your property’s income. They don’t even ask about your personal income or work history. But the reason they ask for a substantial down payment is to balance out the risk they’re taking by lending you money solely based on your property’s earnings.

4. Property Appraisal Form

The loan amount you can get and the flexibility of terms from lenders are tied to your property’s market value. If your property is in a high-demand area, you can score better terms because it’s likely to generate enough income to cover your mortgage payments.

Lenders evaluate all of this, including your property’s location and more, using something called a Property Appraisal Form. So, don’t forget to schedule an appraisal and fill out that form.

5. 1007 Rent Schedule Form

In addition to your property’s market value, lenders are also interested in knowing the fair market rent it can fetch. This is important because rental income plays a big role in your DSCR ratio. When rental income goes up, your DSCR ratio improves, and when it goes down, the ratio can suffer.

To help lenders figure this out, there’s something called a Rent Schedule Form (1007) that comes into play. It helps them assess what your property can bring in terms of rent.

Application Process for DSCR Multifamily Loans

To obtain a DSCR loan for your multifamily property, you can take the following steps:

DSCR Loan Process

Step 1: Choosing the Right Lender:

Begin your DSCR financing journey by following these steps:

  • Start by researching and selecting a lender that suits your needs and goals.
  • Understand that your choice of lender carries substantial weight, as it can greatly influence your overall loan experience.

HomeAbroad is an investor-centric platform, and we provide customized DSCR loans at most competitive terms. Get a quote today!

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Step 2: Evaluating Your Finances:

Before proceeding with a DSCR loan application, it’s important to take the following financial steps:

  • Examine your financial situation carefully.
  • Confirm that your Debt Service Coverage Ratio (DSCR) is at least 1 or higher.
  • Ensure your credit score meets or surpasses the common benchmark of 620.
  • Be ready to make a down payment ranging from 20% to 25% to demonstrate your commitment to the investment.

Step 3: Gathering Essential Documents and Apply:

To proceed with your application, you’ll need to:

  • Collect crucial documents, such as credit reports, property income records, a property appraisal form, a rent schedule form, and any additional documents requested by your selected lender.
  • Fill out the lender’s application form using these gathered documents.

Step 4: Lender’s Review:

Once you’ve submitted your application and documents, the lender begins a comprehensive review process. This evaluation includes:

  • Assessing your property’s eligibility and financing capacity.
  • Reviewing your credit history.
  • Scrutinizing your financial documents.
  • Evaluating your overall credibility as a borrower.

Step 5: Loan Approval:

If your application is approved by the lender, and they are content with your financial position, the next steps involve:

  • Receiving a loan offer from the lender will detail important aspects such as the loan amount, interest rate, terms, and conditions.
  • Thoroughly review the loan offer to ensure it aligns with your investment objectives and financial strategy.
  • Once you are satisfied with the terms, the lender proceeds to provide the necessary funds, allowing you to start your investment journey with favorable DSCR loan terms in hand.

Key Considerations for Multifamily DSCR Mortgage Loan

Before you go ahead and apply for a DSCR loan for multifamily property, there are two crucial things you must make sure of.

1. DSCR Ratio of One or Above:

  • Make certain that your property can meet a DSCR ratio of at least one or higher. This means your property’s income should cover the debt payments comfortably.

2. Interest Rates 1% to 2% Higher Than Conventional Loans:

  • Be aware that DSCR loans typically come with interest rates that are 1% to 2% higher compared to conventional loans.
  • This means your interest payments will be somewhat higher than what you might encounter with conventional loans.
  • Keep in mind that you can always engage in negotiations with your lender to work out terms that better suit your needs.

How Does DSCR Loan for Multifamily Property Work?

You can employ DSCR loans to fund your multifamily property investments effectively. DSCR loans for multifamily properties operate by offering consistent rental income due to multiple units, which not only ensures favorable DSCR ratios for loan approval but also provides a reliable source of cash flow.

