What Is a DSCR Business Purpose Loan?
A Minnesota DSCR business purpose loan is a type of commercial loan in which the lender determines a borrower’s ability to repay their mortgage based on the property’s rental income. A borrower’s personal income is not taken into consideration; instead, this type of loan focuses on the debt service coverage ratio (DSCR) as its primary metric.
You can calculate your DSCR by dividing a property’s gross rental income by the total debt service, including its principal, interest, taxes, and insurance. The most common minimum DSCR lenders in Minnesota look for is 1.25. This means the property generates 25% more income than it costs to repay the mortgage. A higher DSCR means there’s more of a cushion for periods of downturn.
Minnesota DSCR business loans are ideal for real estate investors and business owners who take deductions on their tax returns, so their taxable income doesn’t completely reflect their overall financial situation. Instead, these individuals may choose to invest in rental property based on the performance of the property rather than the income stated on tax returns.
Benefits of Getting a DSCR Business Loan in Minnesota
The primary benefit of getting a DSCR business loan in Minnesota is that it focuses on rental income rather than the borrower’s income. This can especially benefit borrowers with cash flow but lower personal incomes. Other benefits of Minnesota DSCR business loans include the following:
- Provide the funding for expansion: DSCR commercial loans in Minnesota can expand your opportunities. With these types of loans, you can purchase multiple properties at once to generate strong cash flow and provide the additional capital needed to continue that expansion, even if your personal income doesn’t meet the requirements for traditional investment property loans.
- Offer flexibility: DSCR loans in Minnesota offer the ability to purchase commercial and residential properties and short- and long-term rentals, giving you flexibility and control over your investments.
- Large loan amounts: Since DSCR loans are based on the property’s income, they often offer larger loan amounts than loans that use personal income to determine eligibility.
Key highlights from Griffin Funding’s Minnesota DSCR business loans include:
- Faster time to close
- No job history or income verification required
- No limit on the number of properties you can finance
- Unlimited cash-out
- Loan amounts up to $5,000,000
- As little as 20% down payments
- Credit scores as low as 620
- Interest-only loan options available
- No reserves required on cash-out loans; six months of reserves required on all others
How to Apply for a DSCR Business Loan in Minnesota
The most significant lending criteria for DSCR loans in Minnesota is the borrower’s DSCR. Griffin Funding accepts DSCRs as low as 0.75. However, low DSCRs can affect the loan terms, interest rate, and how much you qualify for. Other requirements include:
- Down payment: DSCR loans in Minnesota allow for down payments as low as 20% for borrowers with good DSCRs and credit scores. However, the more you put down, the lower your interest rates will be, so a higher down payment might be the best solution for borrowers looking for savings.
- Credit score: Most lenders require a credit score of at least 620 to qualify for the loan. While credit score is less important than DSCR, it can impact your loan interest rate.
- Property type: The property you wish to purchase must generate income for business or investment purposes. This can include short- and long-term rental properties. DSCR BPLs are loans best suited for 1-4 unit residential investment properties.
- Minimum Loan Amount: Starts at $100,000
Exact requirements for Minnesota DSCR business loans vary by lender.
Once you’ve determined both you and the property are eligible for a Minnesota DSCR loan, you can begin the application process. Griffin Funding aims to provide a streamlined process to help you get a mortgage, which consists of the following steps:
- Completing a loan application
- Calculating your DSCR
- Locking in your interest rate
- Getting approved
- Funding the loan
See if a Minnesota DSCR Business Loan Is Right for You
DSCR loans in Minnesota are designed to help businesses and investors secure financing for investment properties without using their personal income to qualify. These loans are ideal for new and seasoned investors and can help you build your portfolio while generating wealth.
Make an appointment with one of our loan specialists to discuss Minnesota DSCR loans and find out if you qualify. Or contact us to let us help you find the best loan option based on your unique circumstances. Even if you don’t qualify for a DSCR loan, you may still qualify for our Non-QM loans. Contact us today.
Frequently Asked Questions: Minnesota DSCR Business Loans
What is the minimum DSCR I need for a DSCR business loan in Minnesota?
The minimum DSCR needed for a DSCR business loan in Minnesota varies by lender. Griffin Funding accepts DSCRs as low as 0.75. However, you’ll need to have at least six months of reserves. In addition, a lower DSCR may translate to higher interest rates.
What documents will I need to apply for a DSCR business loan in Minnesota?
The documents you need to apply for a DSCR business loan can vary by lender. If you want to streamline the application process, you can contact your lender ahead of time to get a checklist of the types of documentation required. In general, you should prepare the following:
- Business formation documents: If you plan to close as an LLC, you should prepare articles of organization, operating agreement, EIN letter from IRS, and certificate of good standing.
- Property financial documents: DSCR loans rely on the property’s income, so you’ll need to provide documentation demonstrating that it can generate enough rental income to repay the mortgage, such as lease agreements and a comparable rent schedule from an appraisal.
- Proof of reserves: Typically, you’ll need at least a few months of reserves to be eligible for the loan. You can provide proof of reserves in the form of bank statements, investment account statements, and other liquid assets.
What types of properties can I purchase with a Minnesota DSCR business loan?
Real estate investors can purchase the following property types using a DSCR business loan in Minnesota:
- Single- and multi-family homes
- 1-4 unit properties