Debt Service Coverage Ratio Mortgages

Debt Service Coverage Ratio (DSCR) mortgages are intended to help real estate investors and property owners finance their properties with flexibility and control. Traditional mortgages focus mainly on the borrower’s credit score and income, while DSCR mortgages consider the property’s cash flow to determine the borrower’s repayment ability.

Based on the property’s actual income and expenses, borrowers can obtain financing for the property. This enables those with lower credit scores or irregular revenue to qualify for a loan if the property generates enough cash flow to make the payments. 

The DSCR is the ratio between an investment’s net operating income and total debt service. It is calculated in real estate to determine whether a property has adequate cash flow to cover the mortgage payments. The higher the DSCR, the better the ratio. Anything over 1.25 is considered a good DSCR. 

DSCR loans do not have the same requirements as conventional mortgages, but there are still guidelines investors must meet to qualify for a loan. Though government entities do not back these mortgages and there is no standard, most mortgage companies require the following:

• DSCR should be between 1 and 1.5 to qualify. 
• Credit score should be at least 620.
• Down payment is usually 20%.
• Cash reserves need to cover at least six months of payments.
• Maximum DSCR loans are typically $5 million.
• Prepayment penalties often apply. 
• Property eligibility varies between companies but is typically one to five units.

Some advantages of DSCR loans include the following: 

• Eligibility requirements are different.
• No loan limit.
• Reduced down payments.
• Loan amounts up to $5 million.
• Unlimited cash-out.
• Swift closing.
• No employment verification. 

DSCR loans allow borrowers to qualify for home loans without using their tax returns. Real estate investors, or borrowers, can avoid high rates, elevated private loans, long approval processes, and strict lending standards with DSCR loans. 

Stop searching for a DSCR loan. Contact the experts at EB Mortgage today to learn how we can help.

EB Mortgage is a locally owned mortgage company with experts in new home purchase, refinancing, and commercial loans. Our wholesale rates can’t be beaten. We offer more products, more options, and more solutions. Our “3C” Process is simple: complete our pre-approval request, consider options based on your requirements, and choose the offer that suits your needs best. Call us or e-mail us today! 

Written by the digital marketing team at Creative Programs & Systems: https://www.cpsmi.com/