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
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.
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.
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.
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.
A DSCR loan typically can be used for the following property types:
A DSCR loan typically cannot be used for the following real estate property types:
DSCR loans have higher interest payments than most mortgage loans. This is because buying an investment property is seen as riskier than buying your primary residence. You should expect to pay 150 bps to 300 bps higher than consumer rates for a DSCR loan. A professional real estate investor is able to cover the higher cost of a DSCR loan with rental property income.
While it varies by mortgage lender, here's what you should prepare to qualify for a DSCR loan in Florida.
Meet the Minimum Credit Requirements. Most lenders require a minimum of 680 for DSCR loans in Florida.
Have a high enough down payment. Most Florida lenders require a minimum of 25% down.
Find a property with cash flow potential.
For a DSCR loan, the borrower needs to demonstrate that the net operating income (NOI) of the property is higher than the debt obligations of the property.
The DSCR loan process is much simpler than the conventional mortgage process. Let's break it down in three basic steps:
Step 1: Complete the DSCR loan application.
Apply for your DSCR mortgage loan and get the investment property appraised, including expected market rent.
Your loan officer will get your credit evaluated to make sure you meet the minimum credit score qualifications.
Step 2: Move into processing.
Once your application is complete, your DSCR mortgage will move into processing. DSCR mortgage processing is relatively simple since the lender is mostly looking at the investment property quality and rental income potential.
No tax returns, no pay stubs, no employment history, and no personal income history.
Step 3: Close and get funds.
Once your DSCR loan is processed, it will move into underwriting and quality control. From there, it will be funded.
You'll cover your down payment and fees
Whether you are looking to invest in long term or short-term rental properties, you can count on Visio Lending to close your Florida DSCR mortgage. We have over a decade of experience helping real estate investors build portfolios of rental properties, and we've closed over 1,600 loans in Florida totaling over $411M.
Check out some of our recently closed DSCR loans in Florida.
Tampa, FL
Kissimmee, FL
Miami, FL
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Visio Lending is the nation's premier lender for buy and hold investors offering, long-term loans for SFR rental properties, including vacation rentals.