DSCR Loans
One of the greatest benefits of buying rental properties with DSCR loans is that you don't need to provide income or employment verification; your debt-to-income ratio isn't a factor, only your credit score. This makes it much easier to get DSCR loans as opposed to a traditional loan based on your own financial information.
How DSCR Loans Work
What makes a good Debt Service Coverage Ratio?
A debt service coverage ratio of 1.2 is solid , and anything above a 1.5 is strong. A DSCR ratio of 1 indicates the rent exactly equals the monthly sum of principal, interest, taxes, insurance, and association dues (if any). With a debt service coverage ratio below a 1, the investor will be subsidizing the PITIA with cash from other sources.
Let's look at some examples for a clearer picture.
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DSCR Examples
DSCR < 1
Principal + Interest= $1,800
Taxes= $250
Insurance= $150
Association Dues=$35
Total PITIA= $2235
Rent= $2100
DSCR= Rent/PITIA=2100/2235=0.94
Since the DSCR is .94, we know the PITIA is greater than the monthly rent from the property, indicating negative cash flow.
DSCR =1
Principal + Interest= $1,500
Taxes= $350
Insurance= $150
Association Dues=$100
Total PITIA= $2100
Rent= $2100
DSCR= Rent/PITIA=2100/2100=1.0
Since the DSCR is 1.0, we know the mortgage payments and PITIA expenses are equal to the monthly property rent.
DSCR >1
Principal + Interest= $1,600
Taxes= $250
Insurance= $150
Association Dues=$35
Total PITIA= $2,035
Rent= $2350
DSCR= Rent/PITIA=2350/2035=1.15
If we divide the rent by PITIA, we get a DSCR of 1.15, which indicates positive cash flow.
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Terms and conditions expressed in this website can be changed without prior notice and are examples of what may be possible, we make no promise or guarantee that the borrower will receive these terms and conditions. Each loan stands on it's own merits or lack there of.