DSCR Loans have really expanded in recent years, especially in hot rental markets like Nashville. The current median home price is $454,000 in Davidson County according to Redfin. This is up slightly year over year, and over $100K in the last three years.
The DSCR (Debt Service Coverage Ratio) mortgage provides investors with a great way to purchase both short-term and long-term rental properties without having to jump through the many hoops required by standard bank conventional loans.
The elimination of income documentation is the main benefit of DSCR loans. This allows investors to purchase rental properties without having to worry about qualifying for a loan based on their personal income or debt-to-income ratios. Instead, lenders will focus on the credit of the borrower and the rental income of the property to qualify investors.
Most lenders want to see debt service coverage ratios at x1.25 or higher. In some cases, x1.0 ratios are permitted with greater down payments. This means the rental income is enough to cover the total debt service – principal, interest, taxes, and home insurance.
Example: Let’s say Jim is purchasing a property in Nashville to be used as a short-term Airbnb rental. The monthly rental income is $3,000 per month. The monthly debt service payment (PITI) is $2,400 per month. In this example $3,000/$2,400 = DSCR is x1.25
DSCR loans have great rates and terms when compared to other financing alternatives like hard money loans. Investors can expect competitive interest rates along with flexible repayment options.
Nashville DSCR Loan Benefits Include:
- Lower interest rates and longer terms when compared to hard money financing.
- Close in the name of LLC.
- No income or employment documentation.
- Flexible repayment options – interest-only options available.
- Rate/term and cash-out refinance options are available.
- Potential to leverage rental income for additional financing.
- Closings in as little as two weeks.
These loans are perfect for real estate investors looking to purchase long-term rentals along with short-term Airbnb or Vrbo properties in 2024. Read more about all the DSCR purchase requirements here. Have questions? Please connect with us 7 days a week by calling or just submit the Quick Call Form here