Why Are DSCR Loans Good? Top 5 Reasons Why Investors Love Them

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It’s “the easy loan.” But are DSCR loans good for your investments?

DSCR loans are becoming one of the most popular investor tools out there. 

But why are they so well-loved? Let’s go over 5 reasons investors like DSCR loans. 

Are DSCR Loans Good?

Firstly, let’s go over what a DSCR loan is.

DSCR stands for “debt service coverage ratio.” They’re a loan for rental properties that are based on the debt ratio of rent income to the property’s expenses.

These loans can be flexible and hassle-free. This makes them the go-to choice for investors financing a rental property or turning a fix-and-flip project into a rental at the last minute in bad markets.

But are DSCR loans really as good as they seem? Let’s take a closer look at 5 reasons why DSCR loans are a solid choice for investors. 

#1: You can start investing now.

DSCR loans are great for new investors. Traditional loans often require you have two years of real estate investing experience.

Because there are no experience requirements, a DSCR loan is a great opportunity to get into your first investment rental property. Don’t wait to apply for your first DSCR loan.

#2: No income requirements.

With a DSCR loan, you don’t have to have a W2 job, or show any tax returns or other income documentation.

This means DSCR loans are good for minimizing your tax liability. You can write everything off, pay the IRS as little as you want, and still get a great loan.

#3: Less paperwork.

The investor’s dream: less paperwork. Applications and approvals are simple with DSCR loans. There are no income requirements, employment verification, or any other intensive qualifications.

Not only is it less hassle to skip some paperwork – it also means the entire loan process is much faster.

#4: DSCR works for short-term rentals too.

DSCR loans don’t just work for traditional rentals, but they work for all real estate investment properties. DSCR loans are flexible and work with a variety of rental options. This includes VRBO, Airbnb, or renting out a traditional long-term property.

There are a few things to take into consideration with short-term rentals and DSCR. But it’s still a simple and often profitable loan for these types of properties.

#5: Great for BRRRRs.

Many investors wonder – are DSCR loans good for BRRRR-style properties? The answer is yes.

DSCR loans are great for the long-term, refinance loan at the end of your BRRRR project. The combination of a quick and easy loan and a structure designed for rental properties makes DSCR and BRRRR the perfect pair.

Want to find out how a DSCR loan might work with your BRRRR rental? You can download our free DSCR loan calculator here. It can help you learn your ratio and get an idea of the kind of terms your property may qualify for.

Are DSCR Loans Good for Your Property?

If you’re in the market for a loan on a rental property, you can reach out to us to help with the numbers. Send us a deal or ask us a question at Info@TheCashFlowCompany.com.

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BRRRR Hard Money: The Buy Loan

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Do you have to buy BRRRR with hard money? Or can you use a traditional loan?

In the BRRRR method, you need two loans – one to buy, and one to refinance. One short-term, and one long-term. One investor-friendly loan, and one conventional.

This two-loan strategy allows you to unlock the equity hidden in a BRRRR-style under-market property.

But why do you need the first loan? Why can’t you just buy with a conventional loan rather than something like hard money?

Let’s look at an example of what happens if you purchase investment properties using traditional versus investor-friendly BRRRR loans.

Traditional Loans vs BRRRR Hard Money Loans

Here are the specs on our example property:

  • After-repair value (ARV): $400,000

The appraised value of this house should be $400k once we’re at the refinance stage.

  • Purchase price: $300,000

We’re going to buy this property for $300k.

In most actual BRRRR situations, we’d need to consider rehab costs in the equation. For the sake of our example, though, let’s say this house is rent-ready at $300k.

The spirit of BRRRR is to buy houses under-market – for less than they’re actually worth. This example house costs $300,000, but it’s worth $100k more, at $400,000.

Using Traditional BRRRR Loans for Purchase

With a traditional loan, like a 30-year fixed mortgage, Fannie or Freddie, or other conventional, the lender has to abide by underwriting rules. When it comes to using appraised value or purchase price for the LTV, the rules say the lender has to use the lower of the two numbers.

