No Personal Income Needed

grow Your Portfolio With DSCR Loans

DSCR (debt service coverage ratio) loans are evaluated based on the property’s rental income, not the applicant’s personal income.

So your portfolio’s growth isn’t constrained by your personal income and there’s no limit to number of properties you can own.

Approval is faster and easier too because there’s no painful personal income verification.

You can close in an LLC with as little as 20% down — even using short term rental income.

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The Secret to Growing a Personal Real Estate Portfolio DSCR Loans

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What you’ll need to access the world of DSCR.

A credit score of at least 660.

At least 12 months’ history of paying either mortgage or rent payments.

Your total annual rent should cover your principal, interest, insurance, property taxes and HOA fees (if applicable).

A minimum of 20% down payment.

Reserves to cover 6 months’ worth of payments.

Long and short term rentals like Airbnb are ok.

  1. Calculating DSCR:

    • DSCR is calculated by dividing the property’s Net Operating Income (NOI) by its Total Debt Service (TDS). The formula is typically expressed as follows:

      DSCR = NOI / TDS

    • NOI represents the income generated by the property after deducting all operating expenses (e.g., property taxes, insurance, maintenance, and management fees).

    • TDS includes all debt-related payments, such as interest and principal on the mortgage loan.

  2. DSCR Requirements:

    • Lenders have specific DSCR requirements that borrowers must meet to qualify for a loan. For example, a lender might require a minimum DSCR of 1.20, meaning that the property’s NOI should be at least 120% of the annual debt service.
  3. Property Analysis:

    • Borrowers need to provide detailed information about the property, including its current and projected income, operating expenses, and occupancy rates. Lenders assess the property’s income-generating potential to determine if it meets their DSCR requirements.
  4. Loan Terms and Interest Rates:

    • The terms of a DSCR loan can vary depending on the lender, property type, and borrower’s financial profile. Interest rates are often higher for commercial loans compared to residential mortgages.
  5. Down Payment:

    • Borrowers are typically required to make a substantial down payment on a DSCR loan. The exact amount varies depending on the lender and the property type.
  6. Creditworthiness:

    • Lenders evaluate the borrower’s credit history and financial stability. A strong credit profile can improve your chances of qualifying for a DSCR loan.
  7. Due Diligence:

    • Lenders conduct due diligence, which may include property appraisals, inspections, and legal reviews. This process helps ensure that the property’s value and condition align with the loan terms.
  8. Loan Approval and Closing:

    • If the lender is satisfied with the property analysis, borrower’s creditworthiness, and due diligence results, they will approve the loan. Borrowers then proceed to the loan closing, where they sign the necessary documents and complete the transaction.
  9. Property Management:

    • After obtaining the DSCR loan, borrowers are responsible for managing the property to maintain its income-generating potential and ensure the property’s DSCR remains at or above the lender’s required threshold.
  10. Loan Repayment:

    • Borrowers are required to make regular payments on the loan, which include both interest and principal. The loan term and repayment schedule are specified in the loan agreement.
  11. Monitoring DSCR:

    • Lenders may periodically review the property’s financial performance to ensure that the DSCR remains in compliance with the loan agreement. If the DSCR falls below the required threshold, the borrower may need to take corrective action, such as increasing rental income or reducing expenses.

DSCR loans are commonly used in commercial real estate financing because they provide lenders with a clear measure of a property’s ability to service its debt. Borrowers must demonstrate that the property’s income is sufficient to cover the loan payments, providing assurance to lenders that the investment is financially sound.

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