Investor DSCR Loans Explained
Investor DSCR (Debt Service Coverage Ratio) loans or investment property loans , are a type of financing to purchase or refinance an investment property. This is common to use to qualify entities or someones new rental property real estate transaction. Basically, the ability to produce enough rent to completely cover their PITI payments. The higher the ratio gets, the easier it becomes for that entity or person to obtain financing for the investment property. The DSCR loan equation is properties current rents divided by new PITI (principal, interest, taxes and insurance) monthly payment. If your property is collecting rents that covers your current PITI payment then your property debt services.
Example of DSCR Calculation: New P&I = $1,851.26 + 758.53 taxes + $147 insurance = $2,756.79 PITI | $3200 Current Rents/$2756.79 = 1.16 DSCR
Investor Cash Flow Loan| DSCR are one of many financial ratios that lenders assess when considering a loan application. This ratio is especially important because the result gives some indication to the lender of whether you’ll be able to pay back the loan with interest. A ratio over 1 is good, and the higher the better.
The minimum DSCR a lender will demand depends on macroeconomic conditions. If the economy is growing, lenders may be more forgiving of lower qualifying ratios.
Here’s how to interpret your Investor Cash Flow Loan| DSCR :
- DSCR < 1: You have negative cash flow. You don’t have enough rental income to service the debt (New PITI payment).
- DSCR = 1: You have exactly enough rental coming in to service the debt (New PITI payment), but you don’t have an additional cash cushion.
- DSCR > 1: You have positive cash flow. The higher your DSCR, the more income you have to service the debt (New PITI payment).
Highlights of a DSCR Investor Cash Flow Loans
- No Tax Returns
- Employment not Required
- No Income Required
- No Debt to Income Ratio Calculated
- Cash Flow based on Subject Property rents | if property is vacant upon purchase market rents from the appraisal will be used to calculate DSCR
- SFR, Condo and 1-4 Unit
- Maximum Loan $2.5M | Purchase and R/T Refinance
- Maximum Loan $2M | Cash out Refinance
- Unlimited Financed Properties OK
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