Investing in real estate can be an exciting journey. But, when it comes to financing, things can get a bit tricky—especially if your credit score isn’t where it needs to be. Don’t worry, though! There are ways to improve your situation and get the best possible terms on a DSCR loan. Today we are going to discuss DSCR loans and credit scores! Let’s take a closer look!
What is a DSCR Loan?
First things first, what is a DSCR loan? DSCR stands for Debt Service Coverage Ratio. In simple terms, it’s a type of loan used by real estate investors. This loan measures the ability of a property’s cash flow to cover its debt. In other words, lenders use the DSCR to see if your rental income is enough to pay off the loan you’re asking for.
Why Credit Scores Matter for DSCR Loans
Your credit score plays a huge role in getting approved for a DSCR loan. A higher credit score means you’re more likely to get better loan terms, like a lower interest rate or a higher loan-to-value ratio (LTV). On the flip side, a lower credit score can make it harder to qualify, or it may result in less favorable terms.
Example:
Imagine you have a credit score of 680 and want to finance 80% of a $312,000 property. You might get an interest rate of 8.8%. But if your credit score were 760, you could lock in a rate as low as 7.45%. That difference could save you over $200 a month!
The Credit Usage Problem
One of the biggest factors affecting your credit score is how much of your available credit you’re using—this is called your credit utilization rate. If you’re using more than 30% of your credit limit, your score might take a hit. Many investors don’t realize that even if they’re making payments on time, maxing out credit cards can drag their scores down.
Introducing the 911 Usage Loan
Here’s where the magic happens! If your credit score isn’t high enough to qualify for a good DSCR loan, there’s a solution: the 911 Usage Loan. This is a short-term, private loan that helps you pay off your credit cards. Once those balances are paid off, your credit score could jump up—sometimes by 100 points or more!
How It Works:
- Simulation: First, you’ll run a credit simulation using tools like MyFICO or Credit Karma. This shows you how much your score could increase if you pay off your credit cards.
- Loan Approval: If the simulation shows that your score will improve enough to make a difference, we’ll move forward with the loan.
- Pay Off Credit Cards: The 911 Usage Loan pays off your credit cards, reducing your credit utilization rate.
- Watch Your Score Rise: As soon as your credit card balances update, your credit score should increase, sometimes dramatically.
Real-Life Example:
A recent client in Texas had a credit score of 653. After using a 911 Usage Loan to pay off his maxed-out credit cards, his score jumped to 753! This change not only helped him qualify for better loan terms but also saved him a significant amount of money each month.
The Business Credit Card Trick
Another smart move is to transfer your credit card balances to business credit cards. Unlike personal credit cards, most business cards don’t report your usage to personal credit bureaus. This means you can keep your personal credit score in good shape while still having access to the credit you need for your investments.
Note: Be cautious with Capital One business cards, as they still report to personal credit bureaus.
Why This Matters
Improving your credit score can have a big impact on your real estate investments. Not only can you qualify for better loans, but you can also increase your cash flow. And in some cases, having a higher credit score is the difference between getting approved or not.
Get a 911 Usage Loan Today!
If your credit score is holding you back from getting the best DSCR loan, consider a 911 Usage Loan. It’s a short-term solution that could set you up for long-term success in real estate investing.