DSCR Loan No Down Payment Required: Here’s How To Get It?

Are you looking for a way to invest in real estate without having to save up a large down payment? Do you want to buy a rental property that can generate cash flow and appreciation? If so, you might be interested in a DSCR loan no down payment required.

A DSCR loan is a type of mortgage that is designed for investors who want to buy or refinance rental properties. Unlike conventional loans, DSCR loans do not require you to qualify based on your personal income, debt, or credit score. Instead, they use the debt-service coverage ratio (DSCR) to determine your eligibility.

The DSCR is a measure of how much cash flow your rental property generates compared to your debt payments. You calculate it by dividing the property’s net operating income (NOI) by the total debt service (TDS), which comprises principal and interest payments. The higher the DSCR, the more income your property produces relative to your debt obligations.

What are the benefits of a DSCR loan?

A DSCR loan has several pros and cons. Advantages for real estate investors are, such as:

DSCR loan no down payment required:

Unlike conventional loans that typically require a 20% to 30% down payment for investment properties, some DSCR lenders offer 100% financing for qualified borrowers. This means you can buy a rental property with no money out of pocket, as long as the property has enough cash flow to cover the loan payments.

No income verification:

Since DSCR loans are based on the property’s income, not yours, you don’t have to provide tax returns, pay stubs, or bank statements to prove your income. This makes it easier to qualify for a DSCR loan, especially if you have multiple sources of income or are self-employed.

No credit score minimum:

Unlike conventional loans that require a minimum credit score of 620 or higher, some DSCR lenders do not have a credit score requirement at all. This means you can get approved for a DSCR loan even if you have bad credit or no credit history.

Flexible terms:

DSCR loans offer various loan terms, amortization periods to suit your needs and preferences, and DSCR loan interest rates. You can choose from fixed-rate or adjustable-rate mortgages, with terms ranging from 5 to 30 years. You can also opt for interest-only payments or balloon payments to lower your monthly payments and increase your cash flow.

Fast closing:

Since DSCR loans do not require extensive documentation or underwriting, they can close faster than conventional loans. Some DSCR lenders can close in as little as 10 days, while others may take up to 30 days. This gives you an edge over other buyers who may need more time to secure financing.

What are the drawbacks of a DSCR loan?

A DSCR loan also has some disadvantages that you should be aware of, such as:

Higher interest rates:

Since DSCR loans are riskier than conventional loans, they usually charge higher interest rates. The exact rate will depend on several factors, such as the property’s location, condition, occupancy, and value, as well as the lender’s guidelines and fees. You can expect to pay anywhere from 4% to 12% interest on a DSCR loan, depending on your situation.

Higher fees:

In addition to higher interest rates, DSCR loans also come with higher fees than conventional loans. These fees may include origination fees, appraisal fees, processing fees, underwriting fees, and closing costs. You may have to pay up to 5% of the loan amount in fees on a DSCR loan, depending on the lender and the deal.

Lower loan-to-value ratios:

Although some DSCR lenders offer 100% financing for certain properties and borrowers, most of them require some down payment or equity in the property. The maximum loan-to-value (LTV) ratio for a DSCR loan is usually between 70% and 80%, depending on the lender and the property. This means you may have to put down 20% to 30% of the purchase price or appraised value of the property to get a DSCR loan.

Limited property types:

Not all properties are eligible for a DSCR loan. Most DSCR lenders only lend on residential properties with one to four units, such as single-family homes, duplexes, triplexes, and fourplexes. Some lenders may also lend on multifamily properties with five or more units, but they may have stricter requirements and lower LTV ratios. Commercial properties, such as office buildings, retail stores, hotels, and warehouses, are generally not eligible for a DSCR loan.

How to get a DSCR loan?

If you want to qualify for a DSCR loan for your rental property, here are the steps and you need the following dscr loan requirements:

Find a DSCR lender:

The first step is to find a lender that offers DSCR loans in your area. You can search online, ask for referrals from other investors, or contact a mortgage broker who specializes in DSCR loans. Compare different lenders and their terms, rates, and fees, and choose the one that best suits your needs and goals.

