Tag Archive for: DSCR loan

Look Into a DSCR Loan Today!

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Need a Loan for a Rental Property?

Do you need a loan for a rental property? Look into a DSCR loan today! A DSCR loan might be the perfect fit. It’s simple, fast, and doesn’t require your personal income to qualify.

Let’s break it down so you can decide if this loan is right for you.

What Is a DSCR Loan?

A DSCR loan (Debt Service Coverage Ratio) is based on how much income your rental property brings in. In short, if the rent covers the loan payment, you’re more likely to get approved.

Here’s what makes it different:

  • No personal income needed

  • Credit score requirements are flexible

  • Fast closing process

  • Great for new and experienced investors

Why Should You Consider a DSCR Loan?

It’s one of the best ways to fund rental properties—especially if banks have turned you down. Even better, it’s made for real estate investors like you.

Here are some top reasons to consider it:

1. No Pay Stubs or Tax Returns Required

Many investors write off everything on their taxes. Because of that, traditional banks might not approve their loan.

With a DSCR loan, the focus is on the property—not your job.

2. You Can Grow Faster

Since DSCR loans are based on the property’s income, you can keep buying more rentals—without hitting a limit based on your income.

Example:
If you buy a rental that makes $1,500/month, and your loan payment is $1,200/month, the property covers the debt. That means you can likely qualify for another deal too!

3. Perfect for Turnkey Rentals

Already have a property that’s ready to rent? DSCR loans work best on homes that are rent-ready.

Whether it’s short-term or long-term rental income, the numbers just need to make sense.

What Do You Need to Qualify?

Here’s what most DSCR lenders look at:

  • Rental income (current or projected)

  • Loan payment (including taxes and insurance)

  • Credit score (usually 640 or higher)

  • Down payment (often 20–25%)

That’s it! You won’t have to jump through all the usual hoops.

Real Example: Let’s Say You Want to Buy a Rental

You find a property that rents for $1,800/month. After taxes and insurance, your loan payment is $1,500/month.

$1,800 ÷ $1,500 = 1.2 DSCR

That’s a good number! Most lenders want to see a DSCR of 1.0 or higher, which means your rental pays for itself.

When Does a DSCR Loan Not Work?

Sometimes, a property doesn’t bring in enough rent to cover the loan. That’s when it might be time to:

  • Shop around for better rates

  • Put more money down

  • Raise the rent (if the market allows)

Even so, most deals have a way forward. You just need the right lender who knows how to structure it.

How to Get Started

Getting a DSCR loan is often easier than going through a bank. You just need to:

  1. Find a rental property with solid income

  2. Estimate the rent vs loan payment

  3. Apply with a DSCR lender who understands your goals

Final Thoughts

If you need a loan for a rental property, don’t let traditional banks slow you down. Look into a DSCR loan today! A DSCR loan focuses on the deal—not your income.

It’s fast. It’s flexible. And it helps you grow your rental portfolio with confidence.

So why wait? Contact us today to find out more! 

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How to Calculate a DSCR Loan

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Today we are going to discuss how to calculate a DSCR loan. First we need to answer the question, “what is a DSCR loan?” A DSCR (Debt Service Coverage Ratio) loan helps real estate investors qualify based on rental income, not personal income. But how do you calculate it? Let’s break it down step by step.

What Is DSCR?

DSCR stands for Debt Service Coverage Ratio. Lenders use it to see if a property makes enough rental income to cover the mortgage. A DSCR of 1.0 means the rental income equals the loan payment. A higher DSCR means more cash flow.

DSCR Formula

The formula is simple:

DSCR=1,500/1,200 or 1.25

Now, let’s go step by step.

First: Find Your Gross Rental Income

This is the monthly rent collected from the property. If the rent is $1,500 per month, that’s your starting number.

Second: Calculate Your Total Monthly Debt Payments

This includes:

  • Principal and interest on the loan
  • Property taxes
  • Homeowners insurance
  • HOA fees (if applicable)

For example, let’s say your loan payment (including taxes and insurance) is $1,200 per month.

Third: Plug the Numbers Into the Formula

Using our example:

DSCR=1,500/1,200 or 1.25

What Does Your DSCR Mean?

