Why this scenario matters
DSCR lending decisions often hinge on small assumption changes. A pre-screen model reduces wasted applications and helps you negotiate from a stronger position.
Baseline modeling framework
- Start with conservative effective rent, not optimistic pro-forma rent.
- Include vacancy, management, maintenance, tax, insurance, and HOA when applicable.
- Run at least three rate scenarios and two vacancy scenarios.
- Verify lender overlays before committing capital.
Practical checklist
- Export your assumptions before every lender call.
- Keep a stress-case DSCR threshold of at least 1.15 for downside resilience.
- Compare payment structure, not just headline rate.
Related guides
FAQ
Q: How long do interest-only periods last? A: Typically 5–10 years. After that, payments convert to fully amortizing, increasing your monthly payment significantly.
Q: Is interest-only riskier for my exit strategy? A: Yes. You build no equity during the IO period. Plan for higher payments or refinancing before the IO term expires.
Q: Do all DSCR lenders offer interest-only? A: No. Many require 1.25+ DSCR for IO versus 1.0–1.15 for amortizing loans. Expect 0.125–0.25% rate premiums.
Next Step
Use the DSCR Calculator to compare your IO payment versus fully amortizing scenarios side by side.