My Perfect Mortgage
DSCR Loan Credit Score What Lenders Consider
6 minute read
March 24, 2023

Rental income from the investment property you’re buying can help secure a new DSCR loan, so lenders won’t have to rely on your personal income.

But your personal credit score is another matter. A poor DSCR loan credit score can hurt your chances of getting your DSCR loan approved.

Fortunately, credit history won’t be the only qualifying factor. If your new rental property will earn plenty of money — more than enough to cover your property’s monthly mortgage payment — you may still get approved, even with average credit.

In fact, because DSCR loans depend so much on cash flow, your approval odds are likely higher with a DSCR loan than they would be with traditional financing.

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What credit score is needed for DSCR?

A credit score of 640 to 660 should position you well for DSCR loan approval. Most DSCR loan lenders, at least those who publish their minimum guidelines, look for scores in that range or higher.

But DSCR loans are not regulated by Fannie Mae and Freddie Mac, and they’re not insured by the federal government. So lenders follow no simple, set-in-stone DSCR loan credit score minimum.

Instead, DSCR lenders are free to consider your entire financial life — along with the specifics of your loan — and not just your credit score.

So if your score is lower — 610, or 630, for example — there’s still hope. Finding a lender that will approve your loan shouldn’t be impossible.

There’s no doubt: borrowers with a good-to-very good credit score — 680 to 720, for example — have the most loan options. But a lower score won’t automatically disqualify you from consideration. You can have a conversation with a DSCR loan officer to learn about your options. 

How to get approved for a DSCR loan with a lower score

When your credit score is a little shaky, you’ll need to excel in other parts of your DSCR loan application.

It’s kind of like applying for a job. If you recently applied to be a store manager but have no business degree, you might still get hired on the strength of your work experience and your friendly demeanor.

Let’s be clear: Lenders won’t base loan eligibility on your personality. But you may have other strengths that will sweeten the deal. Lenders call these strengths “compensating factors.”

These factors can include:

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A higher down payment

You could get a DSCR loan with as little as 15% down, but if you’re applying with average credit, be prepared to put down more — maybe 25% to 30%.

Putting more money down looks good from the lender’s point of view. It means you have more to lose and the lender has less to lose. Landlords who put, say, $60,000 of their own savings into a rental home are much less likely to let the loan fall apart.

And if the worst happens and they do have to walk away, that $60,000 down payment is $60,000 the lender won’t be losing.

Putting down more money can help lower your DSCR loan’s interest rate, too.

A higher DSCR ratio

Debt-service coverage ratio, or DSCR, is the cornerstone of DSCR lending. This number compares the rental income a property will earn to the monthly debt the buyer will owe on the loan.

A DSCR of 1.0 means the property earns exactly enough in rent to cover its monthly payment to the lender.

A lot of lenders look for DSCRs in the 1.0 to 1.25 range, which means the rent is up to 25% higher than the monthly loan payment. If you have low-to-average credit, the lender may want a DSCR of 1.35% or 1.4%.

Cash reserves

DSCR lenders like to know you still have money in the bank after you part with your down payment and close on the new loan. That way, if your existing tenant moved out and you needed a few months to land a new tenant, you could still make the loan payment for a while.

If you have average DSCR loan credit, the lender may want to see six months’ or a year’s worth of loan payments in your bank.

Healthy personal assets and income

By design, DSCR loan qualifications bypass your personal income. This is one of a DSCR loan’s most attractive features.

Still, if you have a lot of personal assets or a healthy income from your job — and you have little debt tugging on your assets and income — your personal finances can help compensate for your average credit score.

Previous borrowing success

A shaky credit score won’t unsettle your lender so much if you also have a proven track record as a landlord — especially as a landlord who has borrowed and paid off real estate loans before.

Lenders know that experience matters. When you’ve made it work as a landlord for years, you’re less likely to give up on a property loan in the future.

Submit your DSCR loan scenario.

Best DSCR lenders for lower credit scores

Borrowing with an average DSCR loan credit score? It’s not an exact science. No one can guarantee you’ll find the perfect loan for your needs. But neither will you definitely be turned down because your credit score falls a few points below a lender’s stated minimum.

You’ll help your chances by checking out several lenders. The following DSCR lenders are good starting points for lower credit score borrowers:

  • NewFi Lending, 620 minimum
  • JMAC Lending, 620 minimum
  • Coast2Coast Mortgage, 620 minimum
  • Quintessential Mortgage Group, 599 minimum

Other lenders may be good for you, too, especially if you bring several strong compensating factors to the table.

Credit score: Approval depends on why your score is low

Most borrowers think of credit scores in absolutes: Either that three-digit number is high enough or it’s not. DSCR loan lenders don’t think this way. They dig deeper than the numbers. They look at the ingredients of your credit score to learn why it’s as low, or as high, as it is.

As a result, lenders won’t treat all lower credit scores the same. For example, a lender might approve one person with a 630 score and deny another.

Person 1’s score may be lower because of a medical collection and a few late payments on a credit card that’s since been paid off. Person 2’s credit history might include a previous foreclosure but no other blemishes.

Both borrowers have the same score, but for obvious reasons, the lender will be more wary of the person with the foreclosure. That borrower has walked away from a home loan before, probably costing a lender some money.

  • Top-rated landlord insurance
  • Get a quote in minutes
  • Protect your rentals
  • Most competitive rates in the U.S.
  • *We may be compensated if you purchase through this link
  • Top-rated landlord insurance
  • Get a quote in minutes
  • Protect your rentals
  • Most competitive rates in the U.S.
  • *We may be compensated if you purchase through this link

Credit score is just part of the DSCR conversation

Yes, DSCR borrowing tends to be easiest for those with excellent credit scores and solid credit histories.

If your DSCR loan credit score isn’t there yet, you may still be able to benefit from this innovative type of investment property financing — especially if your savings account can absorb a large down payment.

Why all the “ifs” and “maybes” and “shoulds” about DSCR loan credit scores? Because most DSCR lenders treat borrowers as individuals and not as loan numbers. Applying with the DSCR right lender begins a conversation about your real estate investing goals and needs.

It’s a conversation that won’t have to stop because of your average credit score.

Start the conversation by submitting your loan scenario here.

Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.