Additionally, owning multifamily properties may come with tax advantages such as deductions and potential for capital gains, enhancing your overall returns. Moreover, the potential for property appreciation over time further contributes to long-term wealth building, making multifamily investments a well-rounded strategy for financial growth.

Multifamily Property Investment and Chances of Higher DSCR Ratio

Here’s a quick breakdown of how investing in multifamily properties may help real estate investors score high ratios due to multiple tenants:

  • Rental Income: Multifamily properties offer income from several units, providing stability and consistency in rental income.
  • Operating Expenses: Costs like maintenance and utilities are shared among units, lowering expenses per unit and boosting Net Operating Income (NOI).
  • Vacancy Loss: Multiple units soften the blow of a vacant unit, as income from other units offsets temporary vacancies. This minimizes the impact on NOI.

Considering these factors in the DSCR formula, multiple tenants often lead to a higher NOI. A strong NOI boosts your DSCR ratio, making lenders more interested in your multifamily property loan application.

Keep in mind, though, that having multiple tenants can depend on the property’s location. So, owning a multifamily property doesn’t automatically guarantee you’ll have multiple tenants.

Buying Multifamily Property Under LLC

You can choose to buy and finance your multifamily property using a DSCR loan within an LLC for benefits like improved liability protection, asset separation, and tax advantages.

Here are the steps to finance your multifamily property under an LLC.

  1. Set Up Your LLC: Establish a limited liability company (LLC) to manage your multifamily property investment. This shields your personal assets from any legal or financial issues related to the property.
  2. Secure EIN and Bank Account: Obtain an Employer Identification Number (EIN) and open a separate bank account under the LLC’s name to maintain clear financial separation.
  3. Find DSCR Loan Lenders: Not all lenders do DSCR loans, so you need to find the DSCR loan lenders who fit your unique requirements. Shop around and compare to get the best deal.
  4. Apply for DSCR Loan: Prepare required documents, including financial statements, property details, property appraisal form, 1007 rent schedule form, and LLC formation papers. Submit your application to the chosen lender, ensuring compliance with their specific criteria.
  5. Complete Property Acquisition: If approved, finalize the loan agreement, acquire the property under the LLC, and receive the loan funds.

You can also consult with legal, financial, and tax professionals to receive personalized guidance when financing your multifamily property under an LLC.

Chances of Prepayment Penalties

In DSCR loans for multifamily properties, you may encounter prepayment penalties. These are basically fees you could be on the hook for if you decide to pay off your loan before the agreed-upon term ends.

These prepayment penalties are often set up in a way that they gradually decrease over time. Let’s say you have a three-year penalty period; here’s how it might work:

  • In the first year, the prepayment penalty could be 3% of the remaining loan balance.
  • In the second year, that penalty drops down to 2% of the remaining balance.
  • And by the third year, it goes even lower to just 1% of the remaining loan balance.

So, these penalties kind of step down as time goes on, making it less costly to pay off your loan early as you go along.

May Require Cash Reserves

When applying for a DSCR loan on your multifamily property, you might be asked to demonstrate cash reserves in case of unexpected events, like tenant turnover. However, remember that not all lenders require cash reserves – it varies depending on the lender you select. Also, if lenders perceive your profile as risky, they may insist on specific cash reserves.

How Do Lenders Determine the Fair Market Rent for a Multifamily Property?

  • Lenders use the Rent Schedule Form (commonly known as the 1007 form) to assess multifamily property fair market rent.
  • This form gathers critical data: unit count, rental rates, lease terms, and amenities.
  • It’s essential for accurate rental income assessment.
  • Appraisers who are responsible for this process physically visit the subject property to gather specific rental property details.

