What Is a New York DSCR Loan?
First, we should note that DSCR stands for debt service coverage ratio. A commercial business purpose DSCR loan is a type of loan that is based on your property’s cash flow using the debt service coverage ratio.
The debt service coverage ratio is the ratio of a property’s net income and the annual debt associated with that property—which may include interest, taxes, insurance, and HOA fees if applicable. Note that your personal income will not be a factor in qualifying for a loan, only the real estate’s net operating income.
A DSCR business purpose loans in New York differs from a conventional loan in a few ways:
- It is a no-income loan.
- It’s based on the property’s DSCR.
- It generally takes much less time to get approval.
- The loan can be in the name of the LLC or other business entity
What Are the Benefits of a New York Commercial DSCR Loan?
Some of the benefits of a DSCR loan for investors are:
- Generally faster closing times.
- Proof of income isn’t necessary to close a loan. Which makes it generally easier to qualify for.
- No limit on the number of properties that can be invested in.
- Large loan amounts up to $5,000,000 (minimum loan amount: $100,000)
- Loans that are interest-only.
- No reserves required for cashout loans, and only 6 months required on a DSCR above 1.
- Down payments of as little as 20%.
- Ability to open a loan as a separate entity.
- Less paperwork than a standard loan.
With flexible requirements like a smaller down payment and no proof of income required, there are fewer barriers to getting approved for a DSCR business purpose loan in New York.
What DSCR Do Lenders Look for with Commercial Loans?
When banks are lending for investment properties, they typically look for properties with a positive DSCR ratio, usually at a level of 1.25 or higher. However, Griffin funding will allow for a DSCR as low as .75 to qualify for a DSCR BPL, depending on the amount of cash reserves available. The higher the ratio, the fewer cash reserves are necessary.
The loan must also be used only for investment real estate in New York, such as:
- 1-4 unit investment properties used for business purposes
Griffin Funding is not a licensed residential mortgage broker or lender in New York. We cannot lend on property used as a primary residence or second home. We operate as a commercial lender and only lend DSCR business-purpose loans on investment properties. All commercial loans must be personally guaranteed by the member(s)/shareholder(s) even if the property is held in an LLC.
If you’re unsure of what type of loan you need or need clarification on what types of real estate qualify for a commercial DSCR loan, one of our knowledgeable loan specialists is happy to speak with you.
How Is DSCR Calculated for a Commercial Loan?
DSCR can be calculated by dividing a property’s gross income by the annual debt. Your DSCR is the most important qualification metric for a DSCR commercial real estate investment property loan.
Here’s how that’s broken down into steps:
- Total Gross Income
- Once you have the total gross income/rent, divide the annual debt to get your DSCR. As we mentioned, annual debt includes principal, interest, taxes, insurance, and HOA fees (when applicable) for lending qualification purposes expenses such as management, maintenance, utilities, repairs and vacancy rate are not included in the DSCR calculation for Commercial DSCR loans
- You have your DSCR and you’ll need to determine whether it’s high enough to qualify for a loan based on each lender’s requirements.
A DSCR over 1 covers the mortgage, and a DSCR under 1 does not. In general, a bank will want a DSCR of over 1 to make sure that the loan will be adequately covered. However, as we mentioned before, Griffin Funding accepts DSCRs as low as .75. With that said, keep in mind that the better the DSCR, the better loan terms you’re likely to qualify for.
But what if your DSCR is lower than .75? There are a few things you can do to improve your DSCR ratio so that you can hopefully be approved for a commercial DSCR loan. First and foremost, you may want to try to increase your rental income—this is typically the easiest aspect of the property’s financial situation to manipulate. If that’s not possible, or it’s not enough to raise your DSCR for a commercial loan in NY to where it needs to be, you can also try to lower your mortgage payment.
Apply for a DSCR Loan in NY Now
If you live in the Empire State and are looking to expand your New York investment portfolio with DSCR business purpose loans, Griffin Funding can help you get the funding you need. We strive to offer competitive interest rates and accept lower DSCR ratios to help as many borrowers as possible qualify and get into real estate investing.
We strive to provide five-star, white-glove customer service, focusing on transparency, loans tailored to your needs, and a streamlined lending process to help make securing a loan as painless as possible. Get started today by filling out an application online. Or, if you still have further questions about commercial DSCR loans in NY, you can reach us at (855) 394-8288.