Use DSCR Loans to Grow Your Rental Portfolio in Florida
Real estate investors in the Sunshine State are using debt service coverage ratio (DSCR) loans to expand their portfolios. DSCR is calculated by taking the monthly rental income and dividing it by the property's monthly debt obligations including principal, interest, taxes, insurance, and association dues (PITIA). The final debt service coverage ratio is essentially an indicator to the lender of a borrower's ability to repay their loan. Many lenders have a minimum DSCR of 1.2, which indicates positive cash flow.
DSCR loans are ideal for self-employed investors or investors with large portfolios. Rather than document income or employment history, DSCR loans enable real estate investors to use rental income as income coverage. Let's take a closer look
Florida DSCR Loans Look at Cash Flow Rather than Personal Income Verification
Traditional mortgages focus heavily on debt-to-income ratio (DTI) and require substantial documentation including pay stubs, employment history, bank statements and tax returns. Meeting debt-to-income ratio requirements for a traditional loan can be tricky for investors with multiple mortgaged rentals. On the other hand, DSCR loans have loan eligibility based on a minimum credit score and are underwritten using the property's income potential.
Florida DSCR Loans Offer Flexible Terms and Fees
With a DSCR loan, borrowers can take advantage of full 30-year terms with no balloons. Most DSCR lenders will also have the optionality for interest only loans, rate buy- downs, prepayment penalty buy downs, and rate structure choices. It is great for investors to be able to tailor their DSCR loan program to meet their investment needs. For instance, investors planning to hold onto their rental property long term can choose a fixed rate and pay higher fees, while investors who might sell in the near future can select an ARM rate structure and buy down their prepayment penalty.
Florida DSCR Loans Have More Flexible Common Sense Limitations on Number of Mortgaged Properties
For the professional investor looking to build a large real estate portfolio, a DSCR program is ideal. Most traditional lenders max out borrowers at ten loans. Instead, when evaluating qualifications for a DSCR loan, lenders will use common sense to evaluate an investor's maximum credit exposure.
Florida DSCR Loans Require Far Less Documentation
A conventional loan has stringent documentation requirements including requiring complicated income statements and submitting tax returns. Since a DSCR loan primarily checks to see if the property has enough rental income to cover the debt obligation, there is far less documentation. Rather than look at your job history, DSCR loans look at rental property income potential.