So if you purchase for $300k, even if the home is worth $400k, they can only loan you for the purchase. In addition to that, they’ll also require 20% commitment.

What does this chalk up to for your wallet?

  • The lender will give you a loan-to-value of 80% of $300,000. So the actual loan you get is $240,000.
  • You’ll need to bring in $60,000 for the purchase of the property.

Buying a BRRRR with a traditional loan means a smaller loan and a big down payment.

And that’s just not what BRRRR is meant for. The BRRRR strategy should be a zero-down, high-leverage real estate method.

So how do you get there?

Using BRRRR Hard Money Loans

Let’s check out our example house if we used an investor-friendly loan for the purchase.

Using an investor real estate loan, like hard money, allows you to profit using two BRRRR loans. This first loan is to buy at the lower listed price, the other is to refinance with the full appraised value of the home.

Remember that the traditional loan went wrong when the underwriting guidelines forced us into a lower loan amount. But when you buy with a hard money loan… that underwriting suddenly opens up.

During a purchase, investor-friendly loans look at the value of the home, the ARV. They base the loan amount on this number, which does two things:

  • Gives you more money to work with on a rehab.
  • Requires less (or often no) money down.

Investor-friendly loans often offer 75% or higher LTV for the ARV.

In our example, this means your investor-friendly loan will cover $300,000 (which is 75% of the $400k). This gives you enough to purchase the property with no money down required.

Read the full article here.

Watch the video here:

https://youtu.be/YvgpyygIHp0

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DSCR Loan Money Requirements: Don’t Be Blindsided

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Investors think of DSCR loans as the “easy loan.” But here are 3 DSCR loan money requirements you need to know.

Sure, DSCR loans have a simpler underwriting process and criteria compared to conventional mortgages.

But there are a few key expenses you’ll need to keep in mind.

When applying for a DSCR loan, it’s important to have a solid plan in place for covering the necessary down payment, closing costs, and reserves. Here’s what you need to know about DSCR loan money requirements.

Down Payment

The down payment is the upfront payment you make when purchasing a property. This is whatever isn’t covered by your DSCR loan’s LTV.

Closing Costs

Closing costs are the fees associated with obtaining a loan, including lender fees, appraisal fees, and title insurance. These costs can vary widely, but generally range from 2-5% of the loan amount. It’s important to budget for these costs and have the funds available at closing.

Reserves: An Important DSCR Loan Money Requirement

Most importantly, DSCR loans will require reserves.

Many lenders require you to have 3-6 months’ worth of mortgage payments in reserve to protect against unexpected situations, such as a tenant vacating the property.

These funds can come from your own savings or from borrowing OPM (Other People’s Money) from a business partner, friend, or family member.

By having a solid plan in place for covering these money requirements, you can increase your chances of getting approved for a DSCR loan. Keep in mind that your lender will want to see evidence of these funds in order to approve your loan.

More on DSCR Loan Money Requirements and Other Criteria

Read the full article here.

Watch the video here:

 

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3 Key Fundamentals of BRRRR

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The top 3 fundamentals to keep in mind when learning BRRRR.

“BRRRR” stands for “buy, rehab, rent, refinance, repeat.” It’s a process for capturing equity and creating cash flow on rental properties.

We’ve helped investors through this process for over 15 years.

Here are the 3 key fundamentals of BRRRR we’ve seen make these transactions successful.

Key Fundamental #1: Building a BRRRR Team

Firstly, you have to find off-market properties.

The really good under-market BRRRR properties won’t just jump into your lap. These properties require a little digging, and – more importantly – a team to help you.

You’ll need to know wholesalers, real estate agents, other investors, and anyone else who can help you locate good undermarket properties.

(It’s also an advantage to keep lenders on your team so you can close fast on these great properties once you find them.)

Key Fundamental #2: The Money Side

“It takes money to make money.”

If you can learn the basics about the costs of your BRRRR projects, then you can squeeze more money out of each project.

We always say that there’s money in the money. Do the research to learn about real estate before your first investment, and you’ll be miles ahead of other investors.

Key Fundamental #3: Using the Right Leverage

Yes, it takes money to make money, but it doesn’t have to be your money.

