What Is a DSCR Business Purpose Loan?
A DSCR business loan is a type of financing that allows lenders to evaluate the rental property income or cash flow of a business to determine its ability to repay the mortgage. These commercial loans are determined by a key metric called the debt service coverage ratio (DSCR) and are to be used on residential 1-4 unit investment properties.
DSCR lenders in Kentucky calculate the DSCR by dividing the property’s gross rental income by the total debt service (the mortgage). For instance, if the investment property generates $200,000 per year and its total debt service is $150,000 per year, the DSCR is 1.33. A DSCR above one indicates that a business or investment property generates enough income to repay its mortgage loan.
What makes DSCR business loans in Kentucky different from traditional investment loans is that the borrower’s eligibility and loan amount are determined by the DSCR rather than personal income. These Non-QM loans are often used by entrepreneurs and real estate investors.
Kentucky DSCR Business Purpose Loans Benefits
DSCR business purpose loans (DSCR BPL) in Kentucky offer more flexible lending criteria. Since they consider your rental income rather than personal income, they’re more accessible to businesses and investors that may not qualify for traditional investment property loans.
With a streamlined path to secure financing based on rental income potential, Griffin Funding’s Kentucky DSCR loans offer the following benefits:
- No restrictions on the number of properties you can own
- Faster closing times
- Unlimited cash out opportunities
- Income verification is not required
- Down payments as low as 20%
- Available for long- and short-term rental properties
- Options for interest-only loans
- Loan amounts up to $5,000,000
- Can close in the name of your LLC
How to Get a DSCR Business Loan in Kentucky
The main criteria for a DSCR business loan in Kentucky is the DSCR. Most DSCR lenders in Kentucky require a minimum DSCR of 1.25 to qualify for the loan. However, Griffin Funding accepts DSCRs as low as 0.75. Keep in mind that the higher your DSCR, the better your interest rate. In addition, DSCRs less than 1 will require at least 12 months of reserves.
Other key qualifying criteria include:
- Down payment: Down payments for DSCR loans range from 20-25% and depend on a borrower’s unique financial metrics, such as DSCR and credit score.
- Minimum loan amount: $100,000
- Credit score: Most lenders require borrowers to have a credit score of at least 620 to qualify for DSCR loans in Kentucky.
- Appraisal: Lenders will order a property appraisal and rent schedule to analyze the property and determine its value and fair market rent to calculate your DSCR.
Apply for a DSCR Business Loan in Kentucky Today
DSCR loans are well suited for novice and seasoned investors, allowing them to enter the real estate investing world without relying on personal income.
Griffin Funding offers a simplified and streamlined loan process tailored to your unique circumstances. Contact us today to learn more about DSCR loans in Kentucky.
Frequently Asked Questions: Kentucky DSCR Business Loans
Do you need to file taxes to qualify for a Kentucky DSCR business loan?
Kentucky DSCR business loans don’t require you to provide proof of income to qualify. Instead, lenders will rely on other financial documentation to assess your financial health and ability to repay the debt service.
The main criterion for a DSCR business loan is the investment property’s gross rental income compared to its debt obligations. Some lenders may still want to see tax returns, P&L statements, and balance sheets to get a full picture of your financial situation, but it’s not necessary in most cases.
How much is the down payment for a DSCR business loan in Kentucky?
Down payment requirements for DSCR loans in Kentucky range from 20-30% of the property’s value. However, every lender is different. A larger down payment means you don’t need to borrow as much, and a lower loan amount means paying less in interest over the life of the loan.
In addition, a larger down payment can help you get better interest rates because it demonstrates to lenders that you’re a less risky borrower.
Several factors can influence your required down payment amount, including:
- DSCR: The higher your DCR, the less risky the loan is to the lender. If you have a high DSCR, indicating a strong ability to repay the mortgage, a lender may be willing to accept a lower down payment.
- Credit score: DSCR loans focus on the income generated by the property, but your credit score can prove your creditworthiness and make you appear as less of a risk to lenders. Higher credit scores might help you get more favorable terms, including potentially lower down payments.
- Market conditions: Economic and real estate market conditions can also play a role in down payment requirements. In declining markets, lenders may minimize their risk by asking for higher down payments.
How many DSCR business loans can you have at once in Kentucky?
There’s no limit to how many DSCR loans you can have at once. However, lenders will consider the amount of debt you already have to determine whether you qualify for the loan. If the total debt becomes too high, it may limit your ability to get a mortgage.
In any case, as long as your property maintains a positive or acceptable DSCR, you should be able to take out as many DSCR business loans as necessary. However, you should still keep in mind that lenders will also consider your creditworthiness and market conditions to determine how many loans they approve.