Tag Archive for: DSCR loan

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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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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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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How to Calculate Different DSCR Loan Options

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There are many DSCR loan options – but how do you calculate the ratio for each one?

Some of your DSCR loan options include 30-year fixed mortgages, 40-year fixed, or interest-only. But how do you know which one’s best?

You’ll have to crunch the numbers. Here’s one example of calculating different DSCR loan options on a $200,000 loan with $2,000 rent.

What Is a DSCR?

DSCR means debt service coverage ratio. It’s a loan for rental properties that hinges on cash flow.

A DSCR loan will be a useful product in your real estate investing career. It requires no income verification and no work or investment history. These loans only require that the property’s income is the same (or higher than) the expenses.

Cash flow is always important to you as an investor, and for DSCR loans, it matters just as much to your lender. The better your cash flow, the better LTV and rates you can get. 

It all depends on a little number – the ratio itself. Here’s how to calculate the DSCR with different loan options.

How to Calculate the DSCR

Loan LTVs and rates on a DSCR are determined by the debt service coverage ratio itself. Now that we have all our raw information, we can plug it into our DSCR calculation to get the ratio.

Here’s how you get the numbers you need:

Add up your expenses (taxes, insurance, and HOA fees) with each loan’s payment amount. Then divide rent by all those expenses.

Costs + Mortgage = Total Expenses

Rent ÷ Total Expenses = DSCR Ratio

Here’s an example of what it would look like with an example using a $200,000 loan and an 8% interest rate:

We want the DSCR to at least equal 1.

Over 1 is ideal. This is a higher cash flow, and you’ll get a better loan.

Less than 1 means negative cash flow, and means you might have to look at a negative DSCR or a no-ratio loan instead.

<1 = Negative Cash Flow

At 1 = Rent = Expenses

>1 = Positive cash flow

Read the full article here.

Watch the video here.

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How Interest-Only DSCR Loans Work

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Could interest-only DSCR loans be right for your properties now? Here’s how they work.

Hybrid products, like interest-only DSCR loans, weren’t as prominent three or four years ago.

But with current rates, interest-only is a strategy you need to look at in the real estate investing world.

Interest-only loans increase cash flow and leave you options for a future refinance.

Let’s look at how interest-only DSCR loans work, and what calculations you need to know.

Part One: Interest-Only

There are two parts to an interest-only loan. Part one is just interest, and part two is the paydown, or amortization.

We’ll go over the interest-only portion first.

Typically, your interest-only period is 5 or 10 years where your only cost is interest. You aren’t required to pay down the principal at all during that time. So for, say, 10 years, you pay interest, but your loan amount never goes down.

Keep in mind, with an interest-only loan, you always have the option to pay down the principal. These loans typically don’t come with a prepayment fee.

Interest-Only Example

Find the numbers relevant to your deals, and you can follow along with these calculations. You might need a loan for $500,000, or maybe just $100,000. For our example, we’ll use $300,000 as our loan amount.

The interest-only phase of interest-only DSCR loans uses one simple formula.

First, multiply the loan amount by the interest rate. This gives you the yearly interest. Divide that number by 12 (for the 12 months in a year) to get your monthly payment. The formula looks like this:

Loan Amount x Interest Rate = Yearly Interest

Yearly Interest ÷ 12 = Monthly Interest

We’ll use 8% as our example interest rate. So our equation would be:

$300,000 × .08 = $24,000

$24,000 ÷ 12 = $2,000

As long as you don’t pay down any principal during the interest-only period, your payments will be $2,000/month. This $2,000 goes directly to the bank. Your loan amount will remain $300,000, unless you choose to make an extra payment toward the principal.

Paying Principal

Every time you opt into a principal payment during the interest-only period, your monthly payment changes.

For example, let’s say you pay down $20,000 from your loan, leaving the total loan amount as $280,000. You can re-use the previous formula with this new loan amount to get your new monthly payment:

$280,000 × .08 = $22,400

$22,400 ÷ 12 = $1,866

If you chose to pay down your principal by $20,000, your new monthly payment of interest would be $1,866.

