Debt-Service Coverage Ratio Mortgage Loans

This blog will cover and discuss debt-service coverage ratio mortgage loans for real estate investors. We will take a step further and cover one of our new debt-service coverage ratio mortgage loans just launched, where borrowers do not have to own a primary owner-occupant property to qualify for debt-service coverage ratio mortgage loans at Gustan Cho Associates

The team at Gustan Cho Associates. are experts in originating debt-service coverage ratio mortgage loans and other types of non-QM and alternative financing for all types of real estate investors. In the following sections of this guide on debt-service coverage mortgage loans, we will outline all aspects of Debt-Service Coverage Ratio mortgage loans.

What Are Debt-Service Coverage Ratio Mortgage Loans?

As we see a dramatic shift in the housing market, more and more investors are starting to purchase properties. In this blog, we will cover debt-service coverage ratio mortgage loans offered at Mortgage Lenders For Bad Credit, Inc. DSCR mortgage loans are investment property mortgage loans where the income is derived from the property. The annual debt service of the property is compared to the net operating income of the subject investment property. Speak With Our Loan Officer for Mortgage Loans

Mortgage Loans For Real Estate Investors

We have a wide range of mortgage programs geared toward real estate investors. This mortgage guide will discuss the debt-service coverage ratio of mortgage loans. In the industry, the most popular loan program for real estate investors with no tax returns required is DSCR mortgage loans. We will also detail how you apply for one of these mortgage loans with our team. These programs are highly beneficial for a savvy real estate investor. 

What Does Debt-Service Coverage Ratio Mean?

What does the debt-service coverage ratio mean? The debt-service coverage ratio, called DSCR, is used for corporate, government, and personal finances. The term debt cash flow. It measures an entity’s cash flow to pay current debt obligations. The ratio shows whether or not an investor or company has enough income to service its debts. A one-to-one ratio means a company brings in the exact amount of money to pay its monthly obligations. A ratio above one means the company or entity has positive cash flow. A one-to-one ratio means the current cash flow cannot service the debt.

What Are Debt-Service Coverage Mortgage Loans?

What are debt-service coverage ratios for mortgage loans? This unique mortgage program benefits investors in purchasing or refinancing an investment property. In Layman’s terms, the rents received are considered cash flow for the property. You have a favorable ratio assuming the cash flow can cover the current mortgage payment. Debt-service coverage ratio mortgage loans is a non-QM loan program. 

How Is Income on DSCR Mortgage Loans Calculated By Lenders

Qualified income calculation by mortgage underwriters using the cash flow method of the rental income compared with the mortgage payment that consists of PITI. The current rent received must cover the total mortgage payment. The mortgage payment includes principal, interest, property taxes, homeowners’ insurance, and any homeowners association dues connected to the property. The rental income’s cash flow must cover the monthly mortgage payment. 

DSCR Mortgage Loans Is Based on Rents Versus PITI NOT Income of Borrower

How will you know if the current rent will cover the mortgage payment for debt-service coverage ratio mortgage loans? Great question. When we order an appraisal on the investment property, we will also contain a 1007 form that the appraiser will fill out. Above and beyond the appraised value, the appraiser will research fair market rents in the area. 

How Is Rent on DSCR Mortgage Loans Determined?

They will determine how much similarly sized homes are renting in your area. For example, suppose you are looking at a three-bedroom, two-bathroom home in the Denver, Colorado area, which rents for $3500, to utilize a debt-service coverage ratio loan. In that case, your total mortgage payment must be below $3500 to qualify.

What Is Form 1007 Required For DSCR Mortgage Loans

A licensed appraiser must complete the 1007 form to verify if this loan program is available to you or not. If you are buying a currently rented home or refinancing a home that now has a tenant, it is possible to go off the lease agreement instead of 1007 for rent received. If the cash flow of the current lease agreement is higher than the 1007 fair market rent, as long as we can verify that the borrower paid the most recent 12 payments with the higher dollar amount, we can utilize that as your reasonable market rent. We do understand that fair market rent is incredibly confusing. Speak With Our Loan Officer for DSCR Mortgage Loans

How Do I Determine The Estimated Value of a Rental Property?

We strongly encourage you to contact our team for more specifics and to answer any questions about this issue. Gustan Cho Associates has access to real estate software that can give us a general idea of appraised values and fair market rents.

DSCR Mortgage Loans With Low Credit Scores

So if you are purchasing a home with this loan program and have a lower credit score, you can expect to need a 30% down payment or greater. The maximum loan-to-value for a debt-service coverage ratio file is 80%. Most investors would like to see a 25% equity position in the property.

Mortgage Rates on DSCR Mortgage Loans

So even with solid credit, you will want to plan on putting down 25%. Besides the equity position and minimum qualifying credit score, the only other qualification is that you must have a debt-service coverage ratio of 1 to 1. In general terms, the rent received must cover the total mortgage payment. Depending on your credit score and the number of homes you own, you may also be required to verify reserves (additional liquid assets) 

Can you still qualify if your debt service coverage ratio is below 1 to 1?

