Frequently Asked Questions
The DSCR is calculated by taking net operating income and dividing it by total debt service (which includes the principal and interest payments on a loan). For example, if a business has a net operating income of $100,000 and a total debt service of $60,000, its DSCR would be approximately 1.67.
DSCR loans are designed for real estate investors that own rental properties.
No. There are different lenders to choose from, and many have slightly different guidelines and qualification rules.
Typically, DSCR lenders will have interest rates, loan terms, and guidelines that are more or less ~90% equivalent. But the differences can be meaningful, especially when DSCR Lenders commit to specializing in serving specific investor niches.
Yes!
Short term rentals like AirBNB properties are the fastest growing type of DSCR loans.
No, these loans are only for properties that you rent to other people. This is a strict rule.
Usually 20% but in some cases it can be as low as 15%.
Yes, you can obtain a DSCR loan through an LLC. Many real estate investors prefer using an LLC for such loans to separate personal and investment finances, and for potential liability protection. However, lenders may have specific requirements for LLCs, such as the LLC’s age, structure, and financial history. It’s advisable to discuss with the lender and a legal advisor to ensure compliance and to understand the implications of taking a loan in the name of an LLC.
No, unlike conventional loans which limit to a person no more than 10 properties at once, DSCR Loans have no maximum. Each loan is qualified based on the property and credit score, not all the borrower’s personal income, expenses and portfolio.
Typically it is the property’s rental income documentation, such as current lease agreements or a market rental analysis. Additionally, the lender may request property-related financial statements, like operating income and expense reports. Personal financial documents, such as credit history, may also be needed, although the emphasis is less on personal income and more on the property’s income potential.
The exact requirements can vary by lender and the specific terms of the loan.
Yes, while in most cases borrowers have a ratio of 1 or better we can do DSCR loans with a ratio as low as 0.75.
Investors do this when they expect the rental rates on a property to increase or when they think the appraiser doesn’t understand how much a property can rent for.
Focus on improving the property’s rental income potential, as this is key in determining loan eligibility. Maintain a strong credit score, as it can still influence terms. We can help you compare offers from multiple lenders to find competitive rates.
Also, consider making a larger down payment to reduce perceived risk. Working with a mortgage broker experienced in DSCR loans can also help in finding the most favorable terms.
DSCR loans can be either fixed or variable rate, depending on the lender and the specific loan product.
Borrowers should choose based on their risk tolerance and financial strategy, considering how interest rate changes might affect their investment returns and cash flow.
Typically $100,000 USD.
620
Yes!
First time investors can usually expect minor restrictions such as slightly lower leverage, or a higher minimum credit requirement. There are some DSCR lenders that have no restrictions at all for beginner investors. This is especially true if the rest of the borrower’s financial profile is strong.