How Annual Interest Works on Interest-Only DSCR Loans

Don’t let the idea of “annual” interest trip you up. For these interest-only DSCR loans, interest isn’t calculated once from January to December. Instead, the bank will do this formula each month for your loan using your current principal.

Remember that this interest is your monthly loan payment, but it is not your property’s total monthly expenses. If your loan is a DSCR, you also have to consider taxes, insurance, and HOA fees to know your actual monthly expenses.

Pros of Interest-Only DSCR Loans

There are two major advantages of interest-only loans:

  • Cash Flow – Interest-only loans lower your payments, which makes for less money out and more money in. With the interest-only period, you can do deals that would never work with a typical loan payment.
  • Flexible Refinance – You can refinance most interest-only loans at any time (dependent on the lender’s prepay policy). It can be a great strategy to use an interest-only loan for the next four or five years while rates are high. When rates come back down, you can refinance into another loan product that will build equity.

Part Two: The Paydown

You never have to wait to get to the paydown in order to refinance your interest-only loan. Some investors refinance the same interest-only property over and over before ever getting to the paydown part.

The interest-only portion of an interest-only loan lasts for a set number of years. For example, let’s say ours lasts 10 years.

The paydown period is when the loan starts amortizing – the actual amount borrowed starts going down. However, you’ll still need to pay normal interest along with the principal payment.

With most lenders, you’ll get either a 30-year or 40-year loan. A 30-year interest-only loan would involve 10 years of just interest, plus 20 years of paydown. For a 40-year, you’d have 30 years’ worth of amortization payments.

A 30-year loan’s payments will be higher because you’re paying the same amount off in a shorter period of time.

Calculating a Paydown Payment Example

Let’s break down the difference between a 30-year and 40-year interest-only loan.

30-year loan = 10 years interest, then 20 years of amortization

40-year loan = 10 years interest, then 30 years amortization

You can use an amortization calculator tool to figure your monthly payments for the paydown period.

Let’s look at an example for a $300,000 interest-only loan. The paydown period payments would be:

30-year =  10 years of $2,000/month + 20 years of $2,509/month

40-year =  10 years of $2,000/month + 30 years of $2,201/month

Remember that you’re never locked into paying a full interest-only loan. An interest-only loan may be worth looking into for your property. Especially if you need a product with lower monthly payments while you wait out rising interest rates.

Help with Interest-Only DSCR Loans

Have questions about interest-only DSCR loans? Is there a deal you’d like us to take a look at?

We search hundreds of loans every month – now is a great time of variety in loan products. We’d love to help you find exactly what you need.

Email us at Info@TheCashFlowCompany.com.

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Sample of a DSCR Loan Calculation: The Costs

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An important part of a DSCR loan is knowing your costs. Here’s an example DSCR loan calculation to help you out.

A DSCR loan will be a useful product in your real estate investing career. It requires no income verification and no work or investment history. These loans only require that the property’s income is the same (or higher than) the expenses.

Cash flow really is kind for DSCR loans. Here’s a breakdown of how to calculate the expenses to see if you qualify.

Calculate a DSCR Loan Expenses

You can follow along with your DSCR loan calculator (free download here). We’ll fill out this form to show each step of a DSCR loan calculation.

Rent Income & Loan Amount

Firstly, you need to estimate your loan amount and your rent income. If you have a deal in front of you, you probably have a good idea of the loan amount you’ll need to be able to afford the property.

As for rent, you can get realistic amounts from online sources. Look at Zillow or Rent.com to find the market rate for rent in the property’s neighborhood.

Let’s keep it simple for our example and say our loan is $200,000, and our rent income is $2,000.

What Expenses Count in a DSCR Loan?

We know our income (rent), but now we need to figure out our costs.

