What Are Colorado DSCR Loans?

Colorado debt service coverage ratio loans, also known as DSCR Loans, differ from traditional loans because you aren’t required to submit pay stubs, W-2s, and tax returns as a means of verifying income in order to qualify for a loan. DSCR loans are non-QM loans, which means they’re designed for people who can’t qualify for a conventional mortgage or those who don’t want to deal with the high rates of private hard money loans. Keep in mind that DSCR loans work more or less the same in every state, but property values and rental rates differ depending on the region.

Unlike conventional Colorado home loans, DSCR loans are designed to serve real estate investors. Lenders will look at the DSCR of a prospective borrower to determine whether or not that individual is eligible for a loan. As long as you’re making enough rental income to pay your monthly mortgage, you can typically qualify for Colorado debt service coverage ratio loans. This is the key metric because it helps lenders reduce the risk they’re taking by lending you money to invest in real estate.

How Is DSCR Calculated?

How Is DSCR Calculated?

Before you can qualify for a DSCR loan, lenders will have to calculate your DSCR. Different lenders require their own minimum debt service coverage ratios, so understanding how DSCR is calculated is important. Here’s a breakdown that shows you how Griffin Funding calculates DSCR to determine who is eligible for a loan:

  1. We start by looking at your gross rental income, which we determine based on your lease agreement as well as an appraiser filling out Form 1007. We’ll use the lower of the two numbers as your gross rental income. Alternatively, you can provide us with 12 months of rental income history—that way you don’t have to use the appraiser’s rental schedule to qualify.
  2. Once we know your gross rental income, we’ll figure out your annual debt. When looking at annual debt for a DSCR loan, we look at the principal, interest, taxes, insurance, and HOA payments (if applicable). We combine all of these annual numbers to figure out how much you need to make in order to make loan payments, insurance payments, and HOA payments (if applicable) on time.
  3. Lastly, we’ll take your annual gross rental income and divide it by your annual debt to figure out your DSCR. If the numbers are equal to one another, that means you have a DSCR of 1.

If that’s still confusing, we’ll take a look at an actual example of how lenders use income and debt to calculate DSCR. Let’s say you have a gross rental income of $60,000, but your annual debt is only $40,000. All you have to do is divide $60,000 by $40,000, which leaves you with a DSCR of 1.5.

What DSCR Do Lenders Look for?

Typically, any DSCR above 1 is considered good, but there are other loans you can get if your DSCR is too low. Bank statement loans and asset-based loans are both good alternatives for certain borrowers who can’t apply for debt service coverage ratio loans in CO.

At Griffin Funding, we offer DSCR loans to individuals with a DSCR of 0.75 or higher. However, you get access to lower interest rates and overall better loan terms if you have a DSCR above 1.25.

What Are the Benefits of a DSCR Loan?

If you want to invest in rental properties without using W-2s and pay stubs, DSCR loans may be a good alternative. 

DSCR loans in Colorado provide several benefits for investors, including:

  • DSCR loans may close quicker
  • You don’t have to verify your income or job history
  • There’s no limit to the number of properties you can invest in
  • Loans up to $5,000,000 are available
  • Down payments start at just 20%
  • DSCR loans are great for new and seasoned investors
  • DSCR loans can be used for short-term and long-term rental properties (Airbnb, VRBO, etc.)

Want to learn more about whether a DSCR loan in CO is the right fit for your needs? Speak with one of our loans specialists today.

What Are the Requirements for a DSCR Loan in Colorado?

What Are the Requirements for a DSCR Loan in Colorado?

No matter what kind of loan you’re applying for, there are certain requirements you must meet and DSCR loans in Colorado are no exception. The primary requirement is a good DSCR, which is generally considered to be a ratio of 1 or more. You will also need to make a down payment in order to qualify for a DSCR loan, and you can’t purchase owner-occupied property with a DSCR loan. A minimum credit score is required.

Keep in mind that there are other types of loans available for borrowers who don’t have a high enough DSCR. With recent credit event loans, you can get a mortgage loan even if your credit score dropped suddenly due to a recent event such as a bankruptcy. With interest-only loans, borrowers only make payments on the interest for a set period at the beginning of the loan, saving them money in the long run. Once that period has passed, mortgage payments are recalculated and you can begin paying on the principal. Griffin Funding offers interest-only DSCR loans on either a 40yr fixed rate or a 30yr fixed rate. 

What Are the Down Payment Requirements for a DSCR loan?

Although DSCR loans are a popular alternative to traditional mortgages, you’re still required to make a down payment to secure a DSCR loan. At Griffin Funding, we offer DSCR loans with down payments as low as 20%. However, it’s important to keep in mind that a larger down payment will reduce your monthly loan payments, so you might want to consider putting more money down.

Where Does Griffin Funding Lend?

Griffin Funding is proud to help Colorado borrowers secure loans in the following cities and more:

  • Denver
  • Colorado Springs
  • Aurora
  • Fort Collins
  • Lakewood
  • Thornton
  • Arvada
  • Westminster
  • Pueblo
  • Centennial
  • Boulder

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Apply for a Colorado DSCR Loan Today

If you want to invest in rental properties but you don’t have the capital to do it, DSCR loans in Colorado are an excellent option. At Griffin Funding, we offer DSCR loans with as little as 20% down for individuals with a DSCR of at least 0.75. Not only that, but we also offer several other non-QM loans if our Colorado DSCR loans aren’t right for you. To learn more about our DSCR loans, give us a call at (855) 394-8288, or apply for DSCR loan with Griffin Funding by filling out our online application.