Minimum and Maximum Loan Amounts

  • Loan amounts for DSCR loans can differ based on property type, lender rules, and borrower qualifications.
  • Generally, the minimum loan amount for DSCR loans falls within the range of $100,000 to $150,000.
  • On the upper end, the maximum loan amount can go as high as $5 million or even more, depending on factors like the lending institution and the borrower’s financial situation.
  • Keep in mind that these numbers are approximate and can vary based on unique circumstances and market conditions.

To get the most accurate information about the loan amount range for DSCR loans, it’s a good idea to get a DSCR loan quote from us. We will share the personalized interest rates and loan terms for you.

Fees and Costs Associated

Here’s a list of costs you might encounter when applying for a DSCR loan for your multifamily property.

DSCR loan cost & fees

Feel free to reach out to your lender for the most accurate details.

In Conclusion

We’re confident that this article has addressed all your questions about securing a DSCR loan for your multifamily property, and we’ve even provided you with connections to top lenders.

Keep in mind that as a real estate investor, DSCR loans are an excellent choice for your investment property. So, don’t hesitate to revisit this article whenever you need guidance.


  1. Can you finance a multifamily property without personal income or employment checks?

    Absolutely! With DSCR loans, you can finance a multifamily property without having to prove your personal income or employment history. What really matters to your lender in this case is whether your property can generate enough positive cash flow to cover the debt payments.

  2. What is a DSCR loan for a multifamily property?

    A DSCR loan for a multifamily property is essentially a loan designed for your multifamily real estate investments. What sets it apart is that it looks mainly at whether the property’s income can handle the debt payments rather than focusing on your personal income or work history.

    So, if you’re thinking of diving into multifamily property investment, the key thing to ensure is that your property generates enough cash flow to cover those debt payments.

  3. What is the minimum DSCR ratio required for a DSCR loan for a multifamily property?

    The minimum DSCR ratio you’d typically want for a DSCR loan on a multifamily property is at least 1. This means that your property’s income should cover your monthly mortgage payments comfortably, and it’s a key factor lenders look for in approval.

  4. How is the DSCR ratio of multifamily property calculated?

    The DSCR ratio gets figured out by taking the property’s net operating income (NOI) and dividing it by the debt service (mortgage payments). When you have a DSCR ratio of 1 or higher, it means your property can easily handle its debt payments.

    To calculate NOI, you subtract operating expenses and vacancy loss from your rental income. There are strategies you can use to reduce vacancy loss and boost rental income, which, in turn, can elevate your DSCR ratio.

  5. Is a high credit score required for DSCR loans?

    While a good credit score can be beneficial, DSCR lenders primarily focus on the property’s income. Credit score requirements may vary, but a score of 620 or above is a common benchmark.

  6. How can I improve my chances of getting approved for a DSCR loan?

    To boost your odds of approval, make sure your property can hit a DSCR ratio of at least 1, keep your credit score in good shape, and be ready for a significant down payment ranging from 20% to 25%. The better your DSCR ratio, the more likely you are to secure a DSCR loan. Lenders tend to prefer borrowers with higher DSCR ratios, so it works in your favor.

  7. Can I negotiate the terms of a DSCR loan with the lender?

    Indeed, you have room to negotiate with the lender and aim for better terms. However, keep in mind that your eligibility for negotiations often depends on certain factors. For example, if your DSCR ratio is strong or your credit score is in good shape, you’re in a better position to negotiate.

    Lenders might be more willing to offer you improved terms in such cases. So, it’s about being well-prepared and making the most of your financial strengths.

  8. What documents are needed for a DSCR loan application?

    Required documents may include credit reports, property income records, property appraisal forms, rent schedule forms, and any documents requested by your lender.

  9. Are DSCR loans commonly used in commercial real estate for multifamily properties?

    Yes, DSCR loans are quite common in the commercial real estate sector, especially for multifamily properties.

About the author:
Amresh is the Founder & CEO of HomeAbroad. With over 14 years of mortgage industry experience, he specializes in foreign national mortgages and Non-QM mortgages. He is also a licensed mortgage originator (NMLS # 2549148).

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