The expenses considered in a DSCR loan DO include:

✔ Taxes

✔ Insurance

✔ HOA fees

Expenses NOT considered in a DSCR loan are things like:

✘ Property management fees

✘ Utilities

✘ Maintenance

To estimate the taxes on the property, you could use a property tax calculator like this one. If you need an estimate on insurance, you can try this home insurance calculator. You can figure out HOA fees by contacting the HOA, if that applies to your property.

If any of these costs are charged annually, then you’ll need to divide by 12 to break it down into a monthly cost.

Let’s take a look at what information we have now for our example DSCR loan:

Calculating Loan Cost

Secondly, DSCR lenders will offer many types of the loans – fixed-rate mortgages, interest-only, ARMs, etc. You need to find what best fits you, and to do that, you’ll have to run all the numbers.

To calculate each of the amortized loans, you can use an amortization calculator like this one. Add in your information – loan amount, interest rate, and loan length.

We’re going to use an 8% interest rate for our example, since that’s the anticipated average for next year.

In reality, each loan and lender will have a different interest rate. Additionally, the interest rate may fluctuate depending on your qualifications and DSCR. You can get this information from your lenders to plug into your calculator.

We’ll use three common loans for this example: a 30-year fixed, 40-year fixed, and interest only loan.

If we had a 30-year mortgage for $200,000 at 8%, our monthly payment would be $1,467.

For a 40-year fixed with the same info, payments would be $1,390.

For interest-only, you can calculate the loan fairly simply yourself. Multiply the loan amount by the interest rate (e.g., 200,000 × .08 = 16,000). That gives you the yearly interest, then you divide it by 12 to get the monthly payment. For our example, that’s $1,333.

So what do you do with these numbers? How do you know which loan is best?

It depends on your priorities. To have the most cash flow, the lowest number is best (in this case, interest-only). If you need something that amortizes, a 30-year would probably be best.

But you don’t really know which loan will be best for you until you calculate the DSCR.

Read the full article here.

Watch the video here.

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How to Combat a Negative Cash Flow Rental Property

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Sometimes you end up with a negative cash flow rental property. Here’s how to combat that negative cash flow.

A negative cash flow rental property can be the lesser of two evils.

If your options are to sell your flip at a loss, or shell out tens of thousands of dollars yearly interest on a bridge loan refinance… Suddenly eating a small monthly loss making the flip a rental doesn’t seem so bad.

Let’s look at the numbers behind making a negative cash flow rental property work for you.

Refinancing with Bridge Loans vs DSCR

Getting a DSCR or no-ratio loan from a new lender is typically a better move than continuing to refinance with bridge loans from your current lender.

You don’t know where the market will be in 12 to 24 months. We know that long-term, the markets will come back, but what if that doesn’t happen for 3 years? You could get stuck refinancing with a bridge loan year after year, charging points with each refinance.

DSCR loans are often a better option in this situation. You just have to know your numbers.

Let’s go through an example so you know exactly how to calculate a DSCR loan and see if it’s the smart choice for you.

Using a DSCR Loan on a Negative Cash Flow Rental Property: The Numbers

Let’s look at an example with a $300,000 loan. We’ll assume that both the original flip loan and the DSCR loan you’re refinancing into are interest-only.

This $300,000 flip loan has a 10% interest rate. That means you’re paying $2,500/month just for interest. This is the current negative cash flow of the property.

On the other hand, if you can get a DSCR loan for a 7% interest rate, you’d be paying $1,750/month instead. Plus, you could get a tenant renting for $1,800/month.

At this point, $1,800 would be coming in, and $1,750 would be going out for mortgage payments. This is actually a positive cash flow of $50/month.

However, your mortgage isn’t your only expense on this property. We still have to take taxes and insurance into consideration. Let’s say both of those costs add up to $300 per month. 

This raises the total expenses with a DSCR loan to $2,050 per month, bringing the cash flow to a -$250 every month.

Flip Loan vs DSCR Loan Compared for a Negative Cash Flow Rental Property

Obviously, you never like to lose money on a property. But that $250 of negative cash flow multiplied by 12 months is only $3,000. After 2 years, it’s $6,000. That may seem like a lot, but let’s look back at what you’d spend with the original flip loan.

