5–8 unit residential DSCR loans, explained

This program uses the residential-style monthly ratio explained in our DSCR guide: eligible monthly rent divided by the monthly payment of principal, interest, property taxes, insurance and association dues (PITIA). For interest-only loans the criteria allow the interest-only payment (ITIA). The published minimum is 1.00. The published criteria are strict about which rent counts:

• Leased units: the lower of the estimated market rent and the lease amount.
• Management fee: the management fee shown in the appraisal is deducted. On a purchase only, if no management fee is specified, an 8% expense factor is used instead.
• Vacant units: a normal vacant unit can count at up to 75% of market rent, with no more than 2 vacant units.
• Short-term rental units: treated as vacant, but with zero qualifying income, not 75%.
• Not eligible: units used for commercial purposes, and room-by-room, SRO or boarder leases.
• Lease terms: leases need an initial term of at least 6 months. A month-to-month lease can work if the prior lease term was at least 6 months and the last 2 months of rent receipts are documented.

Want to try the ratio arithmetic? Our DSCR calculator divides a monthly rent by the housing payment. Use it for the ratio only, with the eligible monthly rent your lender confirms: it does not apply the 5–8 unit rent adjustments above. If the rent you enter is already adjusted, turn off the calculator’s separate operating budget. That budget expects unadjusted gross rent and could subtract vacancy and management a second time. The result is an illustration, not an eligibility check.

• Residency: U.S. citizens, permanent residents and non-permanent residents. Foreign nationals, ITIN borrowers and DACA recipients are not eligible in this particular program (other DSCR programs have their own rules).
• Experience: at least one borrower must have owned and managed a non-owner-occupied, income-producing investment property for at least 1 year within the past 3 years.
• Housing history: no 30-day late housing payments in the last 12 months, and no more than one in the last 24 months.
• Major credit events: bankruptcy, foreclosure, short sale, deed-in-lieu or loan modification must be more than 36 months in the past. The lender also reviews other credit history.

The program qualifies primarily on the property’s cash flow rather than a full personal debt-to-income calculation. That does not mean no documents: expect a credit review, asset statements, and property, lease and entity paperwork. Ask Mary Ann exactly which documents a specific file needs.

Commercial multifamily loans commonly measure DSCR as annual net operating income (after a full set of operating expenses) divided by annual debt service. This specialized 5–8 unit program instead uses the residential-style monthly ratio of eligible rent to PITIA, with its own rent adjustments, management fee deduction and valuation checks.

The two methods produce different numbers and are not interchangeable. Which approach fits a particular building depends on the property, the borrower and the lenders available for that scenario. Mary Ann can talk through both directions.