Hey BP Investors and Agents, I've noticed a good number of questions I answer on here are related to trying to purchase a property, but having issues with income - So I think many of you will find this post VERY helpful. I really hope this info adds another tool to your investment and RE "toolbelt".
The Problem: Whether it be DTI that's too high, student loans being counted on conventional financing, being unable to use anticpated rents, showing losses on tax returns, not being in business or working for long enough - income causes issues with financing investment purchases.
The Solution: DSCR
What are DSCR loans?
A DSCR, or debt service coverage ratio, is calculated by lenders when qualifying a borrower. When calculated, it is a measurement tool that lets the lender know if the investment at hand will generate enough cash flow to, at minimum, cover the proposed debt amount.
And to put is simply, if it does cover the debt at a 1:1 ratio or greater, you qualify.
How does this benefit you, the investor or agent?
One of the main benefits of a DSCR loan is that a personal income calculation is not required. The lender is instead focused on the cash flow that the real estate investment at hand is predicted to generate.
This eliminates the need to turn in those paystubs and the need for employment verification. If you're self-employed or have a gap in employment history, this loan product is the solution to either, or both.
You can also can come to the closing table and close each loan in your business entity or trusts name. Yes that's right, you can close in an LLC and save the attourney fees.
What about Downpayment?
Just like your traditional investment purchase, DSCR only requires 15% down, in some special cases like non-warrantable condos - 20, or 25%.
Other Features:
- Available for purchases and cash-out or rate-term refinance
- No limit on total number of properties
- Maximum loan amount $1.5 million
- No personal income used to qualify
- Qualifications based on property cash flow
- Non-warrantable condos OK
- 40 year fixed interest only available
- Properties can be in LLC's name
As a lender who works heavily with investors, DSCR is one of my favorite go-to loan types that I use to get investment loans closed quickly and easily.
Unfortuntely, many lenders never present this option to investors or agents, either because they don't know about, because they aren't confident doing them, or they just don't want to offer or are not able to offer the product.
Take away: Don't beat yourself up going conventional if you don't have to. Find a lender who understand DSCR and other non-QM loans who can help you learn how to use these loans to your benefit.