Plan for and understand the entire BRRRR process, and leverage can work to 10x your net worth.

For More on BRRRR

Overall, this only brushes the surface of BRRRR. Over the coming weeks, we’ll visit each of these topics in much more detail. Why do you use two loans? How can you do this with zero money down? How do you go about a refinance?

If you have a deal now you’d like us to look at for you, send us an email at Info@TheCashFlowCompany.com.

Read the full article here.

Watch the video here:

https://youtu.be/JbO2YFxuPmw

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BRRRR Loans: The Secret Weapon For Creating Wealth In Real Estate

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Using two BRRRR loans creates a rental property for $0. Here’s how.

Are you ready to take your real estate investing to the next level with the BRRRR strategy? You’ll want to get a firm grasp on the two key loans that make it all possible: the buy loan and the refinance loan. 

In this blog post, we’ll dive into the nitty-gritty of BRRRR loans and show you how to use them to build wealth through real estate.

Why Use 2 BRRRR Loans?

In the BRRRR method, you need two loans – one to buy, and one to refinance. One short-term, and one long-term. One investor-friendly loan, and one conventional.

This two-loan strategy allows you to unlock the equity hidden in a BRRRR-style under-market property.

But why do you need the first loan? Why can’t you just buy with a conventional loan rather than something like hard money?

Let’s look at an example of what happens if you purchase investment properties using traditional versus investor-friendly BRRRR loans.

Traditional Loans vs Investor-Friendly BRRRR Loans

Here are the specs on our example property:

  • After-repair value (ARV): $400,000

The appraised value of this house should be $400k once we’re at the refinance stage.

  • Purchase price: $300,000

We’re going to buy this property for $300k.

In most actual BRRRR situations, we’d need to consider rehab costs in the equation. For the sake of our example, though, let’s say this house is rent-ready at $300k.

The spirit of BRRRR is to buy houses under-market – for less than they’re actually worth. This example house costs $300,000, but it’s worth $100k more, at $400,000.

Using Traditional BRRRR Loans for Purchase

With a traditional loan, like a 30-year fixed mortgage, Fannie or Freddie, or other conventional, the lender has to abide by underwriting rules. When it comes to using appraised value or purchase price for the LTV, the rules say the lender has to use the lower of the two numbers.

So if you purchase for $300k, even if the home is worth $400k, they can only loan you for the purchase. In addition to that, they’ll also require 20% commitment.

What does this chalk up to for your wallet?

  • The lender will give you a loan-to-value of 80% of $300,000. So the actual loan you get is $240,000.
  • You’ll need to bring in $60,000 for the purchase of the property.

Buying a BRRRR with a traditional loan means a smaller loan and a big down payment.

And that’s just not what BRRRR is meant for. The BRRRR strategy should be a zero-down, high-leverage real estate method.

So how do you get there?

Using Investor BRRRR Loans

Let’s check out our example house if we used an investor-friendly loan for the purchase.

Using an investor real estate loan, like hard money, allows you to profit using two BRRRR loans. This first loan is to buy at the lower listed price, the other is to refinance with the full appraised value of the home.

Remember that the traditional loan went wrong when the underwriting guidelines forced us into a lower loan amount. But when you buy with a hard money loan… that underwriting suddenly opens up.

During a purchase, investor-friendly loans look at the value of the home, the ARV. They base the loan amount on this number, which does two things:

  • Gives you more money to work with on a rehab.
  • Requires less (or often no) money down.

Investor-friendly loans often offer 75% or higher LTV for the ARV.

In our example, this means your investor-friendly loan will cover $300,000 (which is 75% of the $400k). This gives you enough to purchase the property with no money down required.

Now, what happens with that $100,000 gap between what we bought the house for and what it’s worth? Let’s look at how to capture that equity.

The Refinance Stage of the BRRRR Process

Buying a BRRRR with a traditional loan is limiting. Refinancing a BRRRR with a traditional loan is freeing. Let’s see how these BRRRR loans shake out once we get to the refinance stage.

Firstly, there are two types of refinances.