  • 1.25 or higher – Your property cash flows well. Most lenders approve DSCR loans above this number.
  • 1.0 to 1.24 – The property covers the loan but has little extra cash flow. Some lenders may approve, but rates might be higher.
  • Below 1.0 – The property does not make enough to cover the mortgage. A lender will likely decline the loan.

Why DSCR Matters

A higher DSCR means:
First, Easier loan approval
Second, Better loan terms
Finally, More cash flow for you

Ready to Calculate Your DSCR Loan?

Use this formula to check if your rental property qualifies for a DSCR loan. The higher your DSCR, the better your loan options. Want help? Contact us today to find out more!

Now, go run your numbers and see if your property qualifies!

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DSCR Loan vs Traditional Loan

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When it comes to financing your real estate investments, you’ll find several loan options, each with its pros and cons. Two popular choices are DSCR loans and traditional loans. Let’s break down the key differences between a DSCR loan vs traditional loan to see which option fits your needs.

What is a DSCR Loan?

A DSCR (Debt Service Coverage Ratio) loan focuses on the income that your property generates. It’s designed for real estate investors who may not qualify for traditional loans due to their personal income or the way they handle their finances.

Example: If you write off most of your income on taxes, a traditional loan may not be an option. But with a DSCR loan, the lender cares about your property’s income, not your personal income.

What is a Traditional Loan?

Traditional loans, like those backed by Fannie Mae or Freddie Mac, rely on your personal income, credit score, as well as your financial history. These loans are more common for people who have steady jobs and a consistent income.

Example: If you’ve had the same job for two years and have a solid income history, a traditional loan might offer you lower rates and fewer restrictions.

Key Differences Between DSCR and Traditional Loans

Loan Terms

  • DSCR Loans: Offer various options like 30-year fixed, 40-year fixed, or even interest-only for the first 5 or 10 years.
  • Traditional Loans: Generally have 30-year fixed terms, though some may offer 15-year or adjustable-rate options.

Tip: If you’re looking to pay off your loan quickly, a shorter term or interest-only period might be the best fit for you.

Prepayment Penalties

  • DSCR Loans: Usually come with prepayment penalties. This means if you pay off the loan early, refinance, or sell the property, you’ll have to pay a fee.
  • Traditional Loans: Typically don’t have prepayment penalties, allowing you to refinance or sell without worrying about extra fees.

Example: If you get a DSCR loan with a five-year prepay, and you sell in two years, you could owe a 5% fee on your remaining loan balance. That could be $10,000 on a $200,000 loan!

Interest Rates

  • DSCR Loans: Interest rates are usually 0.5% to 1% higher than traditional loans. This is because DSCR loans don’t verify your personal income, making them riskier for the lender.
  • Traditional Loans: Typically offer lower interest rates, especially if you have good credit and income history.

Flexibility for Investors

  • DSCR Loans: Perfect for investors who may not have consistent income or those who take advantage of tax deductions to reduce their taxable income.
  • Traditional Loans: Better for people who have stable jobs and income and can easily meet the loan requirements.

Example: If you’re an investor who writes off most of your income to reduce taxes, a DSCR loan is ideal. On the other hand, if you have strong personal income, a traditional loan might be the way to go.

DSCR loan vs Traditional loan: Which Loan Should You Choose?

  • Choose a DSCR Loan if:
    • You’re a real estate investor with inconsistent personal income.
    • You want a loan that’s based on your property’s income, not yours.
    • You’re okay with slightly higher rates in exchange for flexibility.
  • Choose a Traditional Loan if:
    • You have stable personal income and want to secure the lowest possible rate.
    • You don’t want to deal with prepayment penalties.
    • You’re not relying on your property’s income alone to get the loan.

Final Thoughts

Both DSCR loans and traditional loans have their place in real estate investing. However, if you’re looking for a flexible option that lets you focus on your property’s income, a DSCR loan is likely your best bet. But, if you have solid personal income, a traditional loan could save you money with lower rates and no prepayment penalties.

Finally, before you decide, always run your numbers and make sure the loan fits your long-term goals. Happy investing!