The short answer is yes. Gustan Cho Associates has investors who will allow a debt service coverage ratio below 1 to 1. Suppose the fair market rent or current rents received do not cover the total mortgage payment. You can utilize a debt-service coverage ratio program for this transaction. 

The minimum qualifying ratio is .75 to 1. Assuming the mortgage payment covers at least 75% of the mortgage payment, and you have a strong credit score, this is something Gustan Cho Associates, Inc. can help you qualify and get pre-approved for a mortgage.

The minimum credit score required is 700 to utilize this loan program, with a debt service coverage ratio below 1 to 1. Loan-level pricing adjustments significantly hit the interest rate for a ratio below 1 to 1. Please call our team for more information!

Qualify for Mortgage Loans still if your debt service coverage ration is below 1 to 1

Debt-Service Coverage Ratio Mortgage Loans on Manufactured Homes

Manufactured homes: As of late, Gustan Cho Associates has received many phone calls surrounding manufactured homes. Real estate investors seem to target specific communities with manufactured homes nationwide. And the good news is that we offer many loan programs for manufactured properties. Most lenders don’t allow manufactured housing, but Gustan Cho Associates has numerous loan programs that can assist in buying or refinancing a manufactured home, including a debt-service coverage ratio loan.

Manufactured Homes DSCR Mortgage Guidelines

With our team, you can utilize a debt service coverage ratio to buy a manufactured investment property. The manufactured home must meet a few criteria. The manufactured home must be fixed to a permanent foundation, be double wide or larger, cannot be on leased land, and may not be in a community with a homeowner’s association. Assuming the property meets his criteria, you must have a 620 credit score or higher to utilize this loan program.

Non-QM Loans For Investment Properties

Why are these programs so popular among investors? Many real estate investors have multiple properties and may not qualify for a conventional mortgage based on their federal income tax returns. Many investors also have too many properties to qualify for a Fannie Mae or Freddie Mac mortgage loan. 

Non-QM Loans Versus Fannie Mae 5 to 10 Financed Properties

Some investors purchase properties above and beyond the Fannie Mae and Freddie Mac loan limits. Jumbo mortgage lending on investment properties is incredibly strict and a hassle to get to the finish line. No matter your scenario, a debt-service cover ratio program could increase your real estate portfolio and income received if you are a real estate investor.

DSCR Mortgage Loans Versus Traditional Investment Property Mortgages

A unique opportunity offered at Gustan Cho Associates is debt-service coverage ratio mortgage loans. Most lenders have a strict requirement that you own a primary residence to utilize this unique investment property mortgage loan. That is not the case at Gustan Cho Associates 

DSCR Mortgage Loans Without Primary Residence For Borrower

We can utilize a debt-service coverage ratio loan even if you do not own a primary residence. DSCR mortgage loans allow anyone to start becoming a real estate investor. Non-QM is responsible for a housing payment before utilizing this program. So, even a first-time home buyer can utilize this investment property mortgage loan with our team.

Investment Property Mortgage Loans

What other programs do we offer to real estate investors? Suppose you are in the market for an investment property but are not looking to utilize a debt-service coverage ratio loan. In that case, our team offers many other loan options for investment properties. Of course, we offer the standard Fannie Mae or Freddie Mac investment property mortgage loans, but these can be incredibly difficult to qualify for.

Non-QM and Alternative Financing Mortgage Options

 We also offer a full line of NON-QM mortgage loans above and beyond the debt-service coverage ratio program. We offer programs that will allow you to utilize bank statements, 1099s, personal profit, and loss schedules, and even stated income (in certain states) to calculate income to purchase an investment property. The highly skilled loan officers at Gustan Cho Associates are experts in finding the right mortgage program for you. We take pride in offering more mortgage programs than our competition. Qualify for Non-Qm Loans , Click here

Housing and Mortgage Market Forecast

Based on market conditions, mortgage lending is becoming incredibly strict, and our team is here to help you navigate the muddy waters. y know that national rents are near all-time highs. It could be a great time to purchase an investment property. So even if you don’t fit the standard Fannie Mae or Freddie Mac criteria, please reach out to our team today. We fit your needs.

The DSCR Loan Application and Mortgage  Process

 After you fill out the application link, our team will pull your credit and see which investor will be the best option for your scenario. You will then be issued a pre-approval letter to purchase an investment property. Once you select a home, our team will extensively research fair market rents in your area. Assuming our research lines up with the future mortgage payment, we will proceed full steam ahead.

The underwriting process is quite simple for these mortgage loans. Not much documentation is required after we receive the appraisal on 1007 (fair market rent schedule).

The team at Gustan Cho Associates understands how confusing mortgage lending can be. We are experts in all of the programs we offer. We strive to help our clients qualify for mortgage programs that may not be available by large banks and lending institutions. 

Types of Non-QM Mortgage Loans For Investment Properties

We have many programs geared toward real estate investors, including fixed and flip mortgage loans. Our team is here to help you grow your real estate portfolio. If you look at some of the wealthiest individuals in the world, many of them have large real estate portfolios. On a much smaller scale, most families create generational wealth by passing down homes to their children or selling their homes to enjoy retirement. Building equity in a home is key for long-term wealth. Our highly skilled experts are here to help make that dream a reality for you.

