DSCR, also known as Debt Service Coverage Ratio loans has been pretty popular in recent years with real estate investors in Texas. This type of loan is unique in that it uses a property’s net rental income and not the borrower’s personal income to qualify. Understanding DSCR rental loans can help investors close on properties faster and scale their businesses more efficiently. Let’s review the details below.
Long-term and short-term rental sales account for nearly 1/3 of all real estate sales in some parts of Texas. Dallas, Houston, and Austin have continued to be strong markets, especially for short-term Airbnb -VRBO properties. Many investors have found success in taking advantage of DSCR rental loans.
A DSCR loan is based on the property’s net rental income and that figure is compared to the annual debt service payments on the loan. Lenders generally like to see the Debt Service Coverage Ratio (DSCR) at x1.0 or greater to qualify for a loan. In other words, the borrower should be able to demonstrate that they can cover their monthly mortgage payments with the rental income of the property.
Example: The investor is purchasing a long-term rental property in Austin, TX and the monthly rental income is $3,000 per month. The monthly mortgage debt payment is $2,400 per month. In this example $3,000/$2,400 = DSCR is x1.25.
It should be noted that only principal, interest, taxes, home insurance (PITI), and HOI (if required) are included in the payment. Not included are expenses like property management fees, utilities, etc.
Normal DSCR purchase loans require a 20%-25% down payment. Cash-out refinance options are available up to 75% loan to value. The exact down payment and/or LTV limits will depend on different factors like the investor’s credit score, coverage ratios, etc. This program is also available for negative cash flow DSCR down to 0.65% for investors with a greater down payment beyond 30%. Please contact us for details.
Texas DSCR Loan Benefits:
- No personal income is required to qualify. It’s no secret that standard conventional bank loans require full income and asset documentation for loan approval. This is often a huge barrier for many self-employed investors. Investors must meet strict debt-to-income requirements in order to be approved for regular conforming loans. DSCR eliminates this and does not require personal income, no tax returns, pay stubs, W2s, or even active employment. Investors qualify strictly on their personal credit and the coverage ratio of the property.
- Investors can close in the name of their LLC or Corp – something not permitted for most conventional loans. Additionally, there is no limit to the number of properties financed.
- No 12-month “seasoning” requirements for cash-out refinance. Great for investors that must refinance out of short-term hard money loans.
- Loan terms up to 40 years with a 10-year Interest Only option.
- Negative DSCR loan options are avaialble.
- Up to 80% financing for DSCR purchase and rate and term refinance for 720+ credit.
- Up to 75% loan to value for cash-out refinance for 740+ credit.
- Loan amounts from $75,000 up to $2m + for Jumbo DSCR in 2024.
- First-time investors are welcome to apply.
Investors who want to learn more about rates and qualifying can connect with us 7 days a week by calling or Get Started Here.
We are happy to serve investors throughout TX including San Antonio, Fort Worth, Corpus Christi, and Plano