Non-QM loans are designed to cater to borrowers who may not meet all the criteria of a Qualified Mortgage (QM) but can still repay the loan. They offer more flexible lending options and are often used for borrowers with unique financial situations or complex income sources.
One category of Non-QM loans which is attractive to real estate investors is a Debt Service Coverage Ratio loan (DSCR). A DSCR loan is used by lenders to assess a borrowers ability to cover their loan obligations, specifically for commercial real estate or investment property loans. This loan is great for real estate investors because it will consider the cashflow of rental properties and may not require tax returns or paystubs.
Q: What is a DSCR loan?
A: A DSCR loan enables real estate investors to obtain a loan to purchase an investment property because it takes into account cash flow from rental properties rather than using traditional means of income such as paystubs or W2s. A lender will use rents, or DSCR from the property to evaluate a borrower’s ability to make monthly mortgage payments.
Q: What is the DSCR?
A: The Debt Service Coverage Ratio is the property’s annual GROSS rental income and its annual mortgage debt (including principal, interest, taxes and insurance, and HOA if applicable). Lenders use how much of a loan can be supported by the income coming from the property. They will not consider maintenance, utilizes, or vacancy rate as they would on a traditional mortgage loan.
Q: Do I need to have previous investment property experience to qualify for this loan?
A: No, you do not need previous experience. DSCR loans can be ideal for current, or newly emerging real estate investors who qualify for this unique product.