DSCR Loan Approval: 3 Steps to Take with Your Property

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Today we are going to dive into DSCR loan approval by looking at the 3 steps you need to take with your property. Let’s take a closer look!

Step 1: Meet the DSCR Ratio Requirement

The property’s DSCR ratio is crucial. This ratio compares your rental income to the expenses. Most lenders want a ratio of at least 1:1, meaning your rental income should cover your mortgage, taxes, insurance, and other costs.

What to Do:

  • Calculate the ratio: Use a DSCR calculator to check that your property’s rental income meets or exceeds its expenses.
  • Know your numbers: Make sure the ratio is solid before you even make an offer on the property.

Example: If your property’s expenses total $1,500 per month, you’ll want your rental income to be at least $1,500 to hit the 1:1 ratio.

Step 2: Check the Location

Location matters for DSCR loans, especially if the property is in a rural area. Some lenders might hesitate to approve loans in areas with few comparable sales.

What to Do:

  • Verify the location: Make sure the property’s location is suitable for lenders.
  • Consider comps: Rural areas can make it harder to find comparable sales, which could affect loan approval.

Example: If your property is in a small town, double-check that there are enough recent sales in the area to support your loan.

Step 3: Ensure the Right Loan Size

The loan amount can also impact approval, especially if you’re dealing with a smaller property. Some lenders have minimum loan amounts that they require.

What to Do:

  • Check the loan size: Make sure the property’s value is high enough to meet the lender’s minimum loan amount.
  • Know your lender’s limits: Different lenders have different requirements, so find out their minimums.

Example: If you’re looking at a property valued at $80,000, confirm that your lender can finance this smaller amount.

Ready to Apply for a DSCR Loan?

Getting a DSCR loan approved involves two main steps: preparing yourself and checking that the property fits the requirements. Start by boosting your credit score, making sure you have the cash to close, and setting up your LLC. Then, focus on finding a property that meets the DSCR ratio, is in a suitable location, and fits the right loan size.

If you need help with the process, don’t hesitate to reach out to us at The Cash Flow Company or check out our DSCR calculator tool to see how your property measures up!

Watch our most recent video to find out more about: DSCR Loan Approval: 3 Steps to Take with Your Property

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DSCR Loan Approval: 3 Steps YOU Need to Take

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Today we will discuss the 3 steps you need to take for DSCR loan approval. By following these three simple steps, you’ll be well on your way to securing the funding you need. Let’s break it down step by step.

Step 1: Check Your Credit Score

The first thing you need to focus on is your credit score. A good credit score can help you to get approved as well as qualify for better rates. Here’s what you should do:

  • Find out where your credit score stands: Check your credit report to see your current score.
  • Aim to improve it if needed: The higher your score, the better your rates, so take steps to boost it before applying.

Example: If your credit score is at 680, you might get a decent rate. But if you work to raise it to 720 or higher, you could save a lot on interest over the life of the loan!

Step 2: Secure the Cash to Close

Next up is making sure you have enough cash to cover the down payment, closing costs, and reserves. You need to be ready to show that you have these funds available. Here’s what to consider:

  • Down Payment: Do you have at least 20% or even 25% of the property’s purchase price?
  • Closing Costs: Additional fees when finalizing the loan.
  • Reserves: Make sure you have enough in reserve to cover a few months of expenses.

Example: For a property priced at $250,000, you might need $50,000 for the down payment and additional funds for closing costs. It’s crucial to have these amounts in your account and ready to go.

Step 3: Set Up Your LLC Properly

The final step before applying for a DSCR loan is to make sure your LLC is ready to go. Many investors use an LLC to buy properties, so it’s essential to have everything in order.

  • Check your documents: The LLC needs to be set up correctly. This includes all the necessary documents including the operating agreement and EIN number.
  • Have it ready for the property: This will make it easier to put the property under contract when the time comes.

Example: If your LLC isn’t fully set up, it could delay the loan process. Getting everything ready upfront will save you a lot of hassle down the road.

Ready to Apply for a DSCR Loan?

