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:
- 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:
- Income – rent from tenants.
- 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.
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