DSCR Loans
DSCR stands for Debt Service Coverage Ratio. It's a mechanism used to assess a property/business's ability to generate enough cash to cover debt service obligations, such as interest, principal, and lease payments. In personal finance, DSCR refers to a ratio used by loan officers in determining a borrowers debt servicing ability. DSCR loan is a type of non-QM loan and are becoming increasingly popular in today's market. It is a great option for real estate investors to secure financing based on the rental income of a property rather than their personal income. This means that even if you don't have great credit, you may still be able to qualify for a DSCR loan.
Key Features
- No Personal Income Required
- Qualify Based on Cash Flow
- Down Payment as Low as 20%
- Credit for DSCR > 1.25
- Cash-out available up to 75% - 80% LTV
We offer DSCR loans at reasonable rates, and a down payment as low as 20% (depending on your credit score and DSCR). Short and long term DSCR loans are available. Our DCSR loan program are:
- Accessible for real estate investors
- Offer unlimited Cash Out
- not limited by the number of properties
- For all types or rentals
How to calculate DSCR
"The formula for the debt-service coverage ratio requires net operating income and the total debt servicing for a company. Net operating income is a company?s revenue minus certain operating expenses (COE), not including taxes and interest payments. It's often considered equal to earnings before interest and tax (EBIT).
DSCR = Net Operating Income / Total Debt Service
where:
Net Operating Income = Revenue - COE
COE = Certain operating expenses
Total Debt Service = Current debt obligations ? " Investopedia
How do DSCR loan work for investment properties?
In the case of investment properties, rather than looking at a borrower's personal income, expected monthly rent from the property plays the key role. Here debt service coverage ratio (DSCR) is used to determine eligibility ( instead of DTI ).
Advantages of a DSCR loan
- Higher loan-to-value ratios
- DSCR loans can be verified quickly and easily, which can help speed up the loan process.
- Generally DSCR loans have lower interest rates than conventional mortgages, which can help borrowers save significant amount of money over the life of the loan.
- Flexible underwriting: A person with no so great credit may still qualify for a DSCR loan.
- With traditional loans, there is a limit to how many rental properties a borrower can buy, but you can generally take out as many DSCR loans as you want.
- Since the borrower's income is not used to qualify for a DSCR loan, there is no employment verification required.
What is required for a DSCR loan?
DSCR loan is a type of non-QM loan, therefore they are not backed by entities like Fannie Mae and Freddie Mac. And they have any strict standard requirements but in general you'll need to meet the following requirements:
- Credit score: A minimum credit score of 650 - 700, though better scores may get you more favorable terms
- Down payment: A minimum down payment of 20%
- Loan amount: A minimum loan amount of $175,000
- DSCR: A minimum DSCR of 1.0
- Property appraisal: An appraisal to determine the property's value and rental income
- Property type: The property must be an income-generating investment property that you don't live in
- Cash flow: The property's cash flow must cover the mortgage payment and other expenses
- Income documentation: Detailed income documentation, including property financials, to verify cash flow
- Short-term rental history: If the property is a short-term rental, you'll need to provide the last 12 months of bookings and receipts
- Owner verification: You'll need to provide a settlement statement or deed to verify that you own the property
Our DSCR loans are a good option for real estate investors who want to keep their personal finances separate from their investment property. It is carefully designed to help both new and experienced real estate investors in financing their properties, qualifying based on the cash flow generated by the investment.