Now that you know the steps, you can get yourself pre-approved for a DSCR loan. Start by making sure your credit score is solid, you have the cash ready to close, and your LLC is set up the right way. Then, you’ll be in a great position to move forward when you find the right property. If you’re unsure about your approval status or need help calculating your DSCR ratio, feel free to reach out to us at The Cash Flow Company. We’re here to help you get the best loan possible so you can build wealth and create the financial freedom you’re after!

Watch our most recent video to find out more about “DSCR Loan Approval: 3 Steps YOU Need to Take”

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DSCR: Do Lenders Care More About You or Your Property?

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If you’re considering a DSCR loan (Debt Service Coverage Ratio loan), you might wonder, “do lenders care more about you or your property?” It’s a common question, and understanding the process can help you get approved smoothly. Let’s walk through the exact steps.

What YOU Need to Get Approved for a DSCR Loan

Before you even think about a property, start with you. You’ll want to get pre-approved to ensure you’re ready when the perfect deal comes along. Here’s what lenders look at when they evaluate you:

  1. Credit Score
    Your credit score is one of the most important factors for getting the best DSCR loan rates. The higher your score, the better your rate. It’s smart to check where your credit stands now and see if there are ways to improve it before applying. For example, if your score is on the lower end, you might work on improving it before buying.
  2. Cash to Close
    Do you have enough money for the down payment, closing costs, and reserves? With DSCR loans, you typically need around 20–25% down. For instance, if you’re looking at a $250,000 property, you’ll need at least $50,000 plus closing costs. Make sure the cash is ready in your account, as lenders will check to see if it’s accessible.
  3. LLC Setup
    Most investors buy properties under an LLC. So, it’s important to make sure your LLC is set up correctly. Have your EIN, operating agreement, and other paperwork ready. This step will help speed things up when you put a property under contract.

What Your PROPERTY Needs to Get Approved

Now that you’ve got yourself ready, it’s time to think about the property. Lenders also care a lot about the property you’re buying, especially with DSCR loans. Here are the main things they’ll look at:

  1. DSCR Ratio
    The DSCR ratio is the most critical factor for your property. This ratio compares the property’s income to its expenses. A ratio of 1:1 means the property earns enough rent to cover its mortgage, taxes, insurance, and other costs. You can calculate this easily using a tool like the one available on the Cash Flow Company website. Make sure the property hits at least 1:1, or you might have to bring more money to the table.
  2. Location
    Where is the property located? Properties in rural areas can be tough to finance because lenders struggle to find comps (comparable sales) for the appraisal. If your property is too remote, it may be excluded by some lenders, which could limit your options.
  3. Size (Loan Amount)
    Lenders also consider the property’s value and loan amount. For example, if you’re buying an $80,000 property, it might be hard to find a lender because some have minimum loan amounts. Even though smaller properties can cash flow well, make sure the loan amount is big enough for the lender to approve.

Are You Ready to Apply for a DSCR Loan?

Before you start shopping for properties, it’s best to get pre-approved. This way, you’ll know your credit score is in order, you have the right amount of cash, and your LLC is ready to go. After pre-approved, you can focus on finding a property that qualifies based on its DSCR ratio, location, and size.

If the property you want doesn’t quite meet the ratio, don’t worry. There are options — but be aware the rates might be higher, and it could be trickier to get the property cash flowing.

Need Help with Your DSCR Loan?
If you’re unsure about your approval status or need help calculating your DSCR ratio, feel free to reach out to us at The Cash Flow Company. We’re here to help you get the best loan possible so you can build wealth and create the financial freedom you’re after!

Watch our most recent video to find out more about “Do lenders care more about you or your property?”

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Does Your Rental Property Qualify for a DSCR Loan?

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Investors often wonder: Does your rental property qualify for a DSCR loan? DSCR (Debt Service Coverage Ratio) loans are different from traditional loans because they focus on the property’s income instead of your personal income. So, to qualify, the rental property itself must meet certain criteria.

What DSCR Loans Look For?

When it comes to qualifying, your rental property’s cash flow takes center stage. The lender checks if the rental income can cover the mortgage payments, plus the usual expenses like taxes and insurance. Essentially, the property should generate enough income to pay its own way.

