What Is A DSCR Loan

 A DSCR loan is underwritten using property-level cash flow as opposed to personal income, unlike a consumer or owner-occupied home mortgage but similar to a commercial real estate mortgage. Debt-Service Coverage Ratio, often known as DSCR, is a metric used by lenders to assess a borrower's capacity to repay a loan based on the property's monthly rent. To calculate the DSCR divide the monthly rent by the monthly principal, interest, taxes, insurance, and association dues to arrive at the DSCR, a more straightforward way to assess cash flow (PITIA). 

 How Does A DSCR Loan Work?

 Some real estate investors may not be able to get a traditional loan due to the fact that they deduct business expenses from the value of their properties. Because the debt service coverage ratio loan doesn't call for proof of income in the form of tax returns or pay stubs, investors can qualify for it even if they don't have those documents on hand or if they don't accurately reflect their true income after accounting for write-offs and business deductions.

 What Are The Benefits of a DSCR Loan?

• No income verification or W2's required 
• No tax returns required 
• Best suited for experienced investors that can no longer obtain conventional financing 
• Shorter underwriting times
• Less documentation required 
• Loan amounts up to $3,500,000
• No cap on the number of properties 
• Airbnb and Vacation Rentals are eligible 
• Interest-only options are available 
• As low as 20% down

What is a Good DSCR Ratio?

 A DSCR of 1.25 is often stipulated by lending institutions as a minimum standard for DSCR mortgage loans. Nvestor Funding, on the other hand, allows real estate investors to qualify for a loan using the cash flow of their property with a DSCR as low as .75. Keep in mind that a DSCR of 1 or more qualifies for preferential interest rates, whereas a DSCR of less than 1 necessitates a cap on allowable loan to value ratios.

 Lenders should evaluate a borrower's ability to repay the loan by looking at the debt service coverage ratio (DSCR).

 Why Does DSCR Matter?

 Lenders might use the DSCR to gauge a borrower's financial stability before extending credit. In order to estimate a property's rental value, lenders need to make projections about how much money the property can bring in.

 For a property to generate negative cash flow, its debt service coverage ratio (DSCR) must be less than 1. DSCR loans can be made on properties with a ratio below 1, although they are typically reserved for the acquisition of homes that will undergo significant renovations or upgrades in order to enhance the monthly rent, or for homes with substantial equity and future potential for higher rents. A DSCR interest only loan may also help you get the property's ratio above 1.0.

 What is Required For A DSCR Loan?

 Although the standards for DSCR loans might not be identical to those for conventional mortgages, there are still some guidelines that real estate investors will need to adhere to in order to be eligible for these loans.

 DSCR loans, in contrast to conventional mortgages, are not supported by financial institutions such as Fannie Mae and Freddie Mac. As a result, there are no requirements that have been standardized. Nevertheless, there are a few topics that we are going to investigate.

• DSCR Ratio - For a DSCR loan, the typical minimum DSCR requirement set by lenders is 1.25, with most requiring a DSCR of 1. We require as low as .75.
• Credit Score - The minimum credit score required to qualify for a loan can vary from lender to lender, but it will normally fall somewhere between 620 and 700. We require at least a 640.
• Down Payment - The typical maximum LTV for DSCR loans is 80%, so a 20% down payment is required to get approved. There is a maximum LTV of 80% available with us!
• Cash Reserves - Lenders for DSCR loans typically want a cash reserve equal to six months of payments, just as they do for other types of investment property. We need only three months.
• Loan Amounts -Lender-specific factors dictate the maximum amount that can be borrowed for a DSCR loan, but many banks provide financing of up to $2 million. At Nvestor Funding our loan amount goes up to $3,000,000.
• Prepayment Penalty - Prepayment penalty's vary by lender. We have a 3-year & a 5-year penalty. 
• What types of property qualify - We can offer DSCR loans for single family, multi-family up to 20 units, town homes, and condos. 
  
  

 DSCR Loan FAQs

•  I am a new investor can I qualify for a DSCR Loan? Yes, new investors are welcome to apply. A new imvestor must have at least a 660 FICO. 
• I want to use a DSCR Loan for short term rentals am I able to use it for Airbnb or a vacation rental? Yes, we can provide financing for short term rentals. If you have not owned the property for at least 12 months and can not show at least 12 months income history from you bookings, the property will need to qualify off of the market rent. 
• Do you have cashout refinance options available? Yes, we offer up to 75% LTV on a cashout refinance. 
• Do you have interest only options available? Yes, we can offer 5 - 30 year interest only loans. 
• Am I able to refinance multiple properties at once? Yes, we have no limit to the amount of properties you'd like to refinance. 
• Do you offer a portfolio loan option? Yes! To qualify for a portfolio loan 5+ properties with a value of at least $100,000 per property is required. We can bundle a maximum of 25 properties into one portfolio. You can have multiple portfolio loans if needed.

 If you would like to see if you or your property will qualify feel free to give us a call at 877-231-3111 or submit the details of your loan here.