DSCR Loan Approval: 3 Steps to Take with Your Property
Categories: Blog Posts
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
