INVESTMENT PROPERTY LOANS HIGHLIGHTS
Northeastern Realty offers a Debt Service Coverage Ratio (DSCR) loan program with no personal income verification required. Instead, we use the investment property’s projected rental income to qualify you. This loan program is very popular amongst real estate investors. Many of our clients use this program for investments into long term rentals or even short term rentals such as AirBnB.
Northeastern Realty offers 4 different DSCR loan options for real estate investor borrowers using the prospective rental income of the property, rather than the borrower’s income, to qualify.
Yellow
* 620+ FICO up to 80% LTV
* Loan amounts up to $2M
* Minimum debt service coverage ratio of 0.00
* Eligible on investment purchases, rate/term and cash-out refinances
* Finance up to 20 properties
* Minimum of 6 months’ reserves required
* Pre-payment penalty options: 3/2/1, 2/1, 1/1
* Appraisals from two different appraisers required for loans over $1.5M
* Eligible to close in an LLC (Limited Liability Company)
Pink
* 660+ FICO up to 80% LTV
* Loan amounts starting at $50,000 up to $3M
* Minimum debt service coverage ratio of 1.00
* Eligible on investment purchases, rate/term and cash-out refinances
* No limit on the number of financed properties
* Minimum of 3 months’ reserves required
* Pre-payment penalty options: 3/2/1, 2/1, 1/1
* Eligible to close in an LLC (Limited Liability Company)
Orange
* 660+ FICO up to 80% LTV
* Loan amounts starting at $75,000 up to $2M
* Minimum debt service coverage ratio of 0.00
* Eligible on investment purchases, rate/term and cash-out refinances
* Finance up to 20 properties
* Minimum of 3 months’ reserves required
* Minimum of 6 months’ reserves required for loan amounts greater than $500,000
* Pre-payment penalty options: 3/2/1, 2/1, 1/1
* Appraisals from two different appraisers required for loans over $1.5M
* Eligible to close in an LLC (Limited Liability Company)
Blue
* 660+ FICO up to 70% LTV
* Loan amounts starting at $100,000 up to $2M
* Minimum debt service coverage ratio of 1.00
* Eligible on investment purchases, rate/term and cash-out refinances
* Finance up to 4 properties
* Minimum of 12 months’ reserves required
* Additional 6 months’ reserves required per financed property
* Pre-payment penalty options: 3/2/1, 2/1, 1/1
* Appraisals from two different appraisers required for loans over $1.5M
Frequently Asked Questions and Answers to DSCR Loans
There are two main components used to calculate the DSCR:
- Gross Rental Income
- Total Debt Service or Total Monthly Mortgage Related Expenses
To calculate the debt service coverage ratio, substitute the income and expenses for your particular rental property’s situation.
The DSCR formula is: Net Operating Income (NOI) ÷ Debt Obligations.For instance, Net Operating Income/NOI is typically calculated using Earnings before interest, taxes, and amortization (EBITA). This means that you should not deduct taxes, interest, or other costs from your NOI calculation before entering it into the DSCR formula.
A DSCR loan is a measure of the cash flow a borrower has to pay against current debt obligations for an investment property. A DSCR loan is a type of non-QM loan used by real estate investors to help them qualify for a loan based on their property’s cash flow, without having to verify personal income.
While there are no formalized industry standards, most lending institutions consider a DSCR at or above 1.25 to be strong. In most cases, lenders want to see a DSCR of at least 1 unless there are extenuating and extraordinary circumstances that may offer large compensating factors. A DSCR of 1 means that the income generated by the rental property only covers the costs of maintaining the property. If the DSCR ratio is at least 1.25, the borrower will have more of a financial cushion.
Credit score: Lenders typically require a minimum credit score of 680 for a DSCR loan. However, the higher your credit score, the better your interest rate and loan terms will likely be. Down payment: DSCR loans typically require a down payment of 20-25% of the purchase price.
The size of the down payment will depend on the lender, but the average is 20%. Down payments help to reduce the risk that the lender is taking by loaning you a large sum of money. For DSCR loans through LBC Mortgage, the minimum down payment accepted is 20%.
A DSCR loan is a good option for both novice and veteran real estate investors because it allows them to qualify based on rental income instead of personal income.
DSCR Loans are a potential solution investors in residential real estate rentals, making them perfect for a wide range of situations. Whether you’re a first-time investor or an experienced pro looking to expand your portfolio, DSCR Loans may be a good solution for your purchase or refinance
A DSCR loan can be used to acquire an investment property, but it’s generally not feasible to use it to buy a primary residence, given that a personal dwelling doesn’t typically generate income. DSCR loans necessitate enough income to offset the payment.
Commercial DSCR loans are an option for commercial and residential real estate used for business purposes. Although it is recommended that you hold real estate in an LLC, it is not required that the property be held in an LLC as long as you can demonstrate that the loan is for business purposes.
