New DSCR Investment Loan Options | Valor Lending Group
Are you a real estate investor looking for DSCR investment property loan?
Valor has the programs that you have been searching for!
NO TAX RETURNS REQUIRED!
EMPLOYMENT NOT REQUIRED!
NO INCOME REQUIRED!
A DSCR investment property loan is a type of non-QM loan that it beneficial to real estate investors. These loans do not require you verify your income with tax returns, instead, you qualify by using your properties cash flow, not your income.
What is a DSCR Investment Property Loan?
Traditional mortgage lending requires tax returns during the loan approval process, a DSCR investment property loan does not.
Providing tax returns does not always give an accurate portrayal of true cash flow, due to the way traditional loans are underwritten (which often applies a default vacancy factor, minimum global debt service, and other guidelines and overlays). Real estate investors and others whose tax returns do not accurately portray their financial picture can use no tax return investment property loans as a powerful financing solution.
This is a great option for real estate investors that allows qualification based on simply the cash flow of the property being financed. If the rental property is cash flow positive, that will constitute sufficient qualifying income.
Sometimes called “Investment property loans” or “rental loans,” DSCR investment property loans do not consider a borrower’s debt to income ratio 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 to the qualifying income of $2,000/month. The main requirement for these investment property loans is that the monthly rents cover the monthly expenses (New PITIA Payment). It is that simple.
Valor Lending Group also features DSCR ‘no ratio’ loans for those properties that do not debt service.
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.
Why Use a DSCR Investment Property Loan?
Traditional mortgage lenders require tax returns, W-2s, and paycheck stubs in order to determine monthly income. Salaried and hourly borrowers would require the lenders to look at gross income for qualifying purposes. But for self-employed borrowers, traditional mortgage lenders look at net income, the adjusted gross income showing on tax returns. This puts real estate investors and other self-employed borrowers at a disadvantage.
However, rental loans are a great way for real estate investors to qualify for both acquisitions and refinances, without requiring 12-24 months of bank statements or 2 years of tax returns, and without having to qualify using a debt to income ratio. (12-24 month Bank statement loans are also a great option for self employed borrowers, to learn more about bank statement loans click here.)
Borrowers that fall outside traditional underwriting guidelines but are looking for long term loans with more attractive rates than hard money loans can use the DSCR investment property loan to their advantage. These loans do not require tax returns, income or employment, or debt to income ratio calculations.
DSCR loans provide the flexibility and lessened documentation of hard money loans, but with rates closer to traditional financing.
This is a constantly evolving area of real estate financing that offers a powerful way to grow your real estate portfolio.
What Does a DSCR Investment Property Loan Look Like?
1) DSCR – Debt Service Coverage Ratio
(a) Defined
The Debt Service Coverage Ratio, or DSCR, is how investment property lenders qualify borrowers for a loan. In essence, it is a comparison of the property’s monthly rental income versus monthly expenses (New PITIA Payment).
DSCR provides a basis for determining the maximum loan amount an investment property can withstand. The higher the DSCR, the higher the loan amount the property qualifies for. The monthly rents are put up against five (5) monthly expenses of the property:
- Principal
- Interest
- Taxes
- Insurance
- HOA Dues (if any)
Together, these are often called the “PITIA.”
(b) Principal & Interest
The loan principal is the total loan amount, plus any costs of the mortgage that have been financed. Loans that are paid down over a set period (called “amortizing” loans) include monthly payments towards the loan principal.
Loans also often have an interest only option meaning that each month payments are made towards interest only. In this case, no portion of the principal loan balance is paid down over the interest only period. Instead, a balloon payment in the amount of the principal loan balance is due at the end of the loan term for interest only loans or principal payments will begin being paid at the end of the interest only period.
If the loan is amortized, (i.e., principal is being paid with monthly payments), a mortgage calculator can be used to determine monthly principal and interest payments, based on a given loan size, interest rate, and amortization term.
(c) Taxes, Insurance, & HOA Dues
e next portion of the debt component of the DSCR calculation consists of taxes, insurance, and HOA dues. These are fairly self-explanatory. Calculate the monthly taxes and insurance for a refinance (or estimated monthly taxes and insurance quote for a purchase) and add in any HOA dues present.
The total of monthly taxes, insurance, and HOA dues (if any), along with principal and interest payments, make up all debts included in the no tax return investment property loan DSCR equation. It’s that simple!
