I’ve done it and so have my clients. If you haven’t heard of a DSCR loan this is a game changer. The DSCR (or Debt Service Coverage Ratio) qualifies you for a loan based on the gross earnings of a rental property, and is not your based on your personal income (debt to income ratio). If you are thinking about building your portfolio or even getting started with real estate investing here is what you need to know:
- You will likely need to put 20-30% cash down
- They will check your credit score and past tax returns
- Property needs to be rentable, not a fixer upper
- The mortgage payment including property taxes and insurance must be equal to the rent (long term)
- If you are thinking of a short-term rental, you can still use this loan. The loan will still be based on its long-term rental equivalent rent/rental comps
- You can have multiple DSCR loans on different properties (up to 20)
- If it is a duplex, triplex or quadplex, while we call this multi-family, it still qualifies for this loan type, as it is still a residential transaction. (If the property is more than 4 units it is considered a commercial transaction).
- Loan amounts from $100K to $3.5M
- You may not be able to finance this on an LLC or Trust, however you can change it after closing through a Quit Claim deed. Note – that if transferring to an LLC you may need to pay doc stamps again. Ask your attorney about this.
If you have any questions on DSCR loans contact me or your local lender. If you need a lender referral who is great at putting these loans together just let me know!