DSCR Rental Loans For Investors:
Debt Service Coverage Ratio (DSCR) loans have become very popular with Florida real estate investors in recent years. DSCR programs are unique because they allow real estate investors to use the cash flow from a rental property to qualify and purchase a property.
Whether it’s a long-term rental or short-term rental like Airbnb or VRBO, DSCR loans provide an excellent alternative to traditional conventional mortgages. This is primarily because the investor’s personal income is not used for qualifying. Many real estate investors are self-employed and have complex tax returns, thus having difficulty proving the income required by standard conforming bank loans.
DSCR loans eliminate the need to show any income, or employment for that matter. With a DSCR mortgage, the lender uses the property’s income for qualifying, not your personal income.
Lenders refer to DSCR in decimals. For example, a house that brings in 15% more income than is required for the payment has a DSCR of 1.15 or 1.15x.
See below for some DSCR calculation examples. *Note: The payment used for the DSCR calculation should be the total of the principal, interest, taxes, insurance (PITI), and HOA dues if applicable. For investment properties, do not include things like property management fees, utilities, lawn care, or other costs not directly related to the monthly payment.
DSCR = Income / Payment
Example #1: John is purchasing a property in Orlando for $375,0000
- John will receive $2,500 in rental income and a $2,000 payment.
- DSCR = $2,500 / $2,000
- DSCR = 1.25
Example #2: Sally is purchasing a property in Tampa for $425,0000
- Sally will receive $2,700 in rental income and a $2,700 payment.
- DSCR = $2,700 / $2,700
- DSCR = 1.0
Most lenders prefer at least a 1.0-1.25 ratio to take advantage of the best terms, so this property is a good candidate for a DSCR loan. In fact, a negative DSCR as low as 0.65 is also permitted with a greater down payment.
Example: How higher rent can improve DSCR
| Rental Income | Payment | DSCR |
| $3,000 | $2,400 | 1.25 |
| $3,200 | $2,400 | 1.33 |
Example: How lower payment can improve DSCR
| Rental Income | Payment | DSCR |
| $3,000 | $2,600 | 1.15 |
| $3,000 | $2,300 | 1.30 |
Keep in mind that some lenders can calculate DSCR differently. For example, a calculation of 1.5 is excellent and shows a strong ROI on the property. 1.25 is still a good number for most lenders, while 1.0 means that the property is earning the same amount as the loan obligation.
Lenders understandably want the property to make money, so even if the number is 0.65, there are still other options available to help you get a real estate investment loan.
Most purchase DSCR loans require a 15%-20% down payment. Depending on risk factors like the final DSCR, borrower’s credit profile, etc, the down payment amount can vary.
- Rate & Term DSCR loans are available up to 80% loan to value
- Cash-out refinance DSCR is available to 75% LTV
- Regular DSCR loans from $75,000 – $1,000,000
- DSCR jumbo loan amounts up to $3.5 million
Florida DSCR Loan Benefits:
- No income or job history is required. Personal income calculations are NOT used to qualify.
- No limit to the number of investment properties owned or financed.
- Low debt service coverage ratio qualifications down to 0.65 (negative cash flow permitted)
- Close a loan in the U.S.-based corporation, LLC, and/or partnership.
- Loan amounts up to $4 mil.
- Cash-out refinance up to 75% LTV. No 12-month seasoning is required for cash-out transactions.
- Investment properties only. SFR, Townhomes, Multi-unit (8), and non-warrantable condo investments are allowed.
- Airbnb short-term rental income is allowed.
- Interest-only (IO) loan payment is available.
- Credit score as low as 620 permitted.
- First-time real estate investors are permitted.
- Only limited reserves are required.
- Gift funds are permitted. *The borrower must have 5% of their own funds.
At Five Stars we help many investors acquire their investment homes. We offer the highest loan-to-value at the lowest rates for our investor mortgage loans. Whether it’s a short-term Airbnb rental or long-term rental property, or just a home you plan to fix & flip, Five Stars can help you get the financing fast.
We have a huge range of products ranging from long-term 30- year fix rates, ARM, and Interest only products at very low rates. We focus on partnering with investors to be able to provide them with a loan that fits each personal scenario. Investors keep coming back because we can close quickly and they know we get them the lowest rates possible.
We are proud to serve investors in most states including all major markets in Florida: Jacksonville, Orlando, Naples, Tampa, Gainesville, Destin, West Palm, Daytona Beach, and Miami
Questions? Please connect with us by submitting the short Request Contact Form or call Ph: 888-705-1975. Our DSCR loan specialists are available 7 days a week to serve you.