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DSCR Loans: Explore Your Financing Options 

A Debt Service Coverage Ratio (DSCR) loan is an investment property mortgage that borrowers qualify for based on the cash-flow of their rental property. By focusing on the rental income your property generates, DSCR loans remove the barriers that traditional investment property financing options pose, making it easier to scale your real estate portfolio! 

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Understanding Debt Service Coverage Ratio (DSCR) Loans

DSCR loans offer a simple solution for investors to qualify for a real estate investment property by focusing on the property’s cash flow rather than the investor’s personal income. A Debt Service Coverage Ratio is used to determine the property’s ability to generate enough income to cover the monthly loan payments.
A DSCR greater than 1 indicates stronger cash flow, giving lenders the ability to offer more flexible guidelines like lower credit score and downpayment requirements. DSCR loans can be an ideal option for both experienced and new investors.

Loans Designed with Investors Like You in Mind

Investment properties are all about generating a profit and Newfi’s investor-focused loan product keeps your monthly cash flow a priority. DSCR mortgage loans qualify you on your property’s expected rental income, not your personal income or debt. That means you don’t need to meet income, debt, or employment requirements other financing options require.

You also get perks like faster closings and options like interest-only loan terms and prepayment penalties to help lower your monthly payments. Whether you’re hoping to refinance your investment property or looking to grow your real estate portfolio, Newfi is here to help! 

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What are the Requirements for a DSCR Loan?

There are no income requirements for DSCR loans. Instead, lenders use the estimated market rent for the intended investment property to determine if your expected rental income will cover your monthly loan payments. This is different from a traditional loan option that qualifies you based on employment and debt qualifications. DSCR loans are also sometimes referred to as business purpose or private lender loans. 
  • Down Payments as Low as 20%
  • Up to 75% Cash-Out on Refinance
  • Credit Scores as Low as 640
  • Minimum Loan Amount $100k
  • Maximum Loan Amount $2.5M
  • Residential Properties Only
  • No Limit on Total Properties Owned
  • 1-4 Unit Properties
  • 15, 30, & 40 Year Fixed Loan Terms 
  • 30 & 40 Year Interest-Only Loan Terms
Explore how an interest-only loan can maximize your cash flow with our

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Why Do Lenders Use Debt Service Coverage Ratio?

The Debt Service Coverage Ratio (DSCR) is an equation that mortgage lenders use to evaluate an investment property’s ability to generate sufficient income to cover its debt obligations. Once DSCR is calculated, the property will either have a positive net cash flow or negative net cash flow. 

Positive Net Cash Flow means that the property generates enough monthly rental income to cover their fixed monthly expenses.  

Negative Net Cash Flow means that the property does not generate enough monthly rental income to cover their entire fixed monthly expenses. 

At Newfi, we offer financing for properties with either positive or negative cash flow. We provide loans for properties with a cash flow as low as 0.8, ensuring flexible options for a range of real estate investments.

How to Calculate DSCR for an Investment Property?

To calculate DSCR, divide the property’s monthly rental income by its monthly fixed expenses. This includes principal and interest payments, taxes, insurance, and HOA dues. These expenses are often referred to as PITIA or ITIA (for interest-only loan terms). The formula used to calculate DSCR is:  

DSCR = Monthly Rental Income / Monthly Fixed Expenses (PITIA)

For example, if your property generates $120,000 annually and your debt payments are $100,000, the DSCR would be 1.2. A ratio above 1 shows the property can cover its debts comfortably. 

With a DSCR loan from Newfi, investment properties can have a Debt Service Coverage Ratio as low as 0.8. This provides investors with properties that are temporarily underperforming to qualify for financing. That even if your property isn’t fully covering debt obligations, we can still provide funding options based on the long-term potential of the investment. To better understand how to calculate DSCR, click here.

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How do Lenders Determine Estimated Monthly Rent for a DSCR Loan?

Lenders determine the estimated monthly rent for an investment property by analyzing average rental income in the area. This ensures the property generates enough income to meet DSCR loan requirements. To do this, lenders may require documentation such as: 

Current Lease Agreements

  • Lenders often request current lease agreements for the property being financed to verify rental income. If unavailable, they may reference comparable properties or use short-term rental data to estimate income.

Form 1025: Small Residential Income Property Appraisal Report

  • Used for 1-4 unit properties, this form details actual market rents and analyzes the property’s rental income potential.

