An investor cash flow loan is also sometimes recognized as a debt service coverage ratio loan. This type of loan is designed specifically for real estate investors hoping to use other means than tax returns to qualify for a mortgage to purchase an investment property
An investor cash flow loan is based upon the property intended for purchase being able to generate an annual net operating income compared to its debt obligation or the amount of money needed to pay for the property. This type of loan is most often used by real estate investors because it helps to determine the borrower’s ability to repay the loan through the amount of profit they generate from rent.
Qualifying for a mortgage on a property as a real estate investor through tax returns can be difficult as many real estate investors write off several expenses from rental properties. On paper, through a tax return, it can look like a real estate investor does not make much money due to all of the write-offs. An investor cash flow loan becomes an easier means of qualifying to purchase investment properties. A nice benefit of these loans is there is no limit to the number of financed properties an investor can hold. These types of loans can also be closed under a commercial entity such as an LLC.
Why an Investor Cash Flow Loan can be a More Promising Means of Mortgaging Investment Properties
- There’s no income or job history required
- There’s a low debt service coverage ratio qualification
- You can qualify with a lower credit score as compared to other types of loans
- Some of these loans offer a first investor program to help hopeful Americans get into the world of real estate investing and help them to build a wealth portfolio
- There’s no income or job history required
- Loan amounts are often much larger than conventional loans
- You do not need to use your personal income to qualify
- There’s a possibility of purchasing non-warrantable condos and investment properties
- As mentioned above no limit on investment properties that are owned or financed
- There are some interest-only loan options available
Qualifying for an Investor Cash Flow Mortgage
Being that these types of mortgages are different from the traditional federally backed mortgages each lender is going to have their own specific set of qualifications for an investor cash flow mortgage. What a lender wants to see is that there is a strong ability of the borrower to re-pay based on the monthly rent from the property. This is used as a way to measure cash flow.
Each lender is going to have an idea of what an ideal rental income for the property will be. When you hear the measurement number 1.0 this means that the investor who owns the rental is getting exactly the amount in rent that they are paying out to finance the property. Typically, anything above 1.2 is considered good by a majority of lenders. 1.5 is considered great.
For more information on cash flow loans and real estate investment loan options in Mission Viejo and California please contact me anytime.
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