Wednesday, 28 June 2017 00:00

NO DSCR vs DSCR Ratio Loans

No DSCR and DSCR based loans offer different advantages to investors, depending on their status and the type of property they are acquiring.

DSCR stands for Debt Service Coverage Ratio, which is a fancy way of saying, "is there enough cash flow from the monthly rent to cover the mortgage payment, insurance and taxes?"

What is a DSCR Loan?

When you use a DSCR loan product, you are choosing a loan driven by the ratio of monthly rent to mortgage payment, taxes and insurance. This ratio will drive the size of the loan and the pricing.

What is a No DSCR Loan?

With a No DSCR loan, the same ratio used in a DSCR loan is considered, but it's not the primary consideration for the lender when it comes to the size of the loan and the price. These are asset based loans, based on the value of the property. For example, with a No DSCR loan, you will get up to 70% of the value based on the appraisal with a rate falling within the lender's range. Pricing incentives may be given for good credit scores, loan-to-value, zip code, loan size, term and leased vs. vacant

Which is the Right Choice?

Not all rental property investors will need or even want a No DSCR loan. However, for some, this may be the only way they can invest in the property they plan to buy, and reposition it, or bring it up to a performing level that will qualify for even better terms on long term real estate financing. It's a simple financing option allowing you to use the value of the property instead of the DSCR to get the loan you need.

With a No DSCR loan, you won't need all the typical documentation, either. No W2s, no tax returns, no 4506s and the credit standards are often lower compared to DSCR loans. This type of loan can be used for vacation rentals, single-family homes, multifamily properties, apartment buildings and more. There are a few requirements you will need to meet, such PITI cash reserves. The No DSCR loan program is much easier to qualify for compared to a DSCR loan program, and may be especially attractive for those with hard to prove income, properties which need updating, or lack a track record of delivering income.

Whether you're investing in your first income property, or you've been investing for years, leveraging the No DSCR loan program may be the right choice for you. You can close within three weeks and add new acquisitions to your portfolio without all the hassle.

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