DSCR - A Program For Investors

DSCR stands for "Debt-Service-Coverage-Ratio" it sounds sort of strange, but it could be what you are needing to move to the next level in the market. It all starts with understanding a few simple things about home loans.

investor metrics, quality scores, and more.

In our day and age of millions of options from one price range to the next, we get our wide pick of services and items to choose from. When cost matters, it seems to only ever mean this: If "good" can be construed as low, then we want the lowest. If "good" can be construed as high, then we will fork out what we can. We live in a culture of extremes in this way, wanting the best along a single particular line, rarely do we realize that some equations have more than one variable.


Such is the case with home loans.


The Mortgage Market is a speculative market, in other words, the rates you see today are based in part on events that occurred yesterday, last week, a month or even years ago. Analysts analyze data constantly and try to predict futures using advanced statistical models. Because of this, the lender cares what you're going to be doing with the property you are financing.

For example, let's say you are buying a home, first time, and you are going to live in it. Lenders are sort of willing to give you a rate that is low (in the market you are buying in of course). They also have the lightest underwriting standard for the typical conventional loan in this category, will give appraisal waivers, get rid of mortgage insurance at 90% instead of 80% LTV (they may raise your rate for this slightly). You can count on a file like this being underwritten and closed even if it is a purchase in just 15 to 20 days (with us, it's often shorter). They are willing to do this because a home loan is a low risk loan, and it's one that you are most likely to make your mortgage payments on.


On the other hand, it would be much more difficult to get a similar kind of loan done, where the borrower is an investor and already has three investment properties. The Lender would give a higher rate and more stringent underwriting conditions. They would verify two or three months of assets. Request mortgage statements for each property etc. It would take almost three times the work to obtain such a loan, and the rate would likely be 1% higher than it would be if it were your primary residence.


It would be difficult, you would need to provide documentation in excess and you would be stressed out during the process. And ultimately, if you did not have enough reserves, you would not be able to get the loan. Reserves are calculated differently by each lender, you can roughly figure them this way: multiply by three, the property taxes, insurance and mortgage on each property that you own, and then, sum it all together. You have to have that much money in your bank account prior to and after closing. And if you don't, you can't close.


Under the DSCR Program all you need to show is that the property cash flows at least 1.0x or 1.25x the mortgage payment (dependent on the lender). So, if the Principal, Interest, Taxes and Insurance on a loan amount to $1000 even, then the property just has to cash flow greater than $1000 or $1250. That's the main underwriting standard, along with a few income documents to show that you could make the payment (in the event that you did not have a tenant).


The reason why this program is so good, is because you're already an investor, your rate is already higher. Moreover, since you are investing your money you are looking at cashflow already. Choosing DSCR may cause you to lose money on every monthly payment, but because it has less strict underwriting criteria, it will undoubtedly allow you to close on more properties faster. Meaning, in the time it takes you get one property, you could get two.


Also, under the Conventional Standard, you can only have 10 financed properties. But under DSCR you can have as much as 20.


It's not for every investor, but for some, it may just be the bread and butter.


Call Home Mortgage Specialists, Inc today to find out more about our DSCR programs and how you can save huge, and get more properties with a Broker that fights for your interests!

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Home Mortgage Specialists, Inc.

hmsoffice@hmsmtg.com

309-222-8286

6808 N Knoxville Ave 

Suite C 

Peoria, IL. 61614

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Illinois Residential Mortgage

Licensee #031.0030819

Florida #LO88266

Indiana #480568

NMLS ID #695728

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Illinois Department of Financial and Professional Regulation

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Chicago, IL 60661

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