For example, imagine your property generates $2,500 a month in rental income, and your monthly mortgage payment is $2,300. In this case, your property may qualify because the rent covers more than the mortgage.

Property Income vs. Expenses.

Does your rental property qualify for a DSCR loan? One important factor is how much income the property brings in compared to its expenses. The lender will check things like the rental market in your area and calculate what rents are going for. If your property earns enough income, it has a strong chance of qualifying.

But if your expenses (like the mortgage, taxes, insurance, and HOA fees) are higher than the rental income, it might not qualify without adjustments. This could mean you need to increase your down payment or look for a different loan option.

What If the Property Isn’t Rented Yet?

You may wonder, “What if my property isn’t rented yet?” The good news is that your property can still qualify for a DSCR loan. In this case, the lender uses a rent schedule. An appraiser will determine the estimated rent by comparing similar properties in the area. This makes sure your property qualifies based on what it could rent for, even if you don’t have tenants lined up yet.

Know Your Numbers

Does your rental property qualify for a DSCR loan? It all comes down to understanding the numbers. Make sure you know your rental income, mortgage payment, and other property costs. If these numbers add up in the right way, your rental property will likely qualify for a DSCR loan.

If you’re unsure, using tools like a DSCR calculator can help you plug in numbers and check the property’s potential. That way, you can see if it meets the criteria before moving forward.

In the end, the key to qualifying for a DSCR loan is making sure your property’s income outweighs its expenses.

Watch our most recent video to find out more about: “Does your rental property qualify for a DSCR loan?”

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The First Step to Closing a DSCR Loan

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Closing a DSCR loan can seem tricky, but it doesn’t have to be. Let’s break it down by looking at the first step to closing a DSCR loan. Before diving into the property details, you need to do is make sure you are ready for the DSCR loan. This step is all about reviewing a few personal factors to ensure a smooth approval process.

Credit Score

Your credit score plays a significant role in determining your loan terms. Most lenders want to see a score of 740 or above to offer the best rates. However, there are still options if your score is lower, even as low as 600. Just keep in mind, the lower your score, the more you may need to bring to the table in terms of down payment.

For example, a credit score in the 600 range, may be require a larger down payment or higher interest rates. This can impact the cash flow in the long run, therefore it’s essential to check your credit early to know what you’re working with.

Experience Level

Though experience as a landlord is not always required, it can help. If you’ve owned rental properties before, that’s a bonus! But don’t worry if you’re a first-timer. You can still qualify for a DSCR loan. If you’re new to real estate investing, you might need to hire a property manager to help manage the property once the deal closes. This shows the lender you’re serious about maintaining the property.

Where’s the Money?

Next, the lender will want to know where your down payment, closing costs, and reserves are coming from. It’s important to have this money lined up and ready. Lenders want these funds available to show proof of your savings or any assets you plan to use.

In conclusion 

By focusing on getting yourself approved first, you set the foundation for a smooth DSCR loan process. When you’re ready with a solid credit score, a clear plan for managing the property, and your funds in place, you’re well on your way to securing the loan and moving closer to your investment goals.

Watch our most recent video to find out more about : The first step to closing a DSCR loan.

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Close Your DSCR Loan EASILY with 3 Key Steps

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Are you looking to purchase a property using a DSCR loan? Great choice! These loans are all about the property’s income, as opposed to your personal income, therefore they are ideal for real estate investors. But how do you close your DSCR loan easily? Let’s take a closer look! 

Step 1: Get Yourself Approved

The first step to close your DSCR loan easily is to make sure you are personally qualified. This part is straightforward and comes down to a few key things:

  • Credit Score: Typically, a credit score of 740 or higher gets you the best rates. However, a score below 640, will alter the loan terms.
  • Experience: By having a seasoned landlord it will help you qualify for better loan-to-value ratios.
  • Funds: Finally, you need to show where your down payment, closing costs, as well as document where the reserves are coming from. Having this money in place will speed up the approval process.

