Are you a real estate investor trying to expand your portfolio and finance properties ranging from single-family, 2-4 units, or 5-8 units? With the market shifting, now is the time to take advantage of today’s rental market.
Today we’re going to talk about a unique type of loan that’s gaining popularity among real estate investors – the Debt Service Coverage Ratio (DSCR) loan.
A DSCR Loan… What is it?
A DSCR loan is a specific type of mortgage that emphasizes the cash flow generated from an investment property instead of an individual’s personal income. This loan helps lenders evaluate whether a prospective borrower can repay the loan based on the property’s monthly rental income.
Unlike traditional loans, which require proof of personal income, DSCR loans offer an alternative route to financing for real estate investors. This flexibility makes it beneficial for those who have varying streams of income or prefer using the property’s cash flow instead of personal income documents.
How is a DSCR Loan Calculated?
The key element of a DSCR loan is the Debt Service Coverage Ratio. This ratio measures a property’s available cash flow against its debt obligations.
Here’s the formula:
DSCR = Gross Rents / PITIA (Principal, Interest, Taxes, Insurance, and Association dues)
Let’s say your property generates $6,000 per month, and your monthly debt service is $5,000. Your DSCR would be 1.2 ($6,000/$5,000).
A DSCR of 1.00 means that the cash flow generated from the property is exactly enough to cover the loan payments. Anything above 1.00 indicates that there is more than enough income to cover the debt, which is a positive sign for lenders.
How is Rental Income Verified?
To verify rental income, LendSure generally takes into account the lower gross rents in the lease agreement. Additionally, our team will refer to the Form 1007 Rent Survey, which the appraiser completes, or the Form 216 Operating Income Statement for multi-unit dwellings.
In some cases, Property Management Firm Statements and/or Statements from Airbnb or other similar companies could be considered as other rental income verifications.
LendSure’s DSCR Loan Program Highlights:
- Flexible terms, lower monthly payments
- Loan amounts up to $1,500,000
- Cash-Out up to $500,000
- Loan-to-Value up to 80% for Purchase
- Loan-to-Value up to 75% for Rate & Term Refinance
- Loan-to-Value up to 70% for Cash-out Refinance
- FICO Credit Score as low as 660
- Available for 5-8 Unit Properties with Loan-to-Value up to 70%
- Close multiple loans for the same investor at the same time
- No limit on the number of properties owned
- Non-warrantable condos and condotels allowed
- Rate buy-down feature available
Why LendSure?
It’s simple. We make loans that make sense. We’re not in-the-box lenders. Of course, there are numbers, ratios, and data to consider, but we know that behind every file, there’s an individual with unique circumstances seeking a loan.
We’re redefining the mortgage experience one loan at a time. Thanks to our common-sense approach and dedicated lending team, we say ‘yes’ more often to today’s homeowners and investors.