Form 1007: Single Family Comparable Rent Schedule

  • This form compares similar properties to determine fair market rental value for single-family homes.
By reviewing these forms, lenders assess rental income potential to confirm the property meets DSCR loan standards.
Nicholas S.Princeton, NJ

All the Newfi team was quick to respond and always were available and were in touch during the entire refinance process. They also moved things along quickly.

Wyatt E.Deer Island, OR

Very fast responses, and very knowledgeable, I’ve done business with them twice.

Gokulkrishnan S.Union City, CA

Had a great refinance done with Stephanie for our California Rental Investment Property. Awesome rates, much better than Wells Fargo, Bank of America, etc. Communication and follow-ups were very timely. Super efficient experience, strongly recommend them!

David A.Hilton Head, SC

Efficient process. Good support. Good communications.

Roberto G.Glenside, PA

Getting a mortgage usually takes forever and you want to just quit. This was speedy and super convenient! This was for an investment property and i will be using them again.

Maximizing Your Real Estate Investment Strategy with DSCR Loans

DSCR loans offer real estate investors a unique opportunity to grow their portfolios by leveraging rental income, rather than personal income, to qualify for financing. Understanding key investment metrics and strategies, like the Debt Service Coverage Ratio, CAP Rate, 1031 Exchange, and more provides investors with additional tools to help them grow their investment portfolio.
Below, we explore four concepts that every investor should consider when using DSCR loans to expand their real estate investments. From minimizing taxes with a 1031 Exchange to evaluating property performance through CAP Rate, these strategies can help you maximize the potential of your next investment while optimizing your chances of loan approval. 

Using a 1031 Exchange to Reinvest and Expand Your Portfolio

Using a 1031 Exchange alongside a DSCR loan can be a powerful way to grow your real estate portfolio. When you sell an investment property, a 1031 Exchange allows you to defer capital gains taxes by reinvesting the proceeds into a new, similar property. By combining this tax-saving strategy with a DSCR loan, you can leverage your property’s rental income to qualify for financing, even without needing to show personal income. This allows you to expand your portfolio without the immediate tax burden, giving you more flexibility in purchasing your next investment. 

If you’re considering refinancing out of a hard money loan, transitioning into a DSCR loan can free up capital and lower your monthly payments, offering a more sustainable financing option. With the additional cash flow and reduced tax liability from the 1031 Exchange, you’ll have the ability to acquire another property, further diversifying your investments and creating long-term gains. This combination of strategies may be worth itfor real estate investors looking to grow their portfolio while maximizing their tax advantages. 

How CAP Rate Can Help You Secure Your Next Investment Property

The CAP rate is another important metric that real estate investors use when evaluating properties for financing. The CAP rate, or capitalization rate, measures a property’s return on investment based on its net operating income (NOI) relative to its current market value. Many mortgage lenders use the CAP rate to assess a property’s potential performance and profitability to determine whether the property meets their lending requirements. At Newfi, our DSCR loans don’t have a CAP rate requirement. 

By focusing on the CAP rate, investors are able to target properties that generate strong income relative to their price, which may increase their likelihood of securing favorable loan terms. A higher CAP rate may indicate better returns, which can reassure mortgage lenders that the intended investment property will produce enough income to cover debt obligations. 

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How Net Operating Income (NOI) Can Help Investors Maximize Their Financing Potential

Net Operating Income (NOI) is another factor in securing a DSCR loan that directly influences the DSCR calculation. The higher the NOI, the stronger your Debt Service Coverage Ratio is, which can increase your chances of loan approval. Investors should consider focusing on maximizing their NOI by raising rents to meet market rates, reducing their number of vacancies, and minimizing operational expenses like maintenance and utilities.  

By optimizing NOI, investors have the opportunity to enhance the financial health of their properties, making them more appealing to mortgage lenders. A strong NOI may help you qualify for larger loan amounts or better loan terms, which in turn helps you grow your portfolio. Focusing on NOI can help you determine whether your investment properties are cash flow positive while also setting you up for long-term financial success. 

Boost Your Cash Flow and Investment Strategy with Gross Rent Multiplier and DSCR Loans

A Gross Rent Multiplier (GRM) is used to evaluate a property’s potential profitability by comparing its purchase price to its gross rental income. When combined with a DSCR loan, GRM can help investors identify properties that may generate enough rental income to cover debt payments, boosting cash flow. Properties with favorable GRMs are likely to meet DSCR loan requirements, which can make these investments easier to finance. 

