Long Term Rental/DSCR Loans

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Who would Benefit from a Long Term Rental/DSCR Loan and How does it Work?

For real estate investors, obtaining a Rental Loan for an upcoming project can pose challenges. Traditional lenders often gauge eligibility based on personal income. Yet, as an investor, you might claim deductions on your tax returns, reducing your net income and potentially hindering your chances of securing a mortgage loan.

Enter DSCR loans, tailored for both new and seasoned real estate investors. These loans facilitate property purchases and portfolio expansion. Unlike conventional loans, DSCR loans bypass the need for proof of income and instead, they focus on the property’s cash flow, ensuring quicker closures and adaptable financing options.

So, what exactly is a DSCR loan, and could it be the perfect fit for your forthcoming project? These loans simplify the qualification process by emphasizing rental income, enabling you to reap the benefits of your investments sooner. The Debt Service Coverage Ratio (DSCR) is a measure lenders utilize to assess a borrower’s capability to repay a loan. Often, real estate investors report reduced net incomes after accounting for tax deductions, which can hinder their approval for standard loans. Consequently, their adjusted income appears significantly diminished, leading many lenders to enforce stringent criteria that exclude such borrowers.  In contrast, DSCR loans simplify the qualification process for investors, focusing on property cash flow (rental income) rather than personal income or employment history. DSCR is computed by dividing the total rental income by the debt service. This resulting figure, usually a decimal, indicates whether the property generates sufficient income to cover the loan repayment. 

A DSCR of 1.0 tells lenders that the property has exactly enough income to repay the loan. However, this isn’t ideal because you have other obligations, such as expenses like employees, repairs, maintenance, etc. Therefore, most lenders like to see a higher DSCR of at least 1.25 to prove your ability to repay and allow for extra cash flow for expenses that won’t get in the way of repaying your debt. A higher DSCR makes you more appealing to lenders, allowing you to qualify for higher loan amounts. However, the DSCR required for a loan varies by lender, with most requiring a DSCR of at least 1.25. Some lenders allow you to qualify with a DSCR as below as 1.0 with a higher downpayment on an exception only basis. Still, we recommend increasing your ratio as much as possible to reduce your interest rate and ensure you can get the necessary loan amount. Of course, even though lenders don’t review your personal income, they’ll need to review documentation for the property to determine whether it can generate enough cash flow to meet the DSCR requirement. To apply for these loans, you’ll need to provide a signed lease agreement to view current rental income or an appraisal of the property.

Long Term Rental/DSCR Loans
Loan Term
5yr/10yr/20yr/30yr fixed
Loan Amount
$100K – $25MM+
Interest Rate
Starting at 7.5% - 12%
Interest-Only Payments
Yes - Typically 5yr/7yr arm
Origination Fee
1-2 Points
Time to Close
4 Weeks
Appraisal
Yes
LTV

Purchase: Up to 80% of the Purchase Price

Refinance: Up to 75% of the As-Is Value

Cash-Out: Up to 75% of the As-Is Value
Minimum FICO Score
620
Property Types
DSCR Loans: Non-Owner Occupied 1-4 Family Real Estate; Condos; Multifamily 5+
Pre-Payment Penalty
Yes - Negotiable
Documentation
Leases/T-12's/ Financials/Rent Rolls

To find the best loan program that fits your needs, please click the Apply for a Loan below so you can schedule a call with a loan consultant or if you prefer, please call us at 855-445-5787 to immediately speak with a loan consultant.

Long Term Rental/DSCR Loan Criteria

  • Score and background check

  • A 620+ minimum FICO score

  • $100k - $25MM Loan Amount

  • 2 months of recent bank statements

  • 12 - 24 Month Loan Term

  • Close as Quickly as 25 days

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