Step 2: Get the Property Approved

The lender will look at the rental income the property can generate, along with its key expenses like:

  • Property taxes
  • Insurance
  • HOA fees (if applicable)
  • Flood insurance (if necessary)

To determine the rental income, an appraiser will complete a rent schedule based on local rents for similar properties. Therefore you don’t need a lease in place to get approved. Make sure you know the property’s potential income and expenses to avoid surprises.

Step 3: Know Your Numbers

Finally, knowing your numbers is the last crucial step to closing your DSCR loan. You’ll need to understand:

  • Loan-to-Value (LTV): How much of the property’s value can be covered by the loan? In some cases, a higher LTV may lead to higher rates.
  • Down Payment: The amount you need to put down may vary depending on the property’s cash flow. If the income doesn’t quite cover the expenses, you may need to put more money down to make the numbers work.
  • Closing Costs: These usually range between $1,500 and $2,500, but they can vary by location. You’ll also need to budget for things like appraisal fees, title costs, and reserves.

By having a clear idea of these costs and your LTV, you’ll avoid any surprises and close your DSCR loan easily. If you have more questions, contact us today to find out more.

Watch our most recent video to find out more about how to: Close Your DSCR Loan EASILY with 3 Key Steps

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DSCR Loan: What’s My Best Option in Today’s Market?

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When it comes to choosing the right loan, the DSCR (Debt Service Coverage Ratio) loan stands out. With recent changes in the market, rates are coming down, and more properties are qualifying. The best part? There are new options that can help real estate investors like you boost your cash flow and grow your portfolio. Let’s dive into some of the most exciting updates as well as explore what’s the best option in today’s market.

1. The 40-Year Mortgage Option

One of the hottest options right now is the 40-year mortgage. It’s perfect if you’re looking for lower monthly payments as well as  better cash flow.

Why Choose the 40-Year Mortgage?

With a longer term, your monthly payments will be lower compared to the traditional 30-year loan. This can make it easier to qualify for more properties, as your DSCR ratio will improve with smaller payments.

Example:
Take a $250,000 loan on a property with $2,000 in monthly rent.

  • On a 30-year loan at 6.65%, your monthly payment would be $1,596 (plus taxes and insurance).
  • With a 40-year mortgage at 6.9%, your payment drops to $1,535. This helps you better meet the DSCR requirements and qualify for the loan.

Key takeaway: If you’re looking to get more properties into your portfolio and need help qualifying, the 40-year mortgage can make a big difference.

2. Interest-Only Loans for Cash Flow

If your main focus is cash flow, an interest-only loan might be the way to go. This option allows you to pay only the interest for a set period, therefore it lowers your monthly payments and maximizes your cash flow. However, keep in mind that you’re not paying down the principal with this option.

Example:
If you’re solely focused on cash flow, interest-only payments on a DSCR loan can make a significant difference. By lowering payments it results in more monthly cash in your pocket. Therefore, allowing you to focus on growing your real estate portfolio.

3. Zero Prepayment Penalty Loans

Another exciting change in the market is the option for a zero prepayment penalty on DSCR loans. This means you can refinance or pay off your loan early without facing penalties. In the past, many investors hesitated to lock in a DSCR loan because of the 5-year prepayment penalty.

How Does This Help You?

If rates drop, you can refinance without being stuck with penalties. The downside? The rate for a zero-prepay loan will typically be about 1% higher than one with a prepayment penalty.

Example:
You lock in a 6.9% rate with a zero-prepay option. If rates drop to 5.9%, you can refinance and save without worrying about extra costs.

4. One-Year Prepay Penalty

If you want a balance between a lower interest rate and some flexibility, a one-year prepay penalty is another option to consider. After the first year, you can pay off your loan, sell the property, or refinance without penalties.

This option gives you a bit of a rate break compared to the zero-prepay option while still giving you some flexibility to move on from the loan after just one year.

Which DSCR Loan Is Right for You?

It all depends on your goals. Are you looking for better cash flow, flexibility, or to qualify for more properties? Each of these options—40-year mortgage, interest-only loans, zero-prepay, or one-year prepay—offers something different.