A cash-out refinance turns the equity in the house into cash. A rate-and-term refinance is more like trading your old loan for a new one. Cash-out loans are usually 5-10% less than a rate-and-term.

Refinancing Out of a Traditional Loan

Now, let’s go back to our example and compare the refinances when we used traditional vs  investor-friendly BRRRR loans to buy the property.

Remember that our BRRRR property is worth $400,000. We bought it with the traditional loan for $300,000. We have a loan for $240,000.

In this case, we have to do a cash-out. We’re already out $60,000 from the down payment, so we want the most we possibly can get back in our pockets.

For a cash-out refinance, you’ll likely be limited to a 70% LTV on the value of the home which is, in this case, $400,000. This means we’ll get a new loan for $280,000.

That still doesn’t cover the $300,000 total we paid for the house, so we’re still losing $20,000 on the deal.

Refinancing Out of a Hard Money Loan

But the point of BRRRR loans is that you can complete the project with zero money down.

So now let’s look at how the investor-friendly loan set us up for the refinance.

With this hard money loan, we bought the house for $300,000 and now have a loan for $300,000. So far, we’ve put $0 of our own money into the property.

We’ll be able to use a rate-and-term refinance. We don’t need to get cash for ourselves – we just need to pay off our first lender.

Let’s say you’re still able to get a 75% LTV on the value of $400,000. Our refinance comes out to exactly $300,000, perfectly covering our loan.

This is how investor-friendly BRRRR loans let you invest in real estate with zero down!

You Can Do BRRRR

Knowledge, planning, and understanding makes all the difference with a BRRRR. We see many beginner investors make simple mistakes with their two BRRRR loans. Too many people put tens of thousands of dollars into a property that should have been $0.

  1. Don’t use a traditional loan until you own the property and are ready to refinance.
  2. Use an investor-friendly lender upfront for the purchase. This will always maximize your leverage and shrink your money down.
  3. Do an investor-friendly rate-and-term refinance.

Have questions on the numbers of your BRRRR project? Need an investor-friendly loan? We’re happy to help. Send us an email at Info@TheCashFlowCompany.com.

 

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How BRRRR Properties Create Wealth Immediately

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What properties make you money as a real estate investor? Here’s how BRRRR properties create wealth instantly.

There’s no contest: BRRRRs create wealth WAY faster than retail properties.

In fact, the right BRRRR property can create a net worth increase of 25% of the value of the property nearly instantaneously.

To show this in action, let’s break down the examples of two houses with the same numbers – but one is a BRRRR property and one is retail.

Retail vs BRRRR: The Numbers

  • Value: We’re comparing two homes with the same value – same neighborhood, same block, same size. Let’s say the value is $400k.
  • Loan: For the BRRRR, our total costs would add up to $300k ($250k purchase price + $50k closing, rehab, etc). Our leverage 100% covers this amount. For the retail home, we could get an 80% LTV, so our remaining loan is $320k. On retail, we have less cash flow because we owe more money.
  • Cash Transfer: With BRRRR, you’re moving $0 of your own money. This is why properties with the BRRRR strategy are so popular for investors. With the retail property in our example, you need to transfer $80k of your money as a down payment. 

There are two problems with the cash transfer requirement in retail properties. 1) You need the cash to get into it. And, 2) The last “R” in BRRRR is repeat, so you’d have to have $80k again for your next property and your next. On under-market BRRRR properties, the zero out-of-pocket costs free you up to repeat the process over and over.

  • Payments: BRRRR payments will be lower than retail payments by about $25-$50/month, simply because the loan amount is lower.
  • WEALTH: The BRRRR strategy property immediately creates $100k. The retail property adds $0. It only has the loan + the $80k that was yours to begin with.

How BRRRR Properties Create Wealth

The wealth in BRRRR comes from the difference between the value of the property and what you owe on it. This usually ends up being 25% of the value of the home.

If you multiply this process by 5-10 properties? You’ve suddenly got half a million to a million dollars in net worth.

Have BRRRR properties create wealth like this isn’t just wishful thinking. In 2010, we helped multiple families buy 10 properties in one year using this method. Many of their properties tripled and quadrupled in value over the last 10+ years.

