There are different ways to finance investment properties. Most people just think of a conventional loan and know they need to qualify for the mortgage with their current income.
There is another mortgage option called a DSCR loan (debt service coverage ratio). This is an investor cash flow loan that allows you to qualify for an investment property based on the rental property’s cash flow, not your tax returns or other financial paperwork.
A DSCR loan looks at the rental income and the payment on the loan. You want to have a good DSCR ratio. The formula is:
DSCR = Monthly rental income/PITIA (principal, interest, taxes, insurance and association dues)
We don’t look at any other income on the file. We also don’t consider any other liabilities. You can use this loan for your first investment property or if you have many rental properties.
These loans are great for those with a large rental portfolio. Because we aren’t looking at other income, for those with huge tax returns and multiple companies, it can be a great way to simplify qualifying for an investment property. You can close in an LLC, Corporation or a Partnership.
This is considered a non-QM product meaning it is a non-qualified mortgage. This means the loan doesn’t meet the requirements of a qualified mortgage based on standards set by the Consumer Protection Bureau. Typically this means higher interest rates but for some buyers this may make sense. Talk with your loan officer and see if this loan might make sense for you.
Leslie Vanderwerf, NMLS ID#335509, CrossCountry Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website