(d) Example
The property is rents for $2,000/month and has the following expenses
$1,000 monthly Principal & Interest
$250 monthly Property Taxes
$120 monthly Insurance
$130 monthly HOA Dues (if applicable)
$1,500 monthly TOTAL PITIA
In this example, the DSCR = $2,000 Monthly Rent / $1,500 New Monthly PITIA = 1.33 DSCR.
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.
2) Purchase vs. Refinance
Use this loan for a purchase or a refinance of real property.
For a Purchase they provide a great way to qualify for a purchase loan without tax returns, income or employment, or historical bank statements.
Refinancing, using an investment property loan, can be used to tap into a property’s equity and “cash out” the property. For example, if equity in a property increases, a real estate investor can obtain a investment property loan that provides cash in hand to be used for any business purpose.
3) Down Payment, Rates & Costs
No tax return investment property loans are long term solutions with terms of 15 or 30 years and can be fixed or adjustable.
The minimum down payment on an investment property loan is usually 20% (or minimum 20% equity for a refinance). Some lenders require up to 25% or more depending on credit, DSCR, and other factors including a reserve requirement. Larger down payments do often allow for a better rate. In other cases we have seen up to 85% LTV’s but on a limited basis with compensating factors.
Valor allows gift funds from immediate family members for those investors that are short on liquidity.
Rates for investment property loans are generally higher than traditional loans (based on increased perceived risk to lenders). All other typical loan fees are similar, such as origination points, broker and lender fees, appraisals, title and escrow, etc.
4) Personal Credit
Although personal income and debts are not considered for a no tax return investment property loan, personal credit is considered in the loan approval process. However, this requirement is typically no more scrutinized than a hard money loan.
Lenders want to see that a real estate investor is generally able to pay their bills in a timely fashion. In addition, having more than 1 or 2 late mortgage payments in the previous year can often require a loan approval exception, which can sometimes delay the process and increase the rate.
Advantages & Disadvantages
1) Pros
- 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
- 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:
DSCR Purchase 15% down, DSCR Rate and Term Refi 85% LTV, DSCR Cash Out Refi 80% LTV, DSCR NO Ratio 75% Purchase/Rate and Term/Cash out
- 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 $6.5M
- Unlimited Financed Properties OK
VALOR LENDING GROUP OFFERS EVERY MORTGAGE LOAN IN THE BOOK!
If you would like to discuss more details on qualification and requirements, I am available to answer any questions you may have.
Recap of our Loan Products:
- Hard Money Loans (20% down / minimal documentation) Typically Fund in 7-10 days.
- Stated Income Loans (Great for business owners and self employed ) No tax returns!
- 100% financing is available (we can cross collateralize other properties if there is enough equity)
- Valor VA Home Loan 100% financing up to $1.5MM
- Investor Cash Flow Loan – No tax returns or DTI calculation! Based on subject property cash flow
- Flipper & Rehab Loans (Flip a property with one of our many options)
- 2nd Position Loans up to $5mm
- Raw Land & Lot Loans
- Ground up Construction for spec homes, custom homes and commercial ground up.
- Farms, Vineyards, Ranches and Agricultural Properties (25-30% down)
- 10% down Jumbo’s up to $1.5mm
- Manufactured Housing / Mobile Homes (20% down / 600+ credit score)
- Acreage Properties
- Commercial Loans up to $500mm
- 3% & 5% down Conventional Loans– LPMI (Lender paid mortgage insurance)
- Foreign Nationals Loans (no social security or residency required)
We also offer:
- 10, 15, 20, 25, 30 year Fixed, Conventional Conforming Loans
- High Balance Conforming aka Super Conforming
- Jumbo’s to $10 Million / 10% down Jumbo to $1.5mm
- FHA, USDA
- ARM’s
- Reverse mortgages up to $1 Million Value
- Refinance including Cash Out
We look forward to the opportunity to serve you!
CONTACT ME TODAY for immediate attention to your scenario!
**Rates and terms subject to change without notice**
For the most up to date mortgage news visit: Mortgage News Daily
Check out our Google Reviews
Did we miss anything?
- Call or Email me (Hayden Madison) if there is any information that we have missed
- Follow us on Social Media
- Share this on your Social Media
- Do not hesitate to give us your feedback
- Ask us for a quote
- Visit our homepage to check out what Valor Lending Group has to offer
