Investor Cash-Flow Financing for Rental Properties
Financing your investment property using its income to qualify you
The article covers using income from investment properties to qualify for a mortgage
After the Great Recession, some riskier mortgage lending products went AWOL. One of those was the “no ratio” product that did not consider applicants income when approving a loan. Today, lenders must prove that borrowers can afford a home before they approve a mortgage.
Cash-Flow Financing for Investment Rental Properties
However, there are different rules for investment property and primary residences. When you buy a home, the lender makes sure that your income is enough to pay your mortgage and your other bills. But when you buy rental real estate, you might not need to show your regular income at all. As long as the rental income from the investment property meets the lender’s guidelines, your personal income doesn’t matter.
Advertisements for these loans often call them “no income mortgages” or “stated income mortgages” but they are really DSCR loans. Here’s how they work.
Understanding Investor Cash-Flow DSCR
One of the most important formulas real estate investors need to fully know and understand is the Debt Service Coverage Ratio, or DSCR.
DSCR stands for Total Debt Service Net Operating Income:
- It is net income divided by total debt service
- Net Income is equal to Revenue minus COE
- COE stands for Certain Operating Expense
- Total Debt Service is the Current Debt Obligations
The subject property needs a 70% Loan To Value and the DSCR is 1.00. Therefore, if the rental income of the subject rental property can cover the PITIA, the property qualifies. Gustan Cho Associates also has a NO DSCR rental income property program which means the lender will not even look at the rents. However, the property needs to have an LTV that is lower than 70% LTV. The guarantor, which is the borrower needs a 700 credit score to qualify for a NO DSCR rental property.
Qualifying For An Investor Cash-Flow Investment Property Loan
The great benefit of the investor cash-flow investment loan programs is the borrower’s income does not matter. The lender will only use and underwrite the revenues and debt of the subject property. However, it is a recourse loan, and the borrower’s credit and experience as a real estate investor are important.
Here are the basic eligibility requirements for an investor cash-flow mortgage loan for real estate investors:
- The investor cash-flow rental property loan program is available for purchase and refinance including cash-out refinances
- Up to an 80% Loan To Value
- The borrower’s credit scores need to be at least a 660 FICO for an 80% LTV investor cash-flow loan
- The borrower’s credit score needs to be at least a 660 FICO score for a rate and term refinance
- The borrower’s credit score needs to be at least a 640 FICO for a 70% purchase and/or rate and term refinance
- Borrowers with at least a 700 credit score can do a 75% cash-out refinance mortgage
- The property can close under an LLC
- The minimum loan amount is $100,000
- The loan to value up to one million dollars is 80% LTV
- One to four-unit properties are eligible as well as non-warrantable condominiums
- The borrower needs to own an owner-occupant primary home
- Timely housing payments for the past 24 months
- Four years seasoning after bankruptcy and/or a housing event
- Three credit tradelines that have been seasoned for at least 24 months
- Fannie Mae’s 5 to 10 finance properties do not apply to non-QM loans
- The borrower can own an unlimited number of financed properties
Qualifying For A Non-QM Loan During A Booming Housing Market For Real Estate Investors
Gustan Cho Associates have lending partnerships with over a dozen non-QM wholesale mortgage lenders. The above guidelines are just for one wholesale non-QM investor. We have other non-QM wholesale lenders that have different lending requirements. To learn more about the non-QM mortgage loan programs we have available for real estate investors, please reach out to us at firstname.lastname@example.org. Or call us at 262-716-8151. Text us for a faster response. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays. Gustan Cho Associates have dozens of non-QM wholesale lenders as lending partners.