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What’s Next for DSCR Loans in 2024 and Beyond?

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Today we are going to discuss an article regarding what’s next for DSCR loans in 2024 and beyond.

In 2024, DSCR loans may see new changes to better serve real estate investors. Medium-term rentals, which last 30 days to a year, are gaining popularity. Investors love the extra cash flow these rentals bring compared to long-term rentals. But right now, lenders haven’t created a standard way to qualify these properties. DSCR lenders will need new tools, like how they use AirDNA for short-term rentals, to keep up with this trend.

Single-room occupancy (SRO) properties, where homes are rented by the room, are also becoming more common. Many investors see great returns, but DSCR lenders are still cautious. Some think these properties are too risky to lend on, but this could change as the market evolves.

Another area to watch is manufactured housing. Investors want more DSCR loans for mobile homes. The challenge is that mobile homes can be moved, which worries lenders. But with stricter rules on things like foundations, we could see more DSCR loans in this space.

Finally, mixed-use properties, which combine residential and commercial spaces, are another area for possible DSCR loan growth. Lenders might open up more to these properties if they remain mostly residential.

These updates show that DSCR loans continue to evolve. Lenders and investors alike will need to adapt to these exciting opportunities.

Click here to read the entire article.

Do you have more questions regarding what’s next for DSCR loans in 2024 and beyond? Contact us today!

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Quickly Calculate DSCR Today

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Are you looking to know if your property will cash flow using a DSCR loan? Let’s break it down so you can quickly calculate the Debt Service Coverage Ratio (DSCR) on your next deal.

What Is DSCR?

The DSCR is a ratio lenders use to see if your property is making money or losing it each month. It’s a simple way to check if your property is cash flowing positively or negatively.

When you see a DSCR higher than 1, it means your property is making money. However, a number lower than 1 means it’s costing you money. For example, if your DSCR is 1.25, your property brings in 25% more income than it costs. Therefore, if it’s 0.94, it’s losing a bit each month.

How to Calculate DSCR

Luckily, the formula for DSCR is easy. All you need to do is divide the property’s income by its expenses.

Here’s the formula:

DSCR = Income ÷ Expenses

Now, let’s break this down step by step:

  1. Income: This is how much you’re collecting in rent.
  2. Expenses: Add up these four things:
    • Your monthly mortgage payment
    • Property taxes
    • Insurance
    • HOA fees (if any)

DSCR Calculation Example

Let’s look at a quick example to make this clear.

Say you own a rental property. Here’s how much it’s bringing in and costing:

  • Rent (Income): $1,700 per month
  • Mortgage: $1,290 per month
  • Taxes: $100 per month
  • Insurance: $100 per month
  • HOA: $100 per month

First, total your expenses:

  • Expenses: $1,290 + $100 + $100 + $100 = $1,590

Next, divide the rent by the expenses:

  • DSCR: $1,700 ÷ $1,590 = 1.07

With a DSCR of 1.07, this property is cash-flow positive. Therefore, you’re making money each month!

What If the DSCR Is Below 1?

Let’s say the rent is only $1,500 per month instead of $1,700. Here’s what happens:

  • Rent (Income): $1,500 per month
  • Expenses: $1,590

Now, divide the rent by the expenses:

  • DSCR: $1,500 ÷ $1,590 = 0.94

In this case, your DSCR is below 1, which means you’re losing money. To clarify, each month, you’ll need to pay $90 out of pocket to cover the costs.

Higher DSCR Means Better Rates

Here’s another example where the rent is higher. Let’s say you’re getting $2,000 per month in rent:

  • Rent (Income): $2,000 per month
  • Expenses: $1,590

Now, divide the rent by the expenses:

  • DSCR: $2,000 ÷ $1,590 = 1.26

A DSCR of 1.26 means your property is bringing in 26% more income than the expenses. Not only does this make your cash flow better, but it can also help you secure a lower interest rate.

Why Does DSCR Matter?

Lenders care about DSCR because they want to be sure your property is self-sustaining. If it’s not, they’ll see it as a risk. A higher DSCR can mean a better interest rate, which puts more money in your pocket. For example, a DSCR of 1.25 could get you a lower rate than a break-even DSCR of 1.0.

