💰 Lending for Income Property: What Investors Need to Know
Financing income-producing real estate isn’t just about credit scores and down payments—it’s about proving the property itself can carry the debt. Whether you're buying a duplex or a 50-unit building, lenders want to see that your investment is financially sound. Here’s what they look for—and how to meet their expectations.
📊 Key Lending Metrics for Income Property
Lenders use a few core ratios to evaluate whether your property qualifies for financing:
1. Debt Service Coverage Ratio (DSCR)
- Definition: Measures the property’s ability to cover its debt payments.
- Formula: DSCR = Net Operating Income (NOI) ÷ Total Debt Service
- Target: Most lenders require a DSCR of 1.25 or higher, meaning the property generates 25% more income than needed to cover loan payments.
2. Loan-to-Value Ratio (LTV)
- Definition: Compares the loan amount to the property’s appraised value.
- Target: For income property, lenders typically allow up to 75–80% LTV, meaning you’ll need 20–25% down.
3. Credit Score
- While DSCR loans focus on property income, most lenders still want to see a minimum credit score of 640–680. Higher scores may unlock better rates or lower reserves.
4. Experience and Reserves
- Some lenders prefer borrowers with prior real estate experience.
- Expect to show 3–6 months of reserves to cover mortgage payments in case of vacancy or emergency.
🏘️ Why DSCR Loans Work for 2–50 Unit Rentals
DSCR loans are designed for investors—not owner-occupants. They:
- Focus on property cash flow, not personal income
- Allow you to scale your portfolio without hitting DTI (debt-to-income) limits
- Work well for self-managed or lightly managed properties, common in the 2–20 unit space
🧠 How to Prepare for Financing
Before applying, make sure you:
- Have a clean rent roll and lease documentation
- Can produce a 12-month trailing P&L or pro forma
- Understand your NOI and DSCR calculations
- Know your exit strategy—refinance, hold, or sell
🏁 Final Thought: Financing Is a Strategy
At PMI Profit Realty, we help investors prepare for financing—not just react to it. Whether you're buying a stabilized asset or a value-add deal, we’ll help you frame the property’s financials, connect with investor-friendly lenders, and meet the metrics that matter.
