INVESTORS

DEBT SERVICE COVERAGE RATIO

• A Debt Service Coverage Ratio (DSCR) loan allows investors to qualify based on the property cash flow instead of their individual ability to repay.  
• DSCR is a representation of the property’s expected cash flow based on the appraiser’s opinion of fair rental value.  
• DSCR can be used for Purchase, Rate & Term Refinance, Cash-out Refinance 

How to Calculate the DCSR?  

DSCR for a given property is calculated by dividing the expected rental payment by the monthly mortgage debt.  

Example: Rent = $2500 and mortgage payment = $2000 the Ratio is $2500/$2000 = 1.25% .This is a positive scenario. Lenders have different cash flow ratio requirements. If the rent is $2500 and the mortgage is $3500 the ratio is $2500/$3000 = .71. This is negative cash flow. Don’t give up. thou, some lenders will allow a negative cash flow up to a certain percentage. 

A typical acceptable debt service coverage ratio is 75%. Meaning that the monthly income for the property covers 75% of the monthly mortgage obligation. 

WHO SHOULD USE A DSCR LOAN?

• Unique properties 
  • Non-Warrantable condos 
• 1-4 unit properties 
• You have a down payment but no real verifiable income 
• Self-employed borrowers who show little income on tax returns
• You own an investment property – looking for a cash-out refinance but you don’t have enough personal income to qualify.  
• Credit scores as low as 620 

A FEW THINGS TO KNOW

• Ability to close a new mortgage in an LLC 
• Allow gift funds for the down payment
• Seller Concessions up to 4%
• Loan to values up to 85% with excellent credit 
• First-time investors are eligible 

The Prequalification Process in Arizona: 

1. Complete a mortgage loan application
2. Submit your income and asset documents 
3. The Mortgage Loan officer reviews and calculates how much house you qualify for based on the documents submitted.  
4. The Mortgage Loan Officer completes the Arizona Prequalification letter and submits the letter to your realtor.  
5. Once the realtor has the Prequalification letter, they will schedule time with you to see homes.  
6. Once you find the investment property and have a purchase contract, the lending process begins.  You and your Mortgage Loan Originator will become BFFs for the next 30 days!