Many remember the tips from Rich Dad Poor Dad and acquiring houses to cash-flow with rental properties. Or , in better terms = mailbox money! But one important piece from the Rich Dad Poor Dad book that didn’t stick in my mind was tips on how to qualify for a mortgage or rental properties. Maybe it stuck in your brain? Not mine.
In this blog I give tips on how to qualify for a mortgage for rental properties. When you are embarking on the process of acquiring a rental loan it is important to have a knowledgeable team behind you that knows all the tricks of the trade. Whether you are a seasoned investor or novice we are here to help you invest in rental property-securing the loan Valor Lending Group is that team!
Rental loans help real estate investors buy and hold for rental income or fix and flip for a quick profit.
Valor Lending Group offering new DSCR 1-4 Unit Investment Property Loans | 15% Down on a DSCR loan up to 1.5 Million | Minimum 680 middle FICO score | Zero Reserves
Today rental loans have competitive financing for residential properties and they have Cash-Out refinancing available for investment properties that are currently owned.
The National Association of Home Builders (NAHB) conducted a recent examination on rental housing using U.S. Census data.
They found that 86% of rental properties in the U.S. are single family residences; two-to four-unit residences being the next most common type of rental property.
Valor Lending Group has multiple funding sources for these types of rental property loans.
We also have the very best communication, rates, and turn times.
Why is a rental property loan called a DSCR Investment Property Loan?
Sometimes called “Investment property loans” or “rental loans,” no tax return investment property loans do not consider a borrower’s income in the traditional sense.
The “cash flow” is just the monthly rental amount the property brings in. For example, a property renting for $2,000/month would be attributed a qualifying income of $2,000/month. The main requirement for these investment property loans is that the monthly rents cover the monthly expenses. It is that simple.
Not only is a borrower’s income not considered in the loan application process, investment property lenders do not request income amounts, in fact there is no income verification of any kind. No letters from employers, no W2s, and no pay stubs. Again, the income of the investment property is simply the cash flow of the property.
What is Debt Service Coverage Ratio (DSCR)?
The DSCR = Properties Current Rents / New PITI (principal, interest, taxes and insurance) monthly Payment. If your property is collecting rents that covers your current PITI Payment your property debt services aka your properties rents cover your total mortgage payment.
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
Debt service coverage ratio (DSCR) is 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 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).
DSCR – Example
For example, assume an investment property is rented for $2,000/month. Assume also the property has the following monthly expenses.
Principal & Interest $1,000/mo
Property Taxes $250/mo
Insurance $120/mo
HOA Dues $130/mo
TOTAL PITIA $1,500/mo
In this example, the DSCR = $2,000 Monthly Rent / $1,500 Monthly PITIA = 1.33.
No-tax-return investment property lenders generally want to see DSCR above 1.00, and sometimes offer better pricing if the DSCR is above 1.25-1.50.
Advantages & Disadvantages
1) Pros of No-Tax-Return Investment Property Loans
- No tax returns required
- No employment or income required
- Personal or business income not considered
- No debt-to-income (DTI) ratio developed or considered
- Allows real estate investors and self-employed individuals to qualify when they otherwise cannot
2) Cons of No-Tax-Return Investment Property Loans
- Larger down payment than traditional loans
- Rates are slightly higher than traditional loans (but not much more)
- Some (but not all) lenders require landlord experience
- Personal credit still plays a role
DSCR Investment Property Loan Highlights:
- 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
Don’t let rising rate prevent you from acquiring more investment properties!
We also have solutions to access capital through a refinance with rate that will let your properties cash flow.
Call me today at 480-773-0714 for immediate attention to your scenario.
Recap of our Loan Products – including our Short-Term Bridge Loan:
- Stated Income Loans (No Tax Returns, no W-2s, No P&L) up to $3M
- Bank Statement Income Loans (Great Bank Statement Programs for business owners and self-employed)
- Hard Money Loans (As low as 20% down / minimal documentation) Fund in 7-10 days
- Flipper Loans (Flip a property with one of our many options) up to 90% leverage
- Commercial Line of Credit
- 100% Financing (cross collateralize- hard money)
- Foreign Nationals Loans (no social security or residency required)
- Raw Land & Lot Loans
- Ground up Construction for spec homes, custom homes and commercial ground up to $500M
- 2nd Position Loans up to $5M
- Rental Property Loan – No tax returns or DTI calculation! Based on subject property cash flow
- Farms, Vineyards, Ranches and Agricultural Properties (20-30% down)
- 10% down Jumbo’s with NO MI up to $1.5M
- Manufactured Housing / Mobile Homes (20% down / 620+ credit score)
- Acreage Properties
- Commercial Loans up to $500M
- 5% down Jumbo (Up to $2M Lender paid PMI)
Other Loans we offer:
- 10, 15, 20, 25, 30 year Fixed, Conventional Conforming Loans (under $647,200)
- High Balance Conforming aka Super Conforming (from $647,200-$970,800)
- Jumbo’s to $10 Million / Super low rates! / 10% down Jumbo to $3mm
- FHA, VA, USDA
- ARM’s
- Reverse mortgages up to $10 Million Value
**Rates and terms subject to change without notice
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