What Is a DSCR Business Loan?
DSCR business loans are commercial loans that focus on the cash flow of the property rather than the borrower’s personal income. Since many investors or business owners take deductions on their tax returns and are self-employed, these documents might not give lenders an accurate picture of their financial situation.
DSCR loans allow investors to qualify for a loan based on the property’s performance rather than income stated on tax returns. These Non-QM loans use the debt service coverage ratio (DSCR) as a key financial metric to determine a borrower’s ability to repay the mortgage debt.
Lenders calculate your DSCR by dividing the rental income over the property by the total debt, including interest and principal payments. A DSCR greater than 1 indicates that the business or investor has sufficient income to pay debt obligations.
DSCR business loans are best suited for real estate investors, business owners, and other entities with strong rental property income and cash flow but lower personal incomes because of the deductions they take on their tax returns. These loans are often used for financing investment properties or refinancing existing loans.
Massachusetts DSCR Business Loans Benefits
The primary benefit of DSCR loans is that they make purchasing investment property more accessible for a wider pool of investors because they’re cash flow focused rather than personal income focused. This can benefit those with high rental incomes but low personal incomes.
Additionally, these loans are more flexible and can be used for one to four unit single-family-residences. Plus, there’s no limit on the number of properties you finance with Massachusetts DSCR business loans.
Essentially, with a Massachusetts DSCR no-income business purpose investment property loan, the property pays for itself. The rental income is used to service the debt, allowing you to repay your mortgage using rental income rather than personal income.
Key highlights of Griffin Funding’s DSCR business loans in Massachusetts include:
- No limit on the number of properties you can finance
- Typically faster closing times compared to traditional loans
- Unlimited cash-out possibilities
- No income verification required to qualify
- Requires as little as 20% down payment
- Suited for long- and short-term rental properties
- Offers options for interest-only loans
- Large loan amounts available — up to $5,000,000 (minimum loan amount of $100,000)
- Ability to close on the loan in the name of your LLC
How to Get a DSCR Business Loan in Massachusetts
DSCR commercial loans in Massachusetts are considered more flexible than traditional investment property loans because they don’t rely on the borrower’s personal income. However, you’ll need to meet your lender’s criteria to qualify, which may include:
- Minimum DSCR: Many DSCR lenders in Massachusetts set a minimum DSCR of 1.25 to ensure the borrower has enough rental income to pay for the mortgage, with some left over as a cushion. A DSCR above 1 means the income generated should be sufficient enough to cover loan payments. The specific DSCR required varies by lender. For instance, Griffin Funding accepts DSCRs as low as 0.75.
- Property value: The property’s appraised value may also need to meet certain criteria. For instance, the loan-to-value (LTV) ratio, the percentage of a property’s value being financed, must be within a lender’s acceptable limits.
- Property type: While DSCR loans can finance a wide variety of property types, some lenders may restrict loans to particular types of properties.
- Credit Score: Most lenders like to see a credit score of at least 620 to qualify for DSCR loans in Massachusetts. The specific credit score will vary by lender.
- Reserves: Lenders may require a certain amount of cash reserves to cover vacancies and other unexpected costs that could affect the borrower’s ability to repay the mortgage debt.
Apply for a DSCR Business Loan in Massachusetts Today
DSCR loans are ideal for experienced real estate investors who want more flexibility, allowing them to qualify for a loan based on the potential performance of the property rather than personal income.
Get a mortgage with Griffin Funding today. Contact us to learn more about DSCR loans and see if you qualify based on your unique financial situation and needs.
Frequently Asked Questions: Massachusetts DSCR Business Loans
Who should apply for a business DSCR loan in Massachusetts?
DSCR commercial loans in Massachusetts are particularly useful for certain types of borrowers, such as:
- Real estate investors
- Business owners
- Self-employed individuals
What types of properties can I purchase with a DSCR business loan in Massachusetts?
The type of properties you can purchase with a DSCR business loan in Massachusetts vary by lender. At Griffin Funding, you can purchase the following properties:
- Single- and multi-family homes
- 1-4 unit properties
We only offer these commercial loans on 1-4 unit residential investment properties used for business purposes. Therefore, you can’t live on the property. These loans can only be used for business purposes, meaning the purchased property should be dedicated to income-generating activities like renting to tenants or used for business operations.
What does the DSCR loan application process look like?
Griffin Funding aims to make the loan application process as seamless as possible. We start with a discovery call to ensure you understand the requirements of a DSCR loan and to learn more about you and your financial situation. After you’ve found a property, you can complete our online application, or we can walk you through the application over the phone.
Then, the application goes through our underwriting process, in which we verify all the information you’ve shared with us in the application.
Once your application is approved, we’ll notify you and set a date and time for closing on the loan.