Apply for a DSCR loan:

The next step is to fill out an application form and provide some basic information about yourself and the property. You may also have to submit a copy of the purchase contract, the rent roll, the lease agreements, and the property’s income and expense statements. The lender will review your application and perform a preliminary analysis of the property’s cash flow and value.

Get pre-approved for a DSCR loan:

If the lender is satisfied with your application and the property’s income potential, they will issue a pre-approval letter that states the loan amount, interest rate, and terms they are willing to offer you. This letter is not a final approval, but it shows that you are qualified for a DSCR loan and gives you an estimate of your monthly payments and closing costs.

Order an appraisal:

The lender will order an appraisal of the property to verify its condition and market value. The appraiser will inspect the property, take photos, measure the square footage, and compare it with similar properties in the area. The appraiser will then prepare a report that states the property’s current value and any repairs or improvements needed.

Finalize the loan:

After receiving the appraisal report, the lender will perform a final underwriting of your loan. They will verify the property’s income and expenses, calculate the DSCR using DSCR Calculator, check the title, and prepare the closing documents. If everything is in order, they will issue a final approval and schedule a closing date.

Close on the loan:

The last step is to sign the loan documents and pay any fees or costs associated with the loan. The lender will wire the funds to the seller or escrow agent, and you will receive the keys to your new rental property.

Know More About DSCR Loan No Down Payment Required

Q: What is the minimum DSCR required for a DSCR loan?

A: The minimum DSCR required for a DSCR loan varies by lender, property type, and loan terms. Generally speaking, most lenders require a DSCR of at least 1.0 to 1.2 for residential properties, and 1.2 to 1.4 for multifamily properties. This means that your rental income should be at least equal to or greater than your debt payments.

Q: Can I use a DSCR loan to buy multiple properties at once?

A: Yes, some DSCR lenders allow you to use a DSCR loan to buy multiple properties at once, as long as they are located in the same market or region. This is called a portfolio loan or a blanket loan. A portfolio loan allows you to consolidate multiple properties under one loan with one monthly payment. This can save you time and money on closing costs and fees.

Q: Can I use a DSCR loan to refinance my existing rental property?

A: Yes, you can use a DSCR loan to refinance your existing rental property, as long as it meets the lender’s criteria and has enough cash flow to support the new loan payments. You can use a DSCR loan to lower your interest rate, extend your loan term, switch from an adjustable rate to a fixed-rate mortgage, or cash out some of your equity.

Q: Can I use a DSCR loan to buy a fixer-upper or rehab property?

A: Yes, some DSCR lenders offer rehab loans or bridge loans for investors who want to buy a fixer-upper or rehab property. A rehab loan or bridge loan is a short-term loan that provides financing for both the purchase and renovation of the property. The lender will lend based on the after-repair value (ARV) of the property, not its current value. After completing repairs, you can either sell the property for a profit or refinance it with a permanent DSCR loan – no down payment required.

Also Read: DSCR Loan Program

Conclusion

A DSCR loan is a great option for investors who want to buy or refinance rental properties without having to qualify based on their personal income, debt, or credit score. DSCR loan uses the debt-service coverage ratio (DSCR) to determine your eligibility based on the property’s cash flow.

A DSCR loan has many benefits, such as dscr loan no down payment required, no income verification, no credit score minimum, flexible terms, and fast closing. However, it also has some drawbacks, such as higher interest rates, higher fees, lower LTV ratios, and limited property types.

If you want to get a DSCR loan for your rental property, you need to find a reputable DSCR lender in your area and apply for a DSCR loan with some basic information about yourself and the property.

Cup Loan Program
Ellie

I'm Ellie, a freelance writer with years of experience in the loan industry. Based in the United States, I founded cuploan.net, a loan finance blog providing expert advice and insights. I specialize in creating high-quality content promoting financial literacy and consumer rights to ensure fair and transparent lending access.

One comment

  1. Hi Ellie,

    I am trying to find a lender for a DSCR loan for some multi family rentals that I am interested in. I have short term and long term goals. I have no down payment. Do you have anyone that could work with me?

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