DSCR loans
How Lenders Underwrite Investment Property Loans
An underwriter is asking one question: if everything goes wrong, does this loan still get paid back? Here is exactly what they check, so you can see your deal the way they will.
Underwriting feels like a black box, but it is not. An underwriter on an investment loan is answering a single question: if everything goes wrong, does this loan still get paid back? Every rule they apply is a way of answering it, and you can ask the same questions first.
The five things they check
Cash flow. Does the rent cover the payment, and by how much? This is the debt service coverage ratio, the heart of an investment underwrite, because the property, not your salary, is expected to pay the loan.
Leverage. How much of the property's value are you borrowing? Lower leverage protects the lender with your equity, so a larger down payment earns better terms.
The borrower. Your credit and your reserves. Even when personal income is not checked, your credit sets the pricing tier and your reserves prove a vacancy will not sink the loan.
The property. A standard rental in a liquid market is the easiest thing to underwrite, because the lender could sell it if they had to. Unusual or hard-to-value properties get more scrutiny and less leverage.
The exit. Every loan ends. A 30-year rental loan ends slowly; a 12-month bridge loan ends fast. The lender cares enormously about the exit, because the exit is how they get paid back.
Underwrite your own deal first
The advantage of knowing the five checks is that you can run them before you ever call a lender. Score each one green, yellow, or red, fix the weak line, and you walk in already screened. That is the entire idea behind The Lender's Lens, and you can run a quick version on the pre-qualifier. Confirm the cash flow line on the DSCR calculator, because that is the one underwriters weight most.