DSCR Mortgage Loans On Investment Properties
This Article Is About DSCR Mortgage Loans On Investment Properties
Gustan Cho Associates has a national reputation of being able to do mortgages other lenders cannot:
- Gustan Cho Associates is a mortgage company licensed in multiple states with no lender overlays on government and conventional loans
- All non-QM loan programs were halted after the coronavirus outbreak pandemic hit the nation in February 2020
- However, Gustan Cho Associates reopened non-QM loans and dozens of other alternative financing mortgage program this past June 2020
- More and more people are getting into real estate investment property investments
- Non-QM and alternative loan programs geared towards real estate investors are becoming more and more popular
- GCA Mortgage Group has a national reputation for being a one-stop mortgage shop
- This is because not only do we offer no lender overlays on FHA, VA, USDA, Conventional loans, but there is no mortgage non-QM and/or alternative loan program that we do not offer
- Some of our top non-QM mortgage programs offered at Gustan Cho Associates are bank statement mortgages, asset-depletion loans, non-QM loans one day out of bankruptcy and/or foreclosure, and dozens of other non-QM mortgage programs
Borrowers who are looking to qualify for unique and/or non-QM mortgages, you have come to the right place.
DSCR Mortgage Loans Versus Other Loan Programs
Not only does Gustan Cho Associates have no lender overlays on government and conventional loans, but we also have non-QM wholesale lending partnerships with dozens of alternative financing mortgage lenders:
- We have unique non-QM and alternative financing mortgages on owner-occupant, second homes, and investment properties
- Some of the newest loan programs we have recently launched are the DSCR Mortgage Loans For Real Estate Investors On Investment Properties
- There are no income tax returns required
- The wholesale lender will underwrite the subject property on its own merits
- The market rent through an appraisal needs to be 115% of the current monthly payment of the mortgage
- So if your monthly P.I.T.I. is $1,000 per month, the market rent needs to be $1,150 per month or higher
- The current credit score of the main borrower needs to be at least 660 FICO
- However, there are talks about lowering the minimum credit score requirement to a 620 FICO
- The real estate investor needs to put a 25% down payment
- The borrower needs six months of reserves
- This is a very popular mortgage loan program for real estate investors looking for a no-doc limited documentation mortgage loan program on investment properties
DSCR Mortgage Loans Are For Investment Properties
Investment property financing is different than owner-occupant home loans.
- Mortgage on investment properties is considered riskier investments to lenders
- More risk means higher default rates. Higher default rates and higher risk means the lender will charge loan level pricing adjustments (LLPAs)
- This includes higher mortgage rates on investment property loans
- Higher down payment requirements are required on investment property loans.
- The debt service coverage ratio is an important factor in investment property loans
- The debt service coverage ratio is also referred to as DSCR
- In the following paragraphs, we will detail what DSCR is and how it impacts financing on investment property loans
In general, the debt service coverage ratio is a formula of the borrower’s ability to repay the debt obligation on an investment property loan based on the borrower’s monthly payment of the P.I.T.I. versus the income the investment property generates.
Calculating The DSCR
In this paragraph, we will go over how to calculate the debt service coverage ratio (DSCR). The DSCR is calculated by taking the subject property’s annual net operating income (NOI) and dividing it by the property’s annual debts. Let’s take a case scenario: Let’s assume a property generates $1,000,000 in annual net operating income (NOI). The same property has annual debt payments of $800,000. The DSCR on this property is 1.25. What does the 1.25 DSCR mean? The 1.25 DSCR means that the property’s assets can cover its annual debt 1.25 times in a given year. In the event, if the property’s DSCR is under the 1.0% DSCR, the property cannot cover its current debt obligations. The higher the debt service coverage ratio, the stronger the subject property’s cash-flow. DSCR in the 1.25 to 1.50 is considered a safe bet and favorable for lenders. What this range in DSCR means is the assets can generate an additional 25% to 50% extra income after all debt payments have been paid. The DSCR can vary year to year depending on the cash-flow and expenses of the subject investment property. Lenders are open-minded when it comes to having a higher DSCR on investment properties. Many real estate investors can be sitting on investment properties with lower than market rents. There is huge potential in increasing rents after rehabbing the subject property. The qualification and experience in managing properties are taken into consideration when underwriting DSCR Mortgage Loan Programs. For more information about the content of this blog and/or other mortgage-related topics, please contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.