Here’s a quick summary to help you decide:

  • For better cash flow: Consider a 40-year mortgage or an interest-only loan.
  • For flexibility: Look at the zero-prepay or one-year prepay penalty loans.
  • For qualifying for more properties: The 40-year mortgage can improve your DSCR ratio and help you qualify for more deals.

What’s Next for DSCR Loans?

The market is constantly evolving. As rates come down, more options will become available, giving you more flexibility and opportunities to grow your portfolio. What is the best option in today’s market? Stay tuned, and don’t hesitate to ask us about new loan products that can benefit your real estate investments.

Watch our most recent video to find out more about: DSCR Loan: What’s My Best Option in Today’s Market?

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DSCR Loan: 40 Year vs 30 Year Loan

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Are you trying to figure out which loan term is the best fit for your real estate investment? Let’s dive into the differences between a 40-year vs 30-year DSCR (Debt Service Coverage Ratio) loan and see how each can affect your cash flow and ability to qualify for more deals.

What’s the Difference Between a 40-Year and a 30-Year Loan?

30-Year Loan
The traditional 30-year mortgage is a common option for real estate investors. It allows you to spread your payments over 30 years, keeping monthly payments lower than shorter-term loans. You’ll still pay off some principal each month, which helps you build equity.

40-Year Loan
A 40-year DSCR loan stretches out the loan term even more. This lowers your monthly payments even further. This extra decade can make a big difference in your ability to qualify for a loan, especially if your rental income is close to the debt service.

Lower Payments = Better Cash Flow

One of the biggest advantages of a 40-year DSCR loan is the lower monthly payment. This is perfect for investors focused on improving cash flow. In today’s market, where rents might not always cover all expenses, having a lower monthly mortgage payment can be a game-changer.

Here’s an example:

  • 30-Year Loan: A $250,000 loan at 6.65% interest results in monthly payments of $1,596.
  • 40-Year Loan: A $250,000 loan at 6.9% interest results in monthly payments of $1,535.

While the interest rate is slightly higher on the 40-year loan, your monthly payment is lower. This extra cushion can help improve your DSCR ratio, making it easier to qualify for more properties.

Example: Does a 40-Year Loan Help You Qualify?

Let’s look at a real-world scenario. Say you have a property where the rent is $2,000 a month, and you’re looking at a loan of $250,000.

For a 30-year loan, your monthly payment of $1,596 plus taxes and insurance might leave you with around $246 for other expenses. This might not qualify for the best DSCR terms.

But with a 40-year loan, your payment drops to $1,535. Now, with taxes and insurance included, you’ve got a bit more breathing room to meet the DSCR ratio requirements and qualify for the loan.

Which Loan Is Best for You?

It comes down to your goals. If you want to pay off the loan faster and build equity quicker, the 30-year loan is a solid choice. But, if your main focus is qualifying for more properties or increasing cash flow, the 40-year loan might be a better fit.

Prepayment Penalties – What You Should Know

DSCR loans often come with prepayment penalties, meaning you can’t pay off the loan early without a fee. But, there are options to avoid these penalties:

  • Zero Prepay: No prepayment penalty but a higher interest rate (about 1% higher).
  • One-Year Prepay: A middle-ground option with a lower prepayment penalty.

Both options give you more flexibility if you expect to refinance soon as interest rates change.

Conclusion: What’s the Best Loan for You?

Choosing between a 40-year and a 30-year DSCR loan depends on your cash flow needs and your long-term strategy. If you want to maximize your cash flow and qualify for more deals, the 40-year loan could be the better option. On the other hand, if building equity faster is your goal, the 30-year loan will work for you.

If you have questions about how these loans fit into your investment strategy, feel free to leave a comment or visit our site, The Cash Flow Company, for more resources, like our DSCR calculator.

Watch our most recent video to find out more about: DSCR Loan: 40 Year vs 30 Year Loan

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DSCR Loan: Market Update for Real Estate Investors

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The DSCR (Debt Service Coverage Ratio) market is evolving, and the good news is that it’s shifting in favor of investors. Rates are dropping, and new loan options are making it easier to qualify for deals. Here’s a market update for real estate investors!