If we go back to our example, remember we’d be paying $2,500 per month in interest, plus $300 in taxes and insurance with the original flip loan. That’s $2,800 spent for 1 month with the flip loan – close to the $3,000 for the full year with a DSCR loan!

If you keep the house on the market with this flip loan for 2 months, it’s $5,600. That’s comparable to 2 years of out-of-pocket costs if the same property was converted into a rental.

Is Negative Cash Flow Worth It?

This is how you have to look at the numbers in this scenario. It will help you determine what’s right for your flip. Is it better to wait for the market and shell out thousands of dollars in the meantime? Or rent the property with a little negative cash flow for 2-3 years in hopes of recouping an extra $100k in equity when the markets come back? (Or at least until rates come back down so you can refinance?)

In many cases, it makes more sense to turn your flip into a rental ASAP. A negative DSCR or no-ratio loan is how to combat that a negative cash flow.

Read the full article here.

Watch the video here:

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Numbers Explained: DSCR Loan vs Bridge Loan

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Let’s break down an example of a loan comparison: DSCR Loan vs Bridge Loan.

DSCR loans and bridge loans are the main ways you can turn a flip into a rental.

Each loan has its pros and cons. When it comes to cost, a bridge loan is better for rentals you’ll keep for less than a year. DSCR loans, on the other hand, are best for rentals you want for two or more years.

But what about a rental you plan to have for between one and two years? Where’s the tipping point?

Let’s look at an example to see how it works.

A Look at the Numbers

To help us understand when a DSCR loan becomes the cheaper option, let’s look at an example. Then we can see exactly when the scale tips in the DSCR’s favor.

Let’s say we get a DSCR product with the following numbers:

  • A higher interest rate at 8%
  • All fees and loan costs at 2.5%
  • We’re a year or two into the loan and the prepay penalty is down to 4%

DSCR Loan vs Bridge Loan: Year One

Let’s look at the number comparison for a $250,000 loan.

The DSCR loan’s 8% rate adds up to $20,000/year. The fees at 2.5 points is $6,250. Lastly, that 4% penalty will cost us $10,000.

Now let’s factor in our bridge loan numbers. The average bridge loan for a $250,000 loan would look like an 11% rate costing $27,500 per year. This is $7,500 more yearly than the DSCR loan, or $625 more per month. The closing costs would be the same for the bridge loan, and then, of course, no prepay fee.

You can see the bridge loan is still almost $3,000 cheaper than the DSCR loan.

These calculations only represent year one of the loan, however. Within that first year, a bridge loan will definitely be cheaper. 

DSCR Loan vs Bridge Loan: Month 15 & 16

Here’s how things change by month 15:

The bridge loan’s interest starts adding up, and suddenly the DSCR doesn’t seem so expensive. And at month 16, the loans are the same price:

After 16 months, the DSCR loan in this scenario would always be the cheaper option. And every year, the DSCR’s prepay fee drops lower; meanwhile, the bridge loan keeps accruing high interest at the same rate.

Is 16 Months a Realistic Timeline for the Market Right Now?

We expect that the market won’t pick back up for another 14-16 months anyway. If your flip is stuck on the market now, you could:

  1. Get a DSCR loan for the property.
  2. Take a 12-month tenant.
  3. Leave 4 months to spare for getting the house ready, on the market, and closed.

This puts you right at the 16 month minimum to make the DSCR loan worthwhile.

Read the full article here.

Watch the video here:

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How to Calculate a DSCR Loan Ratio

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Could this be the right leverage for your deal? Here’s how to calculate a DSCR loan.

“DSCR” stands for “debt service coverage ratio.” It’s a number that explains cash flow, or money coming in vs money going out.

In a real estate rental situation, there are two important numbers to figure out this ratio:

  1. Income – rent from tenants.
  2. Expenses – mortgage principal and interest, taxes, insurance, and any HOA fees.

What Ratio Do DSCR Lenders Take?