The 2023 market is shaping up to look a lot like 2010. The time to buy is coming soon.

Read the full article here.

Watch the video here:

https://youtu.be/_tMI_s4vSqA

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What Does BRRRR Mean? The Basics Many Investors Don’t Know

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How do you really do this method, and what does BRRRR mean?

“BRRRR” stands for “buy, rehab, rent, refinance, repeat.” It’s a process for capturing equity and creating cash flow on rental properties.

However, the catchy acronym over-simplifies this real estate investing strategy. What does BRRRR really mean?

Here’s an overview of the bare basics of the BRRRR method.

What Does BRRRR Mean #1: Buy

BRRRR is not a retail-buy strategy. The properties you get for a BRRRR need to be off-market and under-market.

There are several considerations that go into a “good” BRRRR property:

  • The rent you can charge has to create cash flow.
  • The appraisal during the refinance will need to create a profit.
  • The property needs to be desirable enough to attract great tenants.

BRRRRs are bought with “sweat equity.” This doesn’t just refer to the physical work you put into a home once you have it… It also applies to the work you have to put in before purchasing the property to ensure it’ll make you money.

#2: Rehab

For the rehab of a BRRRR, there’s a balancing act to make the project “rental grade.” On the one hand, you have to stay within budget. Rental properties take some wear and tear, so your updates should account for that.

On the other hand, you still want quality. Why? Firstly, because better properties attract better tenants. And secondly, because your refinance depends on the appraisal. To get a good appraisal value, the property must show quality work.

#3: Rent

A BRRRR property’s cash flow is largely dependent on the amount of rent you can charge. Be aware of the rent range you can realistically charge in your property’s location.

Knowing the rent will help tell you what updates you should make to the property. For example, if adding an extra bedroom would get you an extra $500 per month, it may be worth the construction costs.

You can estimate an area’s rents by going to Zillow, Rentals.com, or talking to local property managers.

#4: Refinance

Part of the BRRRR strategy is to use two loans. You buy with a short-term hard money loan, then refinance into a long-term loan after all the rehab.

To make the most money, you’ll want to set yourself up for a rate and term refinance rather than cash out.

What Does BRRRR Mean #5: Repeat

The true secret to how BRRRR can create so much wealth is the repeat-ability of the process.

We recommend people getting into real estate investing to buy 10 BRRRR properties in 3 years, or 5 in 2 years.

How can you possibly afford to buy so much real estate in such a short amount of time? The right BRRRR properties require zero money down. If you were pulling from your savings for every down payment, you wouldn’t be able to get as far.

So, what does BRRRR mean? It’s a method for building an investment rental property portfolio that requires no money out of your pocket.

Read the full article here.

Watch the video here:

https://youtu.be/JbO2YFxuPmw

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Unlock Better DSCR Loan Terms with These Credit Score Strategies

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What you need to know about DSCR loan credit score requirements.

DSCR lenders do have credit score requirements. Your credit score is a crucial factor lenders consider when evaluating your loan application.

Credit is a way to put a number to how safe it is to loan to you. We call this “creditworthiness,” and it’s based on your credit history and financial behavior.

A higher credit score can significantly improve your chances of getting a DSCR loan and securing favorable terms, such as a lower interest rate and a higher loan-to-value (LTV).

DSCR Loans and Credit Score’s Impact

Here’s how your credit score can impact your loan options:

  • A credit score of 740 or above can get you a higher LTV ratio and lower interest rate.
  • A credit score between 700 and 739 may still qualify you for a loan with competitive terms.
  • A credit score below 700 might make it more difficult to get approved for a loan, or could result in higher interest rates and lower LTVs.

For example, a 740 score may get you an LTV that is 5-10% higher than a 640 score, and an interest rate that is .5-2% lower.

How to Improve Your DSCR Loan Credit Score

If you’re applying for a DSCR loan, a credit score below 700 might not cut it. It’s a good idea to take steps to improve your credit. 

