Our Debt Service Coverage Ratio (DSCR) mortgages have become a popular choice for non-qualified mortgage (non QM) loans, largely due to how easy they are to qualify for. Unlike most mortgages offered under conventional underwriting standards, the DSCR program doesn’t require the borrower to provide or verify their own personal income or employment history. Rather, the program is designed to factor the rent vs. the Principal, Interest, Taxes, and Insurance (PITI) of the mortgage payment to determine if there is sufficient cash flow to qualify for this portfolio loan.
Appraising the Home and Doing a Market Analysis
When purchasing a home that currently is not being rented, the portfolio lender will require that the appraiser demonstrate the market value of the home being financed. They’ll then do a market analysis of what the long-term rental tenant could expect to pay monthly to rent the home.
If the home is expected to generate a higher rent than the PITI of the new mortgage, lenders for this program will often only require a 15% to 20% down payment. When the PITI exceeds the expected monthly rental payments, most lenders will require the borrower to put an additional 5%-10% down.
A Popular Non QM Loan Option for Real Estate Investors
DSCR loans are a popular non-QM option for real estate investors because they focus on a property’s rental income rather than the borrower’s personal income. This makes them an attractive choice for both new and experienced investors looking to finance rental properties without traditional income verification.
Not only are DSCR loans commonly used for purchasing an investment property, but they are also widely used by investors who already own real estate. These investors often choose DSCR loans to refinance their properties and pull out cash, which can then be used to:
- Renovate existing rental properties to increase value and rental income.
- Purchase additional investment properties to expand their portfolio.
- Reinvest in real estate improvements to maximize returns over time.
How Credit Score Impacts DSCR Loan Approval with Portfolio Lenders
When applying for a DSCR loan through a portfolio lender, your credit score plays a significant role in determining the maximum Loan-to-Value (LTV) ratio and the interest rate you’ll be offered. DSCR loans focus on the rental income of the property, but lenders still assess creditworthiness to gauge risk.
Borrowers with higher credit scores typically receive:
- Higher LTV ratios, allowing them to finance more of the property’s value.
- Lower interest rates, making the loan more cost-effective over time.
On the other hand, borrowers with lower credit scores may face:
- More restrictions on loan amounts, limiting the number of properties they can finance.
- Higher interest rates, increasing the overall cost of borrowing.
While credit score is not the primary qualifying factor for a DSCR loan, it still influences the terms portfolio lenders offer. Investors looking to secure the best rates and terms should focus on maintaining strong credit while leveraging the benefits of DSCR loans for financing investment properties.
DSCR Program Highlights
- Up to 85% Purchase Financing
- Maximum 75% LTV Cash Out
- Minimum FICO 575
- No Employment or Income Verifications
- Foreign Nationals and Non-Permanent Residents OK
- Condotels allowed
- Gift Funds OK
- Title in LLC acceptable
- 30yr and 40yr Fixed, Interest Only and 7/6 ARM terms offered
- Up to 34 Unit properties
Is a DSCR Mortgage Right for Your Portfolio?
Under the right circumstances, a Debt Service Coverage Ratio mortgage may be the perfect non QM loan to help you reach your goals. To understand if this is the best type of mortgage for you, schedule a consultation with one of our mortgage lenders today.
