Have you ever worked with a DSCR loan?
Do you have any idea how they work?
Will they help my clients?
When I am asked the questions above I answer the with the following:
Yes.
Yes.
Yes.
Those are three of the many questions that I am often asked when this loan program comes up for agents looking for a loan program that can help their clients interested in a listed property.
NON QM programs in general are getting very popular in this market. Bank Statement Loans and DSCR loans are where many buyers who may not qualify for a conventional loan based on their tax returns can qualify with a NON QM mortgage.
Newer investors and established investors can both take advantage of this type of loan. The DSCR loan helps many newer investors that are looking to get started as they want to look for options outside the stock market. Also recently, as home prices have come in a bit, more seasoned investors are also coming back out to take advantage of opportunities where they find value.
For the right investors this loan is very useful. Some of the reasons why this program may be the right solution are the following:
1 Tax Returns are not required.
2 Properties can be in LLC's name.
3 No limit on the amount of properties owned.
4 Non Warrantable Condos allowed.
Below is an example using estimated figures to help illustrate how my estimated numbers might work. NOTE*** Each situation is unique and I would love to walk through any examples someone inquiries about. I find this spreadsheet snapshot below is a great help for my clients to see how the calculations might look on an approvable loan. Note that programs do have differences from lender to lender but they typically look to see if the DSCR can be positive or greater than 1.0% or more. The number that each lender sets is what determines if a the loan is a pass or fail.
Another note is that often times a larger down payment towards the purchase can help increase the DSCR Ratio (Debt Service Cashflow Ratio) to where it is a passing ratio.
So in this example, we start with a monthly rent of $3,300. Then we need to subtract $400 monthly for property taxes and $200 monthly for homeowners insurance. This would leave us cash flow of $2,700 per month. The monthly debt service of principal and interest is $2,655.11. When you divide the $2,700 into the P&I payment of $2,655.11 you get 1.02% for your DSCR Ratio. This example would be a loan that would be approvable based on these numbers. Hopefully this is helpful.
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