Imagine the impact of a lower interest rate across several properties. If your DSCR helps you save $220 a month, that’s $2,640 a year. If you have five properties, that’s over $13,000 in savings!

Final Tips to Quickly Calculate DSCR

Before you buy, check the DSCR to make sure the property will cash flow like you want it to. Here’s how:

  1. Estimate the rent based on similar properties in the area.
  2. Calculate your monthly mortgage payment, taxes, insurance, and HOA (if applicable).
  3. Run the numbers using the simple DSCR formula.
  4. Check that your DSCR is above 1 to ensure you’ll have positive cash flow.
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Why You Need a DSCR Loan in Today’s Market

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Today we are going to discuss why you need a DSCR loan in today’s market. Finding the right loan can make or break your investment strategy. For many investors, the DSCR loan is the perfect tool. Whether you’re just starting out or have been in the game for a while, DSCR loans offer a unique advantage that other loans don’t.

What is a DSCR Loan?

DSCR stands for Debt Service Coverage Ratio. But here’s the part that makes it stand out—it’s what we often call the “no income loan.” Unlike other loans that ask for your personal or business income, the DSCR loan only cares about the income your property generates. Imagine this: You don’t have to worry if you just started a business, are unemployed, or have written everything off on your taxes. The DSCR loan doesn’t ask for tax returns, employment verification, or personal income. That’s why it’s perfect for investors who might not show a lot of income on paper but have solid, cash-flowing properties.

Why DSCR Loans Work for Real Estate Investors.

Investors love DSCR loans because they are tailored specifically for rental properties that generate income. These loans are quick and simple compared to conventional loans because they avoid all the hassle of verifying your personal finances.

  1. No Personal Income Needed
    You don’t have to show income documents like tax returns or employment verification. It doesn’t matter if you’re new to real estate or have been writing off all your expenses—you can still qualify.
  2. Based on Property Income
    The main qualification is whether the property can cash flow. The lender looks at whether the property can cover its basic expenses: mortgage, taxes, insurance, HOA, and flood insurance. If the property pays these bills with its rental income, you’re good to go!
  3. Great for Rental-Ready Properties
    DSCR loans are designed for rental-ready properties, meaning you can move tenants in right away. They are not for fix-and-flip projects or properties needing major repairs. If the property is already in good shape, DSCR is a great option to start generating cash flow.

The Catch (If You Can Call It That).

Now, you might be wondering—what’s the catch? The only real limitation is that the property must be rental-ready. DSCR loans aren’t for properties that need a lot of work. If you’re looking at a fixer-upper, you’ll need to explore other loan types. DSCR loans focus on properties that can start making money immediately. Plus, these loans are only for rental properties, not properties where you plan to live. For example, if you want to buy a duplex, live in one half, and rent out the other, a DSCR loan won’t work.

Why DSCR Loans Are Beating Conventional Loans.

Here’s another reason to consider a DSCR loan: they’re now often cheaper than conventional loans. Traditionally, DSCR loans had slightly higher interest rates, but that has changed. In today’s market, over 70% of DSCR loans are coming in with rates lower than conventional loans. Why? Because DSCR loans are tied to different financial indexes, making them less affected by inflation and federal rate hikes. This means you can get the best of both worlds—a loan that doesn’t touch your personal finances and one that could offer you a better rate than a standard loan.

A Tool for Investors Looking to Grow.

If you’re an investor looking to buy and hold rental properties, a DSCR loan can help you grow your portfolio faster. Whether you’re buying single-family homes or multi-unit properties, this loan is designed to help you scale up without the usual roadblocks. And, if you’re curious about whether a property qualifies, contact us today! We are happy to help get you on the path of success.

In Conclusion.

Why do you need a DSCR loan in today’s market? DSCR loans are the ultimate tool for real estate investors in today’s market. Whether you’re just starting out or a seasoned pro who writes everything off, this loan can help you accumulate rental properties and grow your cash flow quickly. With rates often better than conventional loans and a simple qualification process, it’s no wonder so many investors are turning to DSCR loans.

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