DSCR Loans for Investors

by | Oct 17, 2022 | Loan Programs

DSCR Loans for Investors – Looking for a creative way to invest in real estate without verifying income? A DSCR loan might be the perfect way to spice up your real estate portfolio. By purchasing an investment property, you can add a stream of income that can be multiplied into additional investments. Keep reading for everything you need to know about how a DSCR loan works and whether it’s the right option for you.

DSCR Loans for Investors

What does DSCR mean?DSCR Loans for Investors

DSCR stands for Debt Service Coverage Ratio. This number is found by dividing the monthly rent from an income property by the monthly PITI(A) (the sum of the principal, interest, taxes, insurance, and homeowners association dues where applicable).

To find the DSCR of a property you are considering, start by determining the monthly rent. This number is either verified through a lease agreement, or based on the appraisal rent survey for comparable properties. The lower of the two (lease agreement and market rents) is the number used for the calculation.

The DSCR is then calculated by dividing that number by the PITI(A), or your total monthly payment to cover the property.

For a simple calculation, let’s say the monthly rent will be $850 and the monthly PITI(A) will be $1000. In that scenario, your DSCR would be 85%.

What is a DSCR loan?

A DSCR loan is a mortgage offered on the basis of the income potential of the investment property, rather than the verified income of the borrower.

Closest loan to a STATED income loan

When you apply for a DSCR loan, you won’t need to provide any personal income information, so this can be a great way to invest in an income property if you already own other real estate. Rather than basing your approval on your income, your approval is determined based on how the rental income can cover the monthly loan payments.

In most cases, a DSCR of 85% or higher will be required to secure a DSCR loan. Also keep in mind that a DCSR loan generally requires a 20%-25% down payment, with a maximum LTV of 75%.

Who can qualify for a DSCR loan?

Borrowers with a credit score above 680 are likely able to qualify for a DSCR loan. Without the need for income verification or employment history, you can qualify based on identifying a property with the right DSCR.

Focus on markets where your PITI(A) will comfortably fit within the limitations, ideally where the rent will be higher than your monthly expenses.

What properties can be purchased with a DSCR loan?

DSCR loans can be used to finance either commercial or residential properties. They are designed for income properties only, not for primary residences or personal vacation homes.

Is a DSCR loan right for me?

DSCR loans are ideal for a variety of real estate investors, especially those who are self employed or are embarking on a real estate investing journey after a lapse in employment. Did you know you can also use a DSCR loan to refinance and pull cash out of your existing income property, freeing up capital to purchase another investment?

The short answer is: DSCR loans are perfect for motivated investors who are ready to begin their income property journey or leverage a current property toward the purchase of another.

Do you think a DSCR loan might be the right fit for your next investment opportunity? We’d love to help you spice up your investments this fall. Contact us any time to learn more about leveraging a DSCR loan to acquire a new investment property.

We love unique situations that require our expertise and special planning and creative financing. For more information on DSCR Loans for Investors, go to www.talkwithJackie.com to set up an appointment to chat today 😊 For more information on all of your mortgage options in Mission Viejo and California please contact me anytime.

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