Here are some ways to do that:

  • Pay down credit card balances: Putting all renovation costs on credit cards can drag down your credit score. To avoid this, consider getting a private loan that won’t show up on your credit report to pay down your balances. A better credit score can also lead to better rates for long-term financing.
  • Use an authorized user: If you have a family member or friend with good, long-established credit, ask them to add you as an authorized user. This can help boost your credit score.
  • Pay your bills on time: Payment history is a key factor in your credit score. Make sure to pay all your bills, including credit cards and loans, on time. Consolidating your accounts can also help you stay organized and avoid missed payments.
  • Keep open credit accounts: Even if you stop using an account, as long as it has a good history, it will continue to add a little boost to your credit.

By following these tips, you can improve your credit score and increase your chances of getting approved for a DSCR loan with favorable terms.

You can also download this free credit score checklist to get your credit score where it needs to be for your DSCR loans.

Read the full article here.

Watch the video here:

https://youtu.be/va6u-azRkFQ

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BRRRR vs Retail: What Properties Do Real Estate Investors Buy?

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Where should you be looking for properties as an investor? Here’s the difference between BRRRR vs retail.

Sometimes beginner real estate investors buy the wrong properties.

BRRRR will never work in your favor unless you buy under-market.

Here’s a breakdown of BRRRR vs retail so you don’t make the same beginning mistake.

Buying BRRRR vs Retail

This is the basic concept behind real estate investing. There are two types of real estate properties:

  • Retail – When we think of a house as “on the market,” it’s a retail property. These houses sell at market price, a cost determined by current market conditions. In real estate, this includes supply, demand, location, interest rates, and a number of other factors.
  • Undermarket – Properties that might be considered “off-market” are sold at an under-market price. Something prevents the house from selling at market value as-is. The home is  outdated, damaged, foreclosed, or suffering from some other condition.

To break down exactly why and how BRRRR works, we need to look at the difference between buying retail and buying under-market as an investor.

Buying Retail with the BRRRR Strategy Doesn’t Work

The problem with buying retail as an investor is the house comes with no equity.

Let’s say you buy a property worth $400,000 (listed for that amount). With a conventional loan, the lender will cover up to 80% of the cost of the house. So you’ll need to put down 20%.

When you purchase the house and make the down payment, you’re transferring wealth, not creating it. You’re taking the money from your financial account and transferring it to the physical property.

So, you’ve moved $80,000 into the house, got a loan for $320,000, and created no additional wealth from the transaction.

There are three main disadvantages to retail properties:

  • The property may create cash flow or wealth in the future as a rental property, but no wealth is created from the purchase.
  • You’ll require money up-front (in this case, $80,000 plus closing costs).
  • You can only repeat BRRRR retail properties as long as you have the money to fund them.

Buying Under-Market for BRRRR

True BRRRR properties, however, solve all three of those problems retail properties have. A BRRRR property:

  • Creates equity & cash flow immediately (and over time).
  • Can be done with zero money down.
  • Is a repeatable process.

BRRRR is all about buying under-market properties – the houses that are unwanted and unloved. In this market going into 2023, a lot of these types of homes will pop up, resulting in some great deals.

BRRRR Purchase

There are certainly some nuances to BRRRR, but let’s look at the bare basics. Let’s take the same example used for the retail property.

You, again, buy a property with a value of $400,000. However, since it’s under-market, you can purchase it for only $250,000.

The catch is that the house isn’t necessarily worth the $400k as-is. The potential is there, but you’ll have to update and rehab it. Between those fix-up costs and the closing costs, you’ll have to put $50,000 more into the property.

So the total cost of the property ends up being $300,000, or just 75% of the value of the home.

Cost of the BRRRR Strategy

That 75% number is not only realistic but recommended for BRRRR properties. In down markets, it’s not entirely uncommon to see houses at 65% or below.

In this example, our all-in price (purchase + closing + rehab) is $300k, and the property is worth $400k.

Right away, we’ve created $100,000 in net worth.

Read the full article here.

Watch the video here:

https://youtu.be/_tMI_s4vSqA

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5 Steps to Get a DSCR Loan for Investors

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This loan type is an investor’s secret weapon… Here’s how to get a DSCR loan in 5 steps.

