DSCR Loan Options for Investors in El Paso, TX, and New Mexico
A debt service coverage ratio (DSCR) loan is a mortgage loan that helps real estate investors purchase investment properties. Unlike traditional mortgage loans, DSCR loans use the property’s cash flow to repay the loan rather than their personal income. At Rocky Mountain Mortgage Co., our team of mortgage professionals can help you determine if you are a good candidate for a DSCR mortgage loan in El Paso, TX, or New Mexico. Call us now to learn more about how this type of loan can help you purchase your next investment property.
What Is a DSCR Mortgage Loan?
A DSCR mortgage loan is an alternative lending program that allows real estate investors to obtain financing for investment properties or rental properties based on the potential rental income of the property rather than their own personal income. It is considered a non-QM loan. This type of loan is a great option for people who can’t qualify for a conventional mortgage loan or personal loan. It can be used to finance any type of income-generating investment or rental property, including single-family homes, multi-family dwellings, duplexes, apartments, and condos.
How to Qualify for a DSCR Mortgage Loan in Texas
You can qualify for a DSCR mortgage loan without having to use your tax returns or personal income information. This can help you avoid high interest rates and lengthy mortgage loan approval processes. You also won’t be subject to strict lending criteria, as your loan will be determined by your property’s cash flow rather than your income. However, you will have to meet other specific loan requirements:
- Credit Score – Most lenders require a credit score of at least 620.
- Minimum Loan Amount – Most lenders have a minimum loan amount of $100,000.
- Property Appraisal – The property will need to undergo an appraisal to determine its current market value and potential rental income.
- Property Type – The loan can only be used for investment properties that generate rental income. The property must be a non-owner occupied, income-producing investment property that is only used for business purposes. It cannot be used for primary residences.
Calculating a Property’s DSCR
A property’s DSCR is calculated by measuring a property’s current or potential rental income compared to its debt obligations. Debt obligations may include all parts of its annual mortgage debt, including principal, interest, taxes, insurance, and HOA fees. If the DSCR is over 1.0, the property has positive cash flow. If the DSCR is below 1.0, the property has negative cash flow. Your lender will use the property’s DSCR to determine how much of the loan can be covered by the income the property generates. Your lender will not consider expenses like maintenance, utilities, repairs, property management, or vacancy rates. You can improve your DSCR before applying for a loan by:
- Increasing the rental income and occupancy rates of the property
- Minimize vacancies
- Refinance existing loans at lower interest rates
- Increase the value of your property through renovations or upgrades
- Managing your expenses
Benefits of DSCR Home Mortgage Loans
A DSCR loan can provide you with new revenue streams for rental income properties. A DSCR loan may be easier to qualify for when compared to traditional mortgage loans or personal loans. Other benefits are:
- More accessibility, as your eligibility is determined by the property’s DSCR rather than your personal finances
- The application and approval process is more streamlined, with faster closing times
- You have the opportunity for unlimited cash-out to cover expenses like repairs
- There is no limit to the number of properties you purchase at one time
- All types of income-producing rental properties are eligible
- An LLC can be used to purchase the properties in order to protect your personal assets
- Jumbo DSCR loans are available
- Qualification requirements are more flexible
How to Apply for a DSCR Loan
Our experienced mortgage professionals can help you apply for a DSCR loan. We use a simple, straightforward, and streamlined application process. Our team will provide guidance and support from start to finish. While every lending situation is different, the general application process is as follows:
- Finding a Lender or Getting Pre-approved – Once you have found a reputable lender, you may be able to get pre-approved for a DSCR loan.
- Gathering Necessary Documentation – Gather up any documentation you will need throughout the application process. This may include a credit report, purchase contract for the property, a property management agreement, income statements, insurance verification, owner verification, title order, and rental history, rent roll, or rental agreements with existing tenants.
- Scheduling a Property Appraisal – Next, you will need to schedule a property appraisal to determine the property’s value and potential income.
- Calculating Your DSCR – You or your lender will then calculate the property’s DSCR ratio by using the lesser of the annual rental income of the property and the appraiser’s comparable rent schedule. We will divide that by the annual debt for the property, which is the total annual principal, interest, taxes, insurance, and HOA payments.
- Applying for the Loan – You will then complete your loan application with a member of our team.
- Approval and Funding – The approval process is quick, which allows you to lock in your interest rate and get funding quickly.
How to Apply for a DSCR Loan
At Rocky Mountain Mortgage Co., we are a top-rated mortgage company with experience in all types of real estate, investment property, and rental property loans. Call us now or contact us online to explore your options for a DSCR mortgage loan in El Paso, TX, or New Mexico. Our mortgage professionals will answer any questions you have, help you explore all potential lending opportunities, and guide you through the loan application process. We do everything possible to make the process as straightforward and stress-free as possible.
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