Exploring DSCR and Other Non-QM Loan Options

Unknown Speaker

So lets jump right in! Today we are going to discuss DSCR and other non-QM mortgage options. These are loans that are outside of the normal conventional and government sphere. Non-QM options are designed specifically for self employeed borrowers that are looking for a loan that qualifies them based on things other than their taxable income.

Unknown Speaker

When we talk about DSCR loans, or Debt Service Coverage Ratio loans, we’re discussing a type of financing that works a little differently than your standard mortgage. These loans focus solely on the income that a property generates. It’s specifically tailored for real estate investors.

James Eveld

Right, so this isn't like the usual process where lenders are pouring over your W-2s and tax returns?

Unknown Speaker

Exactly. What’s unique here is how lenders calculate the D S C R. They take the property’s gross monthly rental income and divide it by the housing expenses—principal, interest, taxes, insurance, and any association dues. If the result is 1.0 or higher, that means the property fully covers its housing costs.

James Eveld

Okay, but what happens if that ratio drops under one? Is the loan deal off the table?

Unknown Speaker

Not necessarily. That’s one of the great things about DSCR loans. Some programs will actually approve financing with ratios as low as 0.75, sometimes even lower, depending on the borrower and the loan scenario.

Unknown Speaker

There are plenty of advantages to D S C R loans beyond that. For one, they don’t require any personal income documentation—you’re not providing tax returns, pay stubs, none of that. Plus, there are flexible terms—prepayment penalties, interest-only options—you name it. It’s all designed to cater to investors.

James Eveld

That makes it super approachable, especially for folks who might not qualify through more traditional channels.

Unknown Speaker

And that’s exactly the point. D S C R loans can even accommodate first-time investors or properties in transition, like vacant rentals being refinanced. They’re structured with a lot of strategies and use cases in mind.

James Eveld

Speaking of flexibility, let’s shift gears and talk about self-employed professionals and how they fit into the mortgage world. We’ve got programs like Bank Statement Loans, 1099 Loans, and even something called P&L Loans that are pretty game-changing for this group.

Unknown Speaker

Right, and what makes them stand out compared to traditional mortgages is a much more flexible approach to verifying income. If you’re self-employed, you’re not typically going to have those standard W-2s or payroll stubs that traditional lenders rely on. These programs focus on cash flow, which is, honestly, a better reflection of earning potential for someone self-employed.

James Eveld

Totally. Take Bank Statement Loans, for example. They look at 12 months of your bank statements—personal or business and they analyze those to figure out your income. That means no tax returns, no jumping through hoops just to prove what you already know—you’ve got the income.

Unknown Speaker

Exactly! You can qualify for up to 80% loan-to-value. Plus, it’s not limited to single-family homes—in fact, condos and small multi-unit properties are also eligible under these programs, which opens up a lot of options for borrowers.

James Eveld

Yeah, and it can even work for first-time homebuyers. There’s no requirement to have owned property before, so it’s super accessible. And Sean, remember that case study I mentioned the other day?

Unknown Speaker

Yes, self employeed electrician?

James Eveld

Exactly! His company is doing great, but because he wrote quite a bit off on his tax returns, he couldn’t get approved through traditional means. But with a Bank Statement Loan, all his deposits told the real story. Long story short, he got his financing and ended up with his dream house.

Unknown Speaker

That’s a great example of how these programs allow for a more accurate representation of someone’s earning potential. It’s not just one option either. If you’re a contractor or freelancer, 1099 Loans might be the better fit. Those only require one or two years of 1099s, which makes the process even simpler.

James Eveld

Oh, and you don’t even have to stick to just one source of income. They’ll combine multiple 1099s, so if you’ve got a bunch of gigs or freelance work going on, it all counts.

Unknown Speaker

And let’s not forget P&L Loans. With these, it’s all about your profit and loss statement. If you’ve got solid financials from your business operations, even for just 12 months, that can be enough to secure financing. It’s another way these programs cater specifically to the unique scenarios self-employed professionals deal with.

James Eveld

It feels like such a breath of fresh air, honestly, especially in a world where traditional loans can feel like they’re built for a completely different era. These alternatives just make sense.

Unknown Speaker

Speaking of flexibility, another strategy worth mentioning is asset depletion. It’s not as widely recognized, but it’s a game-changer for retirees or high-net-worth individuals. Essentially, it calculates income based on your assets instead of traditional sources, making financing accessible for a whole different group of borrowers.

James Eveld

Yeah, so instead of looking at your paycheck or your business income, it’s like leveraging what you already have, right? Like your savings or investment accounts?

Unknown Speaker

Exactly. Say you’ve got stocks, bonds, retirement accounts, or even just a well-funded savings account. Lenders consider the value of those assets and essentially “deplete” them over a set period to determine a monthly income figure. That income can then be used to qualify you for a mortgage.

James Eveld

But there’s gotta be some rules, right? Like, not all assets are created equal?

Unknown Speaker

Right, there are definitely restrictions. For example, lenders typically exclude funds being used for a down payment or closing costs from the qualifying balance. Plus, they value different asset types at different percentages. Checking and savings accounts usually count at 100%, but things like stocks or the vested portion of retirement accounts might only count at 60 or 70%. It varies.

James Eveld

Okay, so not everything counts dollar for dollar, but it still seems like it could open the door for a lot of folks, especially if, they’re retired and don’t have a big income stream. One of the key benefits. Whether you’re looking at a Bank Statement Loan, or something else entirely, asset depletion can be used alongside other income verification methods.

Unknown Speaker

That’s exactly it. I had a client once—a gentleman nearing retirement —who was pursuing a new home. He still had an income from his job but he also had a sizeable nest egg. Traditional lenders wouldn’t approve him because the income from his job wasn't adequate enough to qualify for the mortgage, but with the addition of asset depletion, we were able to supplement his income to get him into qualifying range.

James Eveld

It feels like the whole industry is moving toward flexibility—like finally acknowledging that not everyone fits into a one-size-fits-all system.

Unknown Speaker

And that’s precisely what these programs are about—offering solutions tailored to real-world situations. Speaking of which, that’s all we’ve got for today’s episode. Thanks for listening, and we’ll catch you next time!

James Eveld

Take care, everyone!