Quote from @Jabari Seabrook:
BP Community,
In this blog post, I'd like to discuss my situation as a self-employed individual seeking financing for a new construction project on a triplex in Charleston, SC. Despite having a credit score over 700, local banks require a consistent income of $10,000 per month for the past two years, which doesn't align with my variable income as a business owner. However, I've come across the concept of DSCR (Debt Service Coverage Ratio) loans, which could potentially provide an alternative solution for financing new construction projects.
To provide a full picture, here are some additional details: I already own the lot for the new construction, which has a balance of $25,000 and an estimated value of around $175,000. Each unit in the triplex, once completed, is projected to rent for $2,500 per month, totaling $7,500 in monthly rental income. The completed triplex is expected to appraise for approximately $800,000.
Given these circumstances, I'm seeking advice and insights from fellow investors who have utilized DSCR loans specifically for new construction projects. Are there specific lenders or loan programs that are more accommodating to self-employed individuals with variable income, even with a credit score above 700, for new construction endeavors? What steps should I take to improve my chances of securing financing for this new construction triplex, considering my ownership of the lot and the projected rental income? Additionally, are there any potential downsides or considerations I should be aware of when opting for a DSCR loan for new construction in the Charleston, SC area?
I greatly appreciate your expertise and insights! Your experiences and guidance will be instrumental in helping me navigate this financing challenge and move forward with my real estate investment goals related to new construction.
Thank you in advance for your valuable input!
I would say given your condition as self employed, a DSCR seems the best option. Why, most other loans will usually require some stable income and may give you a higher rate/unfavorable terms since you won't have predictable income.
DSCR loans are qualified based on the amount of income the property will make, not your personal income. You get qualified for a DSCR loan based on the DSCR ratio of the subject property.
DSCR ratio=monthly rental income/monthly PITI(loan principal and interest, taxes and insurance). Example:So if rent total is $1500 and monthly PITI total is $1000, your PITI ratio=$1500/$1000=1.5
Lenders usually lend to anyone with a DSCR ratio of 1 and above.
DSCR loans will require reserves and rates will usually be 1% higher than conventional and government loans because this is an investor loan.
I would recommend you contact a mortgage broker and ask them to get you multiple DSCR loan offers. The more you are able to compare, the better DSCR deal you could find.
