DSCR Mortgage Loans In Indiana
Real estate investors in Indiana are extremely interested in DSCR loans to finance their rental properties. The reason is DSCR loans are based on the income from rental properties, making them an ideal financing option for investors. The income from rental properties is used to determine Debt Service Coverage Ratio, which is the amount of money available to make monthly loan payments.
If you have a strong DSCR, you are more likely to be approved for a loan. DSCR mortgages in Indiana are worth considering because of their benefits and flexible repayment terms.
How Does a DSCR Loan in Indiana Work?
The DSCR loan in Indiana is a commercial real estate loan used to finance the purchase or refinancing of an income-producing property.
But what does DSCR mean?
The debt-service coverage ratio is an indicator of a company’s financial health. It compares a company’s total debt obligations to its operating income.
- A ratio of less than 1 means the company is not generating enough income to meet its debt obligations.
- A ratio of more than 1 means the company generates more income than needed to meet its debt obligations.
- A ratio of 1 means that the company is breaking even.
So, the higher the ratio, the healthier the company’s finances are.
The debt-service coverage ratio is important for companies highly levered and carrying a lot of debt. These companies need to make sure they are generating enough income to meet their obligations.
How to calculate DSCR?
The debt-service coverage ratio is a key metric that lenders use to assess a borrower’s ability to repay their loan obligations. The formula for the debt-service coverage ratio requires two inputs: net operating income and the total debt servicing for the entity.
Here is how to calculate DSCR:
- Calculate the net operating income. This can be done by subtracting the total operating expenses from the total revenues.
- Calculate the total debt servicing for the entity. This includes both the interest payments and the amortization payments.
- Divide the net operating income by the total debt servicing. This will give you the debt-service coverage ratio.
For example, a company with a DSCR of 2.0 would have twice as much income available to cover its debt payments as a company with a DSCR of 1.0. Lenders will often use the DSCR to assess a borrower’s riskiness and determine whether to extend credit.
Indiana DSCR Loan Advantages
DSCR loans are popular among real estate investors because of the number of benefits:
- The loan is available for a variety of properties, including office buildings, retail centers, warehouses, and apartments.
- Purchase or property refinance is possible
- The DSCR loan amount is based on the value of the property, not the owner’s creditworthiness.
- The interest rate on a DSCR loan is usually lower compared to other commercial property programs.
- The monthly payments are fixed for the life of the loan, so there is no need to worry about rising interest rates.
- The loan term can be up to 30 years, making it easy to manage your monthly payments.
- There is no prepayment penalty, so you can pay off the loan early if you choose to do so.
- The interest payments on a DSCR loan are tax-deductible.
Indiana DSCR Loan Disadvantages
Sometimes a lender may require a borrower to adjust their DSCR calculation to be based on either their Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) or their Earnings Before Interest and Taxes (EBIT).
EBITDA is often used because it provides a more accurate picture of a company’s potential cash flow.
However, it should be noted that using EBITDA or EBIT may result in the overstatement of a company’s income because not all expenses are being considered. As such, it is important for borrowers to understand how their DSCR will be calculated and to provide accurate financial information to their lender.
Work with DSCR loan experts in Indiana
At LBC Mortgage, we are proud to offer our clients a wide range of loan products that can help them achieve their homeownership goals. Whether you are a first-time homebuyer or an experienced investor, we have a loan program that will suit your needs.
Are you interested in purchasing your next investment property? Don’t go through the mortgage process alone – reach out to the Indiana DSCR Loans experts!
Our helpful and experienced loan officers can help you find the right loan for your unique situation and goals, as well as take time to answer any questions. We’re here to help make financing your property easy and stress-free, so please don’t hesitate to contact us today.
Call us (818) 309-2999 – we look forward to helping you achieve your business goals!