Advantages of DSCR Loans

• Income-Based Qualification
  Property Income Focus: DSCR loans allow borrowers to qualify based on the income regarded by the property rather than their personal income. This particularly benefits real estate investors with complex or varied personal income streams.
• Flexible Loan Terms
  Tailored for Investors: DSCR loans often come with flexible terms designed specifically for investment properties, allowing for customized loan structures that suit the needs of property investors.
• Higher Loan Amounts
  Leverage Property Income: Because the loan is based on the property’s income, investors may be able to secure higher loan amounts than traditional loans, enabling them to invest in larger or more lucrative properties.
• Improved Cash Flow Management
  Income Alignment: Since loan payments are directly tied to the property’s income, investors can better manage their cash flow and ensure that their property meets its debt obligations.
• No Personal Income Verification
  Simplified Process: Investors who do not want to disclose personal income details can benefit from DSCR loans as they focus solely on the property’s generated income.
• Potential for Higher Returns
  Investment Opportunities: Investors who can finance larger or multiple properties have the potential to achieve higher returns on their investments through rental income and property appreciation.
• Renovation and Improvement Financing
  Value Enhancement: Some DSCR loans include options for financing property renovations or improvements, which can increase the property’s property rental income potential.
• Reduced Personal Financial Risk
  Limited Personal Liability: Investors can limit their financial exposure and protect personal assets by qualifying based on the property’s property rather than personal income.
• Quick Approval Process
  Streamlined Approval: Lenders focused on DSCR loans often have streamlined approval processes, allowing investors to close deals faster and capitalize on market opportunities.
• Diversification of Investment Portfolio
  Broader Investment Scope: DSCR loans enable investors to diversify their real estate portfolios by financing various properties, including residential, commercial, and mixed-use buildings.

These advantages make DSCR loans an attractive financing option for real estate investors looking to leverage the income-generating potential of their properties while maintaining financial flexibility and minimizing personal financial risk.

Frequently Asked Questions (FAQs)

1. What is a Debt-Service Coverage Ratio (DSCR) mortgage loan?
   A DSCR mortgage loan is a real estate loan typically used for investment properties. It assesses the borrower’s ability to repay the loan based on the property’s income rather than the borrower’s personal income.
2. How is DSCR calculated?
   DSCR is calculated by dividing the property’s annual net operating income (NOI) by its annual debt service (the total of all principal and interest payments on the loan for a year). The formula is:
   DSCR=Net Operating Income (NOI)Annual Debt Service\text{DSCR} = \frac{\text{Net Operating Income (NOI)}}{\text{Annual Debt Service}}DSCR=Annual Debt ServiceNet Operating Income (NOI)​
3. What is considered a good DSCR?
   A DSCR of 1.25 or higher is usually regarded as favorable. This means the property generates 25% more income than the amount required to cover the loan payments.
4. Who can benefit from a DSCR mortgage loan?
   DSCR mortgage loans benefit investors who own rental properties and want to qualify for a loan based on the income originated by those properties rather than their personal income.
5. What kind of properties are eligible for DSCR loans?
   DSCR loans are commonly used for residential rental properties, commercial properties, and mixed-use properties.
6. How does DSCR impact loan approval?
   A higher DSCR indicates a stronger ability to cover debt payments, making loan approval more likely and resulting in better loan terms. Conversely, a lower DSCR can make it more challenging to get approved or may result in higher interest rates.
7. Are there minimum DSCR requirements for obtaining a DSCR loan?
   Lenders typically have minimum DSCR requirements, which can vary but often range from 1.1 to 1.25.
8. What documentation is needed for a DSCR loan application?
   Documentation usually includes financial statements for the property, such as rent rolls, operating statements, lease agreements, and an appraisal report.
9. Can DSCR loans be used for property renovations or improvements?
   Yes, some DSCR loans can include funds for renovations or improvements, depending on the lender’s terms and the property’s income potential.
10. How do interest rates for DSCR loans compare to traditional mortgages?
    Interest rates for DSCR loans tend to be higher than those for traditional mortgages because investment properties are considered higher risk. However, competitive rates are still based on the property’s income and DSCR.

Why Gustan Cho Associates For Debt-Service Coverage Ratio Mortgage Loans?

 Gustan Cho Associates is available seven days a week and on most holidays. We would love the opportunity to help you understand which program will be best for you. Please reach out to her team to start the pre-approval process. For any general mortgage questions, call or text Gustan Cho at 800-900-8569. You can also email us at alex@gustancho.com. The team at Gustan Cho Associates are experts in debt-service coverage ratio mortgage loans and other non-QM loan programs for real estate investors. Gustan Cho Associates has lending partnerships with over 190 wholesale mortgage lenders. We have dozens of wholesale lending partnerships for niche lenders specializing in debt-service coverage ratio mortgage loans.