The main eligibility criteria for a DSCR loan are surrounding the property’s debt service coverage ratio. Broadly speaking, DSCR financing is available for assets with a ratio of at least 1.25x. Every lender is different, however, and some may even offer financing for buildings with a DSCR of less than 1x — but expect those loans to be far more expensive and may require additional reserves.
Outside of assessing the property’s value, a lender will also examine the debt service coverage ratio, or DSCR, of any loan they extend. DSCR is a measure of a property’s cash flows relative to its debt service obligations. Essentially, using a DSCR calculation, a lender can determine if a property generates enough net income to cover its debt obligations. DSCR requirements vary by asset type, but the higher the better. Don’t expect to find many institutions willing to offer you a competitive loan at a DSCR of less than 1.25x.