If you’re a real estate investor in Gainesville, you’re probably considering different types of loans to finance your rental home purchase. One popular loan option is the DSCR “debt service coverage ratio” loan. DSCR loans are a type of investor loan that select lenders offer to investors who want to purchase income-producing properties. Whether it’s a long-term or short-term rental property like Airbnb or VRBO, DSCR is a popular option that comes with some good benefits.
Current Rental Market in Gainesville:
Before you invest in any rental property, it’s important to understand the current rental market. As of 2023, the median rent price in Gainesville and Alachua County is nearly $1,700 per month according to Rentcafe. If you’re looking to invest in the student housing market, the average rental price for a two-bedroom unit near the University of Florida is even greater. For long-term rentals, the city has a low vacancy rate, making the market competitive for landlords.
Median Sales Price in Gainesville:
In addition to understanding the rental market, it’s important to consider the median sales price in Gainesville. According to Zillow, the median home value in Gainesville, FL is $289,000. This price represents an increase of 6% over the past year, indicating that the market is still experiencing growth.
DSCR Loan Benefits:
DSCR loans offer some nice benefits for investors, let’s take a look at some of the highlights below. Please visit the DSCR Purchase page to learn more.
- Unlike standard conventional bank loans, DSCR mortgages do not consider personal income or debt-to-income ratios in order to qualify. This makes approval easier for investors who may have difficulty documenting personal income with tax returns and W2s that will be required with conventional loans. Instead, lenders focus on the coverage ratio of the property itself.
- DSCR also permits investors to close in the name of their LLC, something often not permitted with conforming bank loans.
- DSCR interest rates and borrowing costs are often lower than “Hard Money” alternatives.
- First-time investors are welcome to apply.
- No hard credit pulls.
- Standard 30 and 15 Year fixed interest rates along with all the common 5/7/10-year ARM options are available.
- Single Family Homes, Condominiums, and muti-unit homes are all eligible for financing. Short-term rentals like Airbnb, VRBO, etc
- DSCR is great for investors seeking to refinance out of a short-term hard money loan.
- Higher cash flow potential: Because DSCR loans are structured based on the potential rental income of the property, (not personal income) they offer a higher cash flow potential for investors.
- Streamline closing process, often completed in two weeks.
Things to Consider When Applying for a DSCR Loan:
- Property Location: The location of the property will play a major role in determining the potential rental income and cash flow potential of the property. Many lenders will steer clear of approving properties in designated rural locations.
- Down Payment: Many brokers and lenders will require a minimum 20%-25% down payment. The exact amount will depend on factors like the coverage ratio of the property, credit, etc.
- All borrowers should have a minimum 620 credit score to be eligible.
- Only investment properties are eligible – no primary or vacation homes are eligible.
- Non-warrantable Condo financing is only on a case-by-case basis.
- A pre-payment penalty of generally 5 years, but with an available 3-year buy-down option.
- Interest rates are higher, typically 1%-2% when compared to conventional loans.
- Investors will need to document cash reserves, generally 2-6 months.
- Minimum loan amount of $100,000
DSCR debt service coverage ratio loans can be an attractive option for investors looking to finance income-producing properties in Florida. While these loans have their pros and cons, the easy approval process often makes them worthwhile for borrowers that have trouble providing all the documentation required by standard loans. Understanding the current rental market and what lenders look for in a borrower can help you determine if a DSCR loan is the right option for you.
Want to learn more or apply for a DSCR loan? Please connect with us by calling the number above, or just submit the Quick Call Form on this page.