DSCR loans provide many benefits and are a useful tool for Florida real estate investors. In this post, we will highlight some things investors should know about DSCR loans in Tampa and provide some insight into loan approval requirements.
The real estate market in Tampa continues to show signs of strength in 2024. Home inventory has improved in recent months, but Hillsborough and Pinellas Counties are still a moderate seller’s real estate market. Basically, the buyer demand is still greater than the supply of homes on the market. The shortage of supply and robust demand is still pushing the prices higher in the Tampa housing market.
Nearly every housing market in Florida has shown pretty strong pricing gains over the last few years, but some are now starting to cool at a more normal pace. However, Tampa remains strong with median values around $392,000, about flat year over year as reported by Zillow.
The Tampa real estate market remains an attractive option for investors in 2023. With higher property values, an expanding population, and popular tourist destinations like Clearwater and St. Petersburg, this area has a lot to offer investors. Tampa is also still seeing growth in its rental market, both long-term and short-term Airbnb-type rentals. Rent increases continue across all rental sectors and the area’s most sought-after neighborhoods are higher than ever.
Investor DSCR Loans in Tampa:
Investors can certainly benefit from DSCR loans with their reduced documentation and streamlined closing process. DSCR (Debt Service Coverage Ratio) loans are designed to provide borrowers with the funds they need to purchase a rental property or finance renovations and repairs. The program is available for both purchase and DSCR cash-out refinance transactions. What makes DSCR loans so different is the borrower is qualified based on the cash flow of the property, not their personal income.
The income documentation required to qualify for conventional bank loans is often difficult for most investors, especially those self-employed. Standard bank loans have strict debt-to-income ratio limits in place and require all income documents like tax returns, pay stubs, and employment history. DSCR eliminates this barrier as personal income is not considered.
With this program lenders and brokers are more concerned about the borrower’s personal credit score and the coverage ratio for the rental property. The coverage rate is the amount of rental income divided by the monthly mortgage payment. This must be at least 1x in most cases to qualify, though lower ratios down to 0.65x (negative coverage ratio) are permitted with a greater down payment.
DSCR Qualifying Requirements & Restrictions:
DSCR purchase loans generally require a minimum 20% down payment for investors with strong credit profiles. Investors with higher down payments can still be approved down to a min 620 credit score. Coverage ratios & credit, among other factors, are what determine the max loan to value. Some of the DSCR benefits for investors include:
- No income or employment requirements (less paperwork and hassle)
- Close in name of LLC or Corp (often preferred by investors)
- No limit on the number of rental properties owned (conforming loans are often limited to 10 loans)
- Long-term and short-term Airbnb -VRBO rentals allowed
- Cash-out refinance transactions up to 75% loan to value
- Flexible terms – long-term fix and adjustable rate, with interest-only mortgage payment options
DSCR mortgages also do come with their share of limitations that investors should be aware of when deciding their best financing option.
- Interest rates on DSCR will typically be 1-2% higher than conventional investor loans
- DSCR loans will have an early payoff penalty or pre-payment penalty. Generally 5 years, but with the option to buy down and reduce to 3 years, etc.
- DSCR loans will require mortgage payment reserves (the amount of savings remaining after the down payment and closing costs) The reserve range will generally be 3-6 months.
DSCR Loan Source is happy to serve investors across Florida, please connect with us by calling the number above, or just submit the Quick Call Form.