Don’t be Spooked when buying a rental

Don’t be Spooked when buying a rental –

We have connected with Michelle Schmidt from Movement Mortgage who has provided information from a lenders perspective on DSCR Loans.

Here’s what she has to say: 

DSCR loans, or Debt Service Coverage Ratio loans, are typically used in commercial real estate and investment properties. The DSCR is a financial metric that measures a property’s ability to generate enough income to cover its debt obligations. Follow along for a quick breakdown.

Key Points about DSCR Loans:

1. DSCR Definition:
   • DSCR = Net Operating Income (NOI) / Total Debt Service (TDS).
   • A DSCR of greater than 1 indicates that the property generates more income than needed to cover debt payments.
2. Importance:
   • Lenders use DSCR to assess the risk of a loan. A higher DSCR suggests lower risk, as the property is more likely to generate sufficient cash flow.
   • 20% – 35% down depending on the scenario to get the DSCR ratio to work.
3. Common Ratios:
   • A DSCR of 1.2 is often considered a minimum for many lenders, meaning the property generates 20% more income than required to meet debt obligations.
4. Types of Properties:
   • Commonly used for single family residence, multifamily units, and other income-generating properties.
5. Loan Terms:
   • Interest rates and terms can vary based on the DSCR, property type, and borrower profile.
6. Considerations:
   • Lenders may require detailed financial documentation to calculate the DSCR accurately. The appraiser provides a rent schedule to determine the allowable rent.

If you are considering purchasing a rental property and want to learn more about your options, have specific questions or just  need more details, don’t hesitate to connect with us and ask. Connect with us here  or directly with Michelle by visiting here.