Debt Service Coverage Ratio Loans

Are you interested in investing in a property in order to resell it or rent it out for a profit, and wondering what types of financing options are available for this type of venture? Investing in real estate can be an excellent way to earn some extra income, and when it comes to financing an investment property, there are fortunately several options available to help fund this opportunity. If you are located in Stamford, Norwalk, or Fairfield, Connecticut, and want to learn more about your home financing options, Prosper First Funding Corporation is here to help. Continue reading to learn more about funding the purchase of a property with a DSCR loan.

What Are DSCR Loans?

A debt service coverage ratio loan, or DSCR, assists a borrower in qualifying for a mortgage by using the money that comes from the rental rather than from a borrower’s personal income. DSCR loans allow a borrower to either purchase or refinance a rental property without having to provide traditional documentation, such as tax and W2 information, employment pay stubs, etc. Instead, the rental income that is generated by the property must meet or exceed a lender’s coverage ratio requirement. These loans are mainly intended for property managers, investors, and commercial property owners.

What Exactly Is Debt Service Coverage Ratio?

During the mortgage qualification process, lenders calculate a borrower’s debt service coverage ratio, which helps a lender to determine if the investment will likely generate enough income to cover the probable amount of debt. Lenders will divide the amount of net operating income by the amount of debt owed by the borrower. Lenders then use the DSCR to get an estimate of a borrower’s ability to successfully pay off the debt for their real estate investment. Ultimately, the higher the DSCR ratio is, the less risky the loan will be for lenders.

How Do DSCR Loans Work?

Since qualifying for a DSCR loan depends on the amount of rental income a property will make rather than a borrower’s personal income, the DSCR loan application process typically takes less time than that of a traditional loan. These types of loans are particularly beneficial for someone interested in either buying or refinancing a rental property, but is unable to provide traditional forms of income verification or lacks sufficient savings to get approved for a traditional loan.

Getting Assistance With A DSCR Loan

If you have been thinking about investing in a property in the areas of Stamford, Norwalk, or Fairfield, Connecticut, and are looking for the best financing option for your situation, Prosper First Funding Corporation can help. We can work closely with you to help determine your unique borrowing needs and help you find your ideal property. Contact our office today for a consultation.