You need money to make money. But it doesn’t have to be your money.

Real estate investing is a highly leveraged game. 

DSCR loans are different from conventional loans like Fannie Mae and Freddie Mac because they have more lenient guidelines. DSCR loans can have anywhere from 30 to 100 different funding sources, and each one has their own underwriting rules. 

Every lender will have different prices, terms, and underwriting criteria. But here are 5 things you’ll definitely need to know to get a DSCR loan approval.

1. Credit Score: Understanding Your Credit

Your credit score is the main factor that lenders consider when evaluating your loan application. 

A higher credit score can get you a better loan-to-value (LTV) ratio and a lower interest rate. For example, a 740 score will get you an LTV 5-10% more than a 640 score. Your interest rate with a 740 score will be .5-2% lower than the interest rate with a 640 score.

If your credit score is below 700, you should take steps to improve it – such as paying down credit card debt and making sure all your payments are on time. 

This article offers some ideas for raising your credit score quickly. You can also download this free credit score checklist to get you where you need to be.

2. Money: Down Payments, Closing Costs, and Reserves

In addition to the down payment, you’ll need to have enough money for closing costs and reserves.

For reserves on a DSCR loan, lenders often require you to have 3-6 months’ worth of mortgage payments. This extra cash protects the lender in case your tenant unexpectedly vacates or some other unexpected situation arises.

The money doesn’t necessarily have to be yours – you can borrow OPM from a business partner, friend, or family member. To get a DSCR loan, though, your lender will want to see the funds for a down payment and reserves to approve you.

3. Know Your Numbers: Property Income and Expenses

DSCR loans are based on the property’s ability to generate income and pay for itself. So your in-flow and out-flow numbers are a major factor in whether or not you get a DSCR loan.

The minimum requirement is that the rents cover all expenses, including:

  • The mortgage payment
  • Taxes
  • Insurance
  • Any HOA fees

Expenses not considered by your lender include:

  • Property management fees
  • Utilities
  • Maintenance

If the property generates more income than expenses, you’ll get a better rate. However, if it doesn’t break even, you’ll likely end up paying a higher rate.

For example, if you show a lender your property can bring in $1,250 and your payments are only $1,000, you can get a better rate.

Know your numbers to get your DSCR loan approved.

4. Be Prepared: Gather Your Info to Get a DSCR Loan

If you want to not only get approved for a DSCR loan, but have it happen quickly, make sure you have all your documents and information ready to go.

Treat your real estate investing like a business – and like you’re a professional. If you come to a lender prepared, you get:

  • First dibs
  • Fast service
  • Better rates

Lenders want to do business with people who prove they can stay on top of their finances and paperwork. Just as you want to rent to “easy” tenants, lenders want to help investors who cause the least amount of friction.

It also benefits you to be competent and prepared so you can read the lender better. Unfortunately, not all financial institutions have your best interest in mind, so being prepared helps ensure you find the best deal.

5. Shop Around: Compare Offers from Multiple Lenders

There are many different funding sources for DSCR loans, and they all have different terms and rates. To get the best deal, it’s important to shop around and compare offers from multiple lenders.

It may benefit you to stay away from jack-of-all-trades lenders. Look for lenders who specialize in DSCR loans and have a track record of working with real estate investors. They will have the most options for you to get the DSCR loan product that best fits your specific property.

Have the money, understand where your credit is, and know the numbers for the property. Taking 20 minutes per week to stay on top of this means all the difference for your approval on a DSCR loan (and for your real estate investment career!).

How to Get the BEST DSCR Loan

These 5 steps will get you well on your way to approval for a DSCR investor loan.

Remember to focus on:

  • Improving your credit score
  • Having money for down payments and reserves
  • Knowing your numbers
  • Being prepared
  • Shopping around for the best deal. 

Leverage is king in real estate. With a little bit of effort, you can secure the financing you need to grow your real estate investment portfolio.

Send us an email at Info@TheCashFlowCompany.com. Show us a deal you’re looking at or ask any questions you still need answered.

Let’s make you the most successful investor we can.

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