There are many investment property loans and all of them offer different solutions. Trying to find the best fit for your rental property can feel overwhelming. At Newfi, we offer simple solutions for different types of investment properties through our Debt Service Coverage Ratio (DSCR) loans. Today, we’re breaking down what is a DSCR loan and why it might be the best solution for your lending situation.
Defining Debt Service Coverage Ratio (DSCR)
A Debt Service Coverage Ratio or DSCR loan is an investment property mortgage that borrowers qualify for based on the cash flow of the rental property. A lender uses the estimated market rent for an investment property instead of employment and debt qualifications so that investors can separate their property income from their personal income. These loans are also referred to as business purpose or private lender loans.
DSCR Loan Benefits
Fewer Documents Needed
Because DSCR loans qualify borrowers based on their expected market rent, we don’t need proof of income or employment. That means we won’t look at your tax returns, pay stubs, or debt at all during the loan process! Newfi simplifies the loan process by requiring less documentation.
Easily Add Investment Properties to Your Portfolio
At Newfi we want our borrowers to grow their real estate portfolio, so we allow for unlimited properties! With our DSCR loans, borrowers can qualify without restrictions on the number of properties in their real estate portfolio.
Use Cash-Out Equity from Other Properties Towards New Investments
We understand that growing your real estate portfolio means having the best options available. With our DSCR loans, borrowers can take the equity out of an existing property and put it into a new investment property mortgage.
Refinance Your Vacant Properties
Renovating a property is hard enough without having to worry about your tenants being there. That’s why at Newfi, we offer refinancing on vacant investment properties!
A Mortgage Option for Your Airbnbs and VRBOs
DSCR loans allow for both short-term and long-term rental properties. When refinancing your home, you can use both short-term and long-term rental history to qualify.
Newfi’s Simple Solutions
With less documentation, faster closing, and innovative technology, Newfi is here to make the investment property loan process easier. With our knowledge and friendly service, borrowers never have to feel as if they’re on their investment property journey alone.
Interested in learning more about DSCR loans or investment properties? Talk to one of our loan officers today!
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Explaining Debt Service Coverage Ratio (DSCR) Loans
DSCR loans are a flexible financing solution tailored to the needs of real estate investors. Unlike conventional loans that rely heavily on a borrower’s personal income and financial history, a debt service coverage ratio loan focuses entirely on a property’s ability to generate cash flow.
At its core, the debt service coverage ratio (DSCR) is an equation that helps mortgage lenders calculate an investment property’s ability to generate monthly rents that cover the property’s monthly mortgage payment and its monthly fixed expenses. By dividing the borrowers monthly rental income—the total rents the borrower receives from their tenants each month—by their monthly fixed expenses.
These monthly fixed expenses include their principal and interest payments on their mortgage, taxes, insurance, and HOA dues. A ratio of 1.25 or higher generally signals to lenders that the property generates enough income to cover these expenses making it a safer lending option. At Newfi, borrowers can qualify for a DSCR loan even if their investment property that has a debt service coverage ratio as low as .8.
Some mortgage lenders may calculate DSCR by dividing a borrower’s net operating income (NOI)—which includes rental revenue after deducting operating expenses—by the borrower’s total debt service, the monthly principal and interest payments on the mortgage loan.
Why DSCR Loans Are Ideal for Real Estate Investors
For investors with multiple rental properties or growing investment property portfolios, DSCR loans offer a streamlined approach to financing. Key benefits include:
- Simplified Documentation: DSCR loans require less documentation than traditional mortgages. Instead of requiring tax returns or employment verification, lenders qualify borrowers solely on the investment property’s rental income.
- Flexibility for Investment Properties: These loans are ideal for a wide range of properties, from long-term rental properties to short-term vacation rentals. Investors can also use cash-out equity from existing properties to fund new purchases or renovations.
- Competitive Interest Rates: Many Non-QM loans, including DSCR loans, offer competitive interest rates based on the property’s cash flow and market potential, not the borrower’s personal finances.
How DSCR Loans Simplify Portfolio Growth
For real estate investors, growing a rental property portfolio requires efficient and accessible financing. DSCR loans allow you to:
- Scale your real estate portfolio without being limited by your personal income.
- Use a property’s rental income and net operating income to qualify.
- Reinvest equity from other investment properties to expand your holdings.
With fewer restrictions on the number of properties financed and no focus on personal debt obligations, DSCR loans empower investors to grow their portfolios efficiently.
Ready to Learn More About DSCR Loans?
If you want to explore how DSCR loans can streamline your investment strategy, speak with one of our loan officers today. They’ll help you determine if this financing option aligns with your goals.