What’s New in DSCR Loans?

40-Year Mortgage Options

A major shift in the market is the introduction of the 40-year mortgage. This option lowers monthly payments compared to a 30-year mortgage, which can make it easier for you to qualify for more properties. Here’s how:

  • Lower Payments: A 40-year mortgage spreads out the loan over a longer period, reducing your monthly payment.
  • Amortization: With a 40-year loan, you get a mix of amortization and lower payments, which can help you pay down the loan while keeping cash flow in mind.

For Example:

A $250,000 loan with $2,000 in monthly rent. With a 30-year mortgage at a 6.65% interest rate, your monthly payment would be about $1,596. After adding taxes and insurance, the expenses would leave you with around $246 left for the DSCR calculation. The property wouldn’t qualify.

However, if you switch to a 40-year mortgage with a 6.9% interest rate, your payment drops to $1,535. This difference could help you qualify for the loan. The 40-year option is designed to help investors like you get into more deals with less cash out of pocket each month.

No Prepayment Penalty Options

Traditionally, DSCR loans come with a prepayment penalty. However, new options in the market offer no prepayment penalty. This flexibility can benefit you if rates continue to drop and you want to refinance. Here’s what to consider:

  • Zero Prepayment Penalty: This option allows you to refinance at any time, but it comes with a catch—a higher interest rate, typically around 1% more.
  • 1-Year Prepayment Penalty: If you’re unsure about how long you’ll hold the loan, this might be a better option. You’ll get a lower rate than the zero prepay but still have the flexibility to refinance after one year.

These options let you pick the best path for your portfolio without worrying about being locked into a loan for several years.

Should You Go With a 40-Year Loan?

If you’re focused on cash flow or qualifying for more deals, the 40-year loan could be a great tool. For example, a client looking to buy a property with $2,000 in rent wouldn’t qualify with a 30-year loan. But by moving to a 40-year option, they could make the deal work.

More properties qualifying means more opportunities to build wealth.

What’s Next?

The DSCR market is becoming more flexible, and as rates go down, more products will continue to emerge. We’re here to provide a market update for real estate investors on a regular basis. If you want to explore options like the 40-year mortgage or no prepayment penalty, it’s a great time to look at how these products could boost your portfolio.

If you have any questions or want to run your numbers through our DSCR calculator, head over to our website. You’ll find tools to help you determine whether your property qualifies and how much cash flow you can expect.

Watch our most recent video to find out more!

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Why Investors Should Know About Conventional Rates

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Why Investors Should Know About Conventional Rates

Welcome to Your September 2024 Market Update

Today we are going to discuss why investors should know about conventional rates in this real estate market. Here at The Cash Flow Company we want to keep you as up to date as possible on these changes so that you can make the most of it! Let’s take a closer look.

Conventional Rates: A Better Time for Buyers

Why should you care about conventional rates? Well, they’re crucial because they determine what your end buyers can afford. Right now, we’re seeing rates in the high fives and are around 5.625% to 5.75% for those with excellent credit and strong LTVs on owner-occupied properties.

Looking Forward

If the Fed continues to drop rates, we could see conventional rates fall into the low fives by the end of the year or early next year. While I don’t expect rates to drop more than a point or point and a half in the next 12 months, even these modest decreases will make a big difference. More buyers in the market mean more opportunities to sell your properties and move on to the next deal.

Now is the time for change!

So, what’s the takeaway? Rates are trending down across the board for DSCR loans, fix and flip projects, and even conventional loans. That’s great news for not only cash flow and affordability, but for getting your properties sold as well. The past year has been tough with high rates, but the tide is turning. More buyers are entering the market, properties are starting to cash flow again, and there’s a lot more activity overall.

Stay Updated with Our Mortgage Report

Want to keep up with where rates are headed? We’ve got a mortgage report that tracks the trends and tells you who’s offering the best rates for fix-and-flip, DSCR, and other loan products. Watch our most recent video to find out more about Why Investors Should Know About Conventional Rates.

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