Using GRM alongside DSCR loans allows investors to screen properties quickly and make smarter investment decisions. Focusing on properties with strong rental income relative to their price means that investors are able to prioritize investment properties that are more likely to generate positive cash flow, while supporting loan repayment. Meaning that you can grow your investment portfolio confidently while maximizing your financial returns. 

Discover Non-QM Loans: A Flexible Mortgage Solution

If you’ve had trouble qualifying for traditional mortgages, a Non-Qualified Mortgage (Non-QM) loan might be the solution you need. Non-QM loans, like those offered by Newfi Lending, provide alternative lending requirements that differ from standard Qualified Mortgage (QM) loans. These loans are designed for potential homeowners with unique financial situations. Real estate investors, self-employed workers and small business owners, or people with high asset balances but non-traditional income documentation may benefit from using a Non-QM loan option. Newfi specializes in Non-QM products, offering diverse solutions with flexible income documentation requirements, longer loan terms, and even interest-only options. 

While DSCR Loans are a great choice for real estate investors looking to maximize cash flow, they might not fit everyone’s needs. If a DSCR loan isn’t the right option for you, Newfi offers a range of QM and Non-QM loans designed to help more people grow their investment portfolios. Whether you’re self-employed, need to qualify using your assets, or want to explore lower monthly payment options, Newfi’s loan solutions can help. Interested in learning more? Discover your options today! 

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Frequently Asked Questions

What are the benefits of a DSCR loan?

At Newfi, a DSCR Loan offers:
  • Faster loan process
  • Loan terms that can lower your monthly payments
  • 30- and 40-year interest-only mortgages
  • Less documentation needed
  • No proof of income (W2’s, tax returns, or paystubs)
  • No DTI (Debt-to-Income) requirement
  • No employment required (Full-time investors welcome!)

What are the credit requirements?

DSCR Loans require a minimum of a 640 credit score to qualify. Your credit requirements will depend on the property type, loan amount, and other factors like DSCR ratio.  

What are DSCR loan rates?

Your exact investment property rates depend on the interest rate you qualify for and the term you select. Contact us to review your options and calculate your new payment. 

What is the minimum down payment?

Real estate investors looking to use a DSCR loan to qualify can use as little as 20% down. Our minimum down payment of 20% is based on other qualifying factors like credit score, loan amount, and DSCR calculation. 

Can I get a DSCR loan as a first time investor?

Yes! Whether you are a first-time real estate investor or buying an investment property for the first time, you may still be able to qualify for a DSCR loan. First-time investor will have more strict lending guidelines. You cannot get a DSCR loan without property ownership experience, you must have owned real estate in the most recent 36 months. 

Can I get a DSCR loan if I don’t live in the United States?

Yes! Newfi’s Foreign National program serves borrowers in the following countries: Australia, Canada, Finland, Germany, Greenland, Guam, India, Japan, Mexico, South Korea, Puerto Rico, United Kingdom. 

What are the requirements for a foreign nationals DSCR loan?

  • Loan amounts up to $1.5M
  • 25% down payment 
  • Multiple loan term options available 
    • 15, 30 & 40 year fixed rate terms 
    • 30 & 40 year interest-only terms
  • Borrower must have owned 2 or more properties for at least 12 months during the most recent 26
    month period. 1 property must be an income producing property (residential or commercial).

Can I refinance my investment property without a tenant?

Yes, with a DSCR Cash Flow loan from Newfi, you can refinance your investment property regardless of if you have a tenant or not. 

Why should I refinance my investment property?

Refinancing can be a great option for those who are looking to: 

  • Take Cash Out to Make Renovations 
  • Lower Their Monthly Payments and Create Greater Cash Flow 
  • Use Equity to Invest in a New Property 

What states does Newfi lend in?

We lend in Alabama, Alaska, Arkansas, Arizona, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Montana, Nebraska, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, Washington, Wisconsin, and Wyoming. Real estate investors can get a DSCR loan in any of these states. 

How do I apply for a DSCR loan?

Call us at (888)316-3934 to get in touch with a Newfi Senior Loan Advisor today. Because everyone has their own unique situation, we recommend speaking to a loan advisor about your options as your first step. Fill out the form on this page for a free consultation with one of our licensed loan advisors! 

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