DSCR Loans

Debt Service Coverage Ratio loans empower limitless property ownership, swift approval, and minimal down payment, making them a superb investment choice for financial freedom

Apply Now

Expand your portfolio with a DSCR program

Why consider a BridgeWise DSCR loan?

Untitled design (9)

Simplicity

Qualify based on property rental income, not personal financial documents like W2s

Untitled design (10)

Creative

Rental income can be based off vacation rentals and short term leases (Airbnb & VRBO)

Untitled design (11)

Inclusive

All levels of real estate experience welcome, great option for first time investors

Debt Service Coverage Ratio Loans: What are they?

DSCR (Debt Service Coverage Ratio) loans are a financing option specifically designed for real estate investors, allowing them to evaluate rental property investments differently from traditional mortgage lending. Unlike conventional loans that primarily rely on the borrower's personal income and credit history, DSCR loans focus on the property's income potential. This means that the lender assesses whether the rental income generated by the property can cover the mortgage payment, insurance, property taxes, and other associated costs.

DSCR loans free investors from the constraints of personal income and credit history, providing more flexibility for those with lower credit scores or those looking to expand their rental property portfolios. Additionally, DSCR loans allow investors to finance multiple rental properties without hitting the income limits they might encounter with traditional mortgages. Overall, DSCR loans can expedite the approval process, offer more versatility, and cater specifically to real estate investors, making them an attractive option for those seeking to maximize their investment opportunities in the real estate market.

Application Requirements

  • Typically a minimum down payment of 20%.
  • Credit score of at least 660.
  • Demonstrate a payment history of at least 12 months for either mortgage or rent.
  • Possess reserves sufficient to cover six months' worth of payments.
  • Ensure your total annual rent can cover principal, interest, insurance, property taxes, and HOA fees (if applicable).
  • Embrace flexibility with both long and short-term rentals, including Airbnb.

Additional Features of DSCR Loans

Loan Features Details
Property Type SFR and Multi family 1-4 units
Income Verification No income or job history verification required
Property Limit No limit on the number of properties
Loan Amounts Loan amounts up to $5,000,000 (Minimum loan amount: $100,000)
DSCR Threshold DSCRs as low as .75% (Under .75 DSCR can be considered on an exception)
Target Audience Suited for new and seasoned real estate investors

 

Documents

Throughout 2023, BridgeWise Lending has been actively engaging with the real estate investment community, offering valuable insights into DSCR loans on platforms like BiggerPockets. We've discussed various aspects, from interest rates and terms to FAQs and new developments, such as extending DSCR loans to five- to 10-unit multifamily properties.

Today, we delve into another crucial facet of DSCR loans: the documentation requirements. One of the most appealing features of DSCR loans for investors is their streamlined documentation process compared to traditional lending options. While they are not "no doc" loans, they significantly reduce paperwork and hassle. It's important to clarify misconceptions about DSCR loans, ensuring borrowers understand they are not akin to the poorly documented loans of the past, like the infamous "NINJA" loans.

DSCR loans are secured by residential real estate turnkey properties, solely for business purposes and primarily evaluated based on the property's potential. Here are some key points about DSCR loans:

  • They are secured mortgage loans for residential properties, excluding commercial real estate.
  • They are strictly for business purposes, with no allowance for owner occupancy.
  • The evaluation considers the property's investment potential but also factors in the borrower's credit and liquidity.
  • They are exclusively for turnkey properties, excluding those needing significant renovations.

It's crucial to emphasize that DSCR loans are far from the loosely originated loans of the past. They follow strict underwriting standards, limiting loan-to-value ratios and ensuring conservative evaluations of rental performance. Furthermore, DSCR loans typically offer fixed-rate, 30-year mortgages, avoiding the complexities of exotic loan structures.

Now, let's explore the documentation requirements for DSCR loans:

  1. Application: BridgeWise Lending provides a streamlined application tailored for DSCR loans, focusing on essential information like property details and financial profiles.

  2. Credit Authorization: Borrowers authorize credit reports, crucial for assessing their financial history and real estate debt.

  3. Bank Statements: Typically, two months of bank statements are required to demonstrate minimal liquid assets, ensuring stability in debt service payments.

  4. Property Insurance: BridgeWise Lending mandates adequate insurance coverage against property damage or destruction, protecting both the borrower and the lender.

  5. Leases: For leased properties, copies of leases must be provided, ensuring clarity on rental terms and income.

  6. Short-Term Rental History: For properties used as short-term rentals, recent booking records are necessary, showcasing income stability.

  7. Entity Documents: If borrowing through an LLC, specific entity documents are required, ensuring compliance with legal structures.

  8. Renovation Documentation: For properties undergoing renovations, detailed documentation of the work is necessary, including receipts and invoices.

While additional documents like appraisals and title insurance are handled by BridgeWise Lending, the overall documentation process for DSCR loans remains reasonable and straightforward. This ensures thorough underwriting without overwhelming borrowers with paperwork, making DSCR loans an attractive option for investors seeking financial growth through real estate.

#FAQS

Frequently Asked Questions

Have Question? We are here to help

How does a DSCR loan work?

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.

Is DSCR a hard money loan?

Hard money loans offer short-term financing and are secured by the property, while DSCR loans are based on the property's cash flow and offer longer repayment terms. Speak with a reputable lender to determine which loan is the best fit for your investment strategy.

How much do you need to put down for a DSCR loan?
10-25%
 
Down payment: DSCR loans typically require a down payment of 20-25% of the purchase price. However, some lenders may offer lower down payment options to borrowers with strong credit and experience with investment properties.
Are DSCR loans easy to get?

DSCR loans do require decent credit scores. However, you can get a debt service coverage ratio loan with a score of 620 and above. Naturally, the higher your credit score, the better your interest rate and loan terms are likely to be.

How long do DSCR loans take?

At BridgeWise Lending, we aim to close on DSCR loans in 30 days or less, however the exact timeline will vary based on factors like the complexity of the loan, the loan amount, and whether the borrower and property being financed meet all qualifications.

What documents are required for a DSCR loan?

In order to determine your eligibility for a DSCR loan, lenders will typically require documentation such as bank statements, leases, and an appraisal. These documents help them assess your property's cash flow and evaluate your ability to repay the loan.

Ready to Apply?

Submit Application