If your income 100% covers your expenses with none left over, that’s a ratio of 1:1. Most DSCR lenders require 1:1 as a standard minimum.

Some lenders will go as low as .75, which is called no ratio. That’s if your income from your rental leaves 25% of the property’s expenses left over. 

But the ideal use of a DSCR loan is when you have a higher ratio. This would mean your rent is higher than your expenses, and your property has positive cash flow.

How Do You Calculate the DSCR?

So now you understand what the ratio is… But how do you calculate your DSCR ratio?

You need the two numbers:

  1. The rent you’ll charge (income)
  2. Mortgage principal and interest, taxes, insurance, and HOA fees (expenses)

Note: utilities and property management costs are not considered expenses on a DSCR loan.

Once you add up your expenses, you have to find out if your rent covers them. To get the ratio number, you divide income by expenses.

DSCR Loan Calculation Example

Here’s a simple example.

Let’s say you have a single-family property, and the interest and mortgage is $1,000/month. Taxes are $250, property insurance is $150, and there are no HOA fees.

Your total monthly expenses adds up to $1,400.

Now let’s say the rent you can charge based on your property’s location is $1,600.

So, you can divide $1,600 (income) by $1,400 (expenses). You get a ratio of 1.14.

A 1:1 ratio (the typical minimum) can also be called 1. So our 1.14 is higher than the minimum. With a ratio higher than one, you’ll have a much better shot at finding a DSCR lender who will work with you.

If the market in our example went up, maybe you could charge $2,000/month for rent. If your expenses were still $1,400, your ratio would be 1.42. With that ratio, you could likely get a bigger loan and lower rate.

The higher your ratio, the better your opportunities for rates and terms. The lender sees it like this: the more income coming into the property, the more guaranteed it is you’ll pay them back.

Using a DSCR Loan Calculator

If you’d rather skip the manual math, you can download our simple, free DSCR loan calculator here.

Read the full article here.

Watch the video here:

https://youtu.be/W7-P0YL_yU0

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What a DSCR Lender Looks For

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Know what a DSCR lender looks for before you close!

While conventional conforming loans have one main underwriting guideline all lenders follow, every DSCR lender creates their own requirements, offers, and processes.

The most important thing to know about DSCR loans right now is that they vary from lender to lender. You need to get to know the lenders in your area.

How DSCR Loans Differ

Firstly, each lender has their own nuances. Any number of these factors can change for a DSCR loan between different lenders:

  • Ratio requirements
  • Credit score requirements
  • Terms and products (interest-only, 40-year, etc.)
  • Interest rates

Lenders will also have different restrictions for properties, based on:

  • Location
  • Unit size
  • Short-term vs traditional rentals
  • Personal name vs LLC name

To be successful with DSCR loans, then you need to become a master of which lenders offer what in your area.

Lenders won’t come knocking on your door to let you know what products they have available. You have to be proactive.

How to Connect with DSCR Lenders

With more investors asking for money and less money available, many lenders are overwhelmed. The best thing you can do is be proactive, educated, and prepared with your lenders.

It’s also wise to get someone who can help connect you with lenders and products. A place like The Cash Flow Company can help with this aspect of real estate funding. They can advocate for you to make sure you get the best loan for your deal.

What Ratio Requirements A DSCR Lender Looks For

“DSCR” stands for “debt service coverage ratio.” It’s a number that explains cash flow, or money coming in vs money going out.

In a real estate rental situation, there are two important numbers to figure out this ratio:

  1. Income – rent from tenants.
  2. Expenses – mortgage principal and interest, taxes, insurance, and any HOA fees.

The ratio is income divided by expenses. Therefore, if your income 100% covers your expenses with none left over, that’s a ratio of 1:1. Most DSCR lenders require 1:1 as a standard minimum.

Read the full article here.

Watch the video here:

https://youtu.be/W7-P0YL_yU0

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