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Interest-only DSCR loans
A lower interest-only payment can lift a borderline DSCR on select programs. Here is how it works and what to weigh.
Select DSCR programs offer interest-only payments, commonly a 10-year interest-only period on a 30-year or 40-year term. Some of them calculate the DSCR on the lower interest-only payment, which can lift a borderline ratio. The payment rises after the interest-only period and you do not build principal during it. Terms depend on the program.
How interest-only DSCR loans work
With an interest-only loan, your monthly payment covers only the interest for an initial period, commonly 10 years. After that, the payment resets to include principal over the remaining term. Because DSCR divides rent by PITIA, a lower payment raises the ratio. On programs that qualify on the interest-only payment, a rental that is just under 1.0 on a fully amortizing payment can clear it.
What to expect across our network
| Item | Select programs |
|---|---|
| Interest-only period | Commonly 10 years |
| Terms | 30-year or 40-year terms, and 5/6, 7/6 or 10/6 adjustable-rate structures on some programs |
| Qualifying payment | The interest-only payment on many programs. Some use the fully amortizing payment |
| Credit and LTV | Often a higher credit score or slightly lower maximum LTV than amortizing, depending on the program |
| First-time investors | Allowed on some programs, with a 1.0 DSCR or better |
General guidance on programs available across our lender network. Not every program offers every feature, features often cannot be combined, and guidelines change without notice. Rates and terms are not shown here. This is not a commitment to lend.
The trade-offs
- No principal paydown. Equity grows only through appreciation unless you pay extra.
- Payment reset. The payment steps up after the interest-only period. Plan for it.
- Possible pricing or leverage differences. Some programs price interest-only higher or limit its LTV.
- Reserves. Some programs count reserves on the interest-only payment, which lowers the cash you need to hold.
Test the effect in the DSCR calculator. Check the interest-only box to see the ratio change.
More DSCR programs
- First-time investor DSCR loans
- DSCR below 1.0 and no-ratio loans
- Airbnb and short-term rental DSCR loans
- Foreign national and ITIN DSCR loans
- DSCR cash-out refinance
- DSCR loans for LLCs
- 5 to 8 unit DSCR loans
- All DSCR loan programs at a glance
- DSCR loan requirements
- DSCR calculator
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Frequently asked questions
Can I get an interest-only DSCR loan?
Yes, on select programs. Interest-only periods are commonly 10 years, often on a 30-year or 40-year term, and some programs are available as adjustable-rate loans such as a 5/6 or 7/6 ARM with an interest-only period.
Does interest-only help my DSCR?
It can. On programs that calculate the DSCR on the interest-only payment, the lower payment can lift a ratio that falls short on a fully amortizing payment. Some programs still qualify you on the fully amortizing payment, so ask which applies.
What happens after the interest-only period ends?
The payment steps up to include principal for the remaining term, so the payment is higher. You do not build principal during the interest-only period unless you pay extra. Plan to refinance, sell or budget for the higher payment.
Can first-time investors use interest-only?
Some programs now allow interest-only for first-time investors, usually with a 1.0 or better DSCR and conditions. Others limit interest-only to experienced investors, higher credit scores or lower LTV.
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- Qualify on the property's rent, with no tax returns, W-2s or pay stubs on any program
- North Carolina and South Carolina investors, including first-time investors and LLC buyers
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