What Is a Commercial DSCR Loan?
A commercial DSCR loan is a type of non-qualified mortgage loan—also known as a non-QM loan—which depends on a property’s cash flow by using the debt service coverage ratio. This is the difference between a property’s total gross rental income and annual debt which includes costs like principal, interest, taxes, insurance, HOA fees, and the like.
A commercial DSCR loan is different from a conventional loan in several ways:
- It is a no-income loan meaning that you don’t need proof of personal income to qualify.
- It has a quicker approval process and typically faster closing times.
- You can typically qualify for lower interest rates than you would with a private loan.
- Close in the name of your business entity.
Overall, a commercial DSCR loan in NC is an alternative option to a private loan that is generally easier to qualify for, especially if you don’t have proof of income. This loan is generally designed for borrowers who would otherwise have a difficult time securing funding for a commercial property loan. It’s an opportunity to expand your commercial real estate portfolio and potentially access better loan terms in the process.
What Can a North Carolina Commercial DSCR Loan Be Used for?
A commercial DSCR loan in North Carolina can only be used for commercial property which is limited to:
- 1-4 unit real estate investment properties used for business purposes.
It’s important to note that a commercial DSCR loan is not eligible for primary residences or property used for personal use.
Let Griffin Funding’s experienced mortgage experts guide you along the path to see if an NC commercial DSCR loan is right for you.
Who Qualifies for a Commercial DSCR Loan in NC?
In general, the standard for lenders is to require a DSCR of 1.25 or higher. This is because a DSCR over 1.0 indicates that the real estate cash flow is sufficient to cover the added cost of a loan. However, some lenders, like Griffin Funding, can be more flexible with their DSCR requirements.
At Griffin Funding, we allow a DSCR as low as 0.75 for an NC commercial DSCR loan. Depending on the cash reserves you have on hand, you can qualify with a ratio of 1.0 with six months of available assets, and you can qualify with a ratio of 0.75 if you have 12 months of cash on hand.
With a lower DSCR threshold, more borrowers are able to take advantage of this more flexible type of commercial real estate investment property loan and access more opportunities to grow their portfolios.
How Do Lenders Calculate DSCR?
DSCR can be calculated by dividing a property’s gross rental income and the total annual mortgage debt.
DSCR = Gross Income/Annual Mortgage Debt
- First, you’ll need to find the total gross income of the property and the annual mortgage debt. Keep in mind that annual debt includes principal, interest, taxes, insurance, and HOA (if applicable).
- Take the gross rent and divide from by the property mortgage debt to calculate your debt service coverage ratio.
A ratio over 1.0 typically provides a level of reassurance to the lender that the debt can be repaid. On the other hand, a ratio lower than 1.0 may raise concerns that you may struggle or be unable to repay your North Carolina DSCR loan. However, Griffin Funding if willing to work with borrowers with DSCRs as low as 0.75.
Griffin funding takes these factors into account when we calculate your loan in our streamlined 10-step lending process for application and approval. If you are still wondering if you qualify for a commercial DSCR loan in North Carolina, apply with us online or give us a call at (855) 394-8288.
Find Out If You Qualify for a North Carolina commercial DSCR Loan
Think a commercial DSCR loan in North Carolina is the right fit for you? Get started with the application process online today, we’re confident you’ll be happy with your choice to work with Griffin Funding. We strive to provide you with the best loan options and lending experience with white-glove, five-star customer service. We have experienced agents on our team and cutting-edge technology at hand to help us find a loan that works for your circumstances and helps you expand your commercial real estate investments.
If you like the idea of a no-income loan, but want to expand into residential real estate, we also provide DSCR loans for residential properties as well, with many of the same benefits a commercial DSCR loan in NC would provide.