Rental loans, or Debt Service Coverage Ratio (DSCR) loans, are tapered to rental investment properties. The DSCR metric evaluates the rental income, operating expenses, and mortgage expenses to formulate a dollar value.
Commercial lenders (private lenders, banks, etc.) typically require a minimum DSCR to qualify for a Loan-to-Value (LTV). DSCR loans provide a personal guarantee from the borrower based on whether they can prove rental investing experience, show an acceptable credit score and personal net worth, and whether the subject property is DSCR-eligible.
Rental loans are usually 30-year terms but can be adjusted if necessary. Amortization is generally 30 years, but five, seven, or 10-year interest-only periods are possible. During this time, annual or semi-annual adjustable rate and amortization begin at the end of the interest-only period during the entire 30-year term.
The different types of rental loans include:
- Purchase
- Cash Out Refinance
- Rate and Term Refinance
- Portfolio (two or more properties)
- Multifamily (five or more units)
Any rental property purchaser can use a DSCR loan. Rental loans are typically utilized by real estate investors who do not have a W2 (salaried employment), do not qualify for a conventional mortgage, and do not have tax returns available.
DSCR loans can be refinanced, but there might be a prepayment penalty on the loan that will alter the refinance cost. Depending on the circumstances, it might be more advisable to do a rate and term refinance instead of a cash-out refinance.
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Written by the digital marketing team at Creative Programs & Systems: https://www.cpsmi.com/