Understanding DSCR or underwriting on investment loan

[Wendy S.]

Hello, BPers, I'm looking at buying a property using its own rental income to qualify as my personal DTI is already maxed. I do have excellent credit with lowest number being 773.

Property listed for $100,000 and current rent is $1,050. My broker says he can get me a 30 year loan with 25% down, at 5.25 interest with a PITI of abt $550.

He says they would use $787.50 ($1,050 X 75%), but then the income would need to cover at least 50% of the PITI. So to be on the safe side the allowable income would need a 45% debt ratio.

I'm thinking 25% down is too much for the required property and the rate isn't great. Not do I fully understand the debt service requirements. Am I wrong, is he right or do I need to find another lender?

Confused??

[Jaysen Medhurst]

Certainly can't hurt to talk with other lenders, @Wendy S.. That rate is high, but 25% is pretty standard. You might find a product with 20% down, though. Given your personal DTI, you may not find anything better, but it's always worth shopping around.

Based on your numbers (and lender's explanation of 75% of income) the DSCR is 1.4, which should be plenty high enough. Typically, commercial lenders like to see 1.2-1.25 or better.