DSCR Loan
A Debt Service Coverage Ratio loan, known as “DSCR”, is the ratio of rental income available to pay your monthly for principle, interest, taxes, insurance, and HOA payments on a property. It is a popular benchmark used in the measurement of a properties ability to produce enough cash to cover it’s debt payments.
- Use rental income to qualify
- Purchase, Cash-Out Refinance, or Delayed Financing
- Loan amounts down to $55k and up to $10m+
- Unlimited Properties
- Fund Into Corporation or LLC
- No Pre-Pay Options
- Up to 85% LTV for purchase and 80% for Cash-Out Refinance
Appointment
Unlocking Your Financial Potential Starts with a Conversation
Navigating the world of real estate financing can be complex. A personalized consultation with one of our specialists is the key to ensuring you’re fully aware of your financing options and making informed decisions to reach your goals.
- Personalized Assessment:
Our financing specialists begin by understanding your unique financial situation and real estate goals. This tailored approach ensures that the financing solution recommended aligns perfectly with your needs.
- Transparent Guidance:
No confusing industry jargon here. During the consultation, we break down complex concepts into clear, understandable terms. You’ll have a complete understanding of the mortgage process, rates, and terms.
- Customized Solutions:
Every borrower is different. Our specialists work to find the best possible mortgage solution for you, taking into account your financial goals, credit history, and current market conditions. We aim to make your homeownership journey as smooth and affordable as possible.
F. A. Q's
Frequently Asked Questions
DSCR loans, also known as Debt Service Coverage Ratio loans, are a unique financing choice for real estate investors. Unlike traditional loans, DSCR loans focus on property cash flow rather than personal income and credit. Here are the top 5 questions about DSCR loans we often hear from our clients.
DSCR stands for Debt Service Coverage Ratio. This type of mortgage is specifically designed for investment properties. Instead of focusing on your personal income like traditional mortgages, DSCR loans prioritize the potential rental income of your investment property. It assesses whether the property earnings can comfortably cover the loan repayments, making them ideal for investors with complex financial situations.
To qualify for a DSCR loan, borrowers must demonstrate that the property they want to invest in can generate enough rental income to cover monthly mortgage payments and other costs such as taxes, insurance, and maintenance. Usually, lenders look for a DSCR of at least 1.25, which means rental income should be 25% higher than the total monthly loan payment.
To calculate your DSCR, divide the property's estimated gross monthly rental income by your total monthly loan payments (principal, interest, interest, taxes, & HOA fees). For example, if your monthly rental income is $2,000 and your total loan payments are $1,500, your DSCR would be 1.5. This indicates that the property can comfortably cover your loan payments. Your qualifying rental income can be verified by either a lease agreement, rent appraisal, or for a short term rental, the last 12 month rental history of the property.
The key advantage of DSCR loans is their easy qualification process. It does not focus on the investor's personal income situation. Instead, it calculates the monthly rental income of the investment property to see if it can repay the loan amount and meet other expenses. Also, fewer documents are required to qualify for a DSCR loan compared to a traditional mortgage loan. However, DSCR loans typically have higher interest rates due to the potential increased risk for lenders, and therefore require a higher down payment. The property must have strong rental income potential and meet specific criteria to qualify.
DSCR is a specialized loan type offered by a limited number of lenders. At Sparrow Capital, we specialize in DSCR loans and can help you navigate the entire DSCR loan process.
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