DSCR Mortgage Loan Qualifier

DSCR Mortgage Loans In California

Steps to Follow Before You Take Out a Debt Service Coverage Ratio Loan

A Debt Service Coverage Ratio (also known as a DSCR) mortgage loan is a loan that a property investor can apply for to help them be able to afford a property using the cash flow generated from the rental property they want to buy, rather than using their own personal income.

This type of loan is ideal if you’re looking to buy investment properties in California. But before you jump in, it’s important to understand that different financial institutions calculate your ratio differently. For example, a result of 1.5 is excellent, 1.2 is more general and 1.0 means that your rental properties are bringing in the same amount as you would spend on the loan. Lenders want to make sure your properties are profitable before they’ll approve your loan.

That’s not to say that you don’t have any options, however. Keep these points in mind as you consider whether or not to apply for a California DSCR loan.

DSCR Coverage Ratio

The coverage ratio is the most important aspect of a DSCR mortgage loan in California. It uses the rental income according to the lease agreement or projected rental income according to a recent rent schedule from an appraisal report.

Coverage ratios are calculated differently depending on the lender and can range from 1.0 (the rental property is earning the same amount that is spent) to 1.5 (the rental property is profitable). The coverage ratio may not be required at all if you have a down payment of at least 30% but this requirement varies from lender to lender.

DSCR LTV Ratio

The LTV or Loan to Value ratio is around 80%. This is lower than the amount for a standard single unit investment property but higher than a rental property refinance. The lower this number, the higher your down payment will be (or in the case of a refinance, the more equity you need to have in the property.

Loan Program

Just like with traditional loan programs, DSCR lenders allow for all types of loan programs including fixed rate loans, adjustable rate (ARM) loans, interest-only mortgages and more.

Maximum Loan Amount

The maximum amount you can be loaned depends on the lender, but in some cases it can be as high as $2 million which is substantially more than other investment property programs.

Type of Refinance

In some cases you can take more cash out of an investment property than with a standard loan using a DSCR loan. DSCR loans offer purchase loans, rate and term and cash out refinance options, so it’s a good idea to speak with a knowledgeable California mortgage broker to determine what your best options are for your specific circumstances.

Next Steps

At the end of the day, the most important step in the process of taking out a DSCR loan in California is to work with a knowledgeable broker who understands the process and who can guide you through it step by step while helping make sure you get the best possible deal.

At LBC Mortgage, our experienced mortgage lender understands exactly how the DSCR loan process works and will help you use it to invest in rental properties without needing to go through the time consuming hassle of the traditional mortgage process.

Contact our experts today with any questions you may have about DSCR loans in California and let us help you take the next steps with confidence and certainty!

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