What Is a DSCR Business Purpose Loan?
DSCR stands for debt service coverage ratio, a financial metric used by lenders to assess a business’s or property’s ability to generate enough cash flow or income to cover its debt obligations. A DSCR loan is a type of financing used on investment property real estate that offers more flexible lending requirements.
When comparing DSCR loans vs. conventional loans, consider how you want loans to determine your eligibility. Instead of emphasizing a borrower’s personal income, it focuses on the cash flow or rental income of an investment property.
Lenders calculate your DSCR by dividing the total gross rental income by the debt (total mortgage payments including taxes, insurance, and HOA, if applicable). A DSCR greater than 1 suggests that a property generates enough income to cover the mortgage payments. Anything lower than 1 indicates the real estate investor may have difficulty repaying its mortgage.
By focusing on the cash flow of an investment property, DSCR loans provide real estate investors with low personal incomes an alternative to traditional loans they may not otherwise qualify for.
Key Benefits of DSCR Business Loans in Utah
With DSCR loans in Utah, personal income is not taken into account, making these Non-QM loans more accessible to borrowers with lower personal income reported on their tax returns. Other benefits of DSCR business loans in Utah include:
- Faster time to close: Because you don’t need to submit personal financial information, the underwriting process is much more streamlined, offering a faster time to close.
- Multiple properties: With DSCR loans in Utah, there’s no limit on the number of properties you finance with your loan.
- Ideal for all types of investors: Utah DSCR loans are ideal for both new and veteran real estate investors, providing the funds they need to diversify their portfolios or get started in the world of real estate investing.
- Types of properties: DSCR business loans in Utah can be used for long-term and short-term rental properties, including Airbnb properties and commercial and residential properties. DSCR BPLs are best suited for residential 1-4 unit investment properties.
Utah DSCR Loan Qualification Requirements
While qualification requirements for DSCR loans in Utah vary by lender, there are several common factors they consider. The DSCR is the primary qualifying factor for these types of commercial loans. The DSCR allows lenders to assess the borrower’s ability to repay the loan based on the income of the property.
Most Utah lenders require a minimum DSCR of 1.25 to qualify for the loan. However, many lenders are willing to allow lower DSCRs depending on other financial factors, such as credit history and down payment. For instance, Griffin Funding allows DSCRs as low as 0.75. However, interest rates may be higher for properties with a low DSCR. In addition, DSCRs less than 1 will require an additional 12-month reserve.
In addition to a DSCR that meets your lender’s minimum requirements, other lending criteria typically include:
- 620 credit score
- 20-25% down payment
- Must be an investment property (owner occupied primary residences are not allowed)
- $100,000 minimum loan amount
Secure a DSCR Business Loan in Utah
DSCR loans are tailored to your property’s income potential, allowing you to qualify without personal income documentation. From commercial properties to suburban neighborhoods, these loans enable you to secure the financing you need to take advantage of Utah’s real estate market.
Griffin Funding is a trusted DSCR loan lender in Utah that can help you determine whether these loans are the right option for you. Contact us today to learn more about our mortgage loan programs in Utah, or get a mortgage by filling out our online application.
Frequently Asked Questions: Utah DSCR Business Loans
What DSCR do I need to qualify for a DSCR business loan in Utah?
The DSCR you need to qualify for a DSCR business loan in Utah depends on the lender. Most lenders like to see a DSCR above 1. However, Griffin Funding accepts DSCRs as low as 0.75. However, lower DSCRs may have less favorable terms, such as higher interest rates and down payment requirements.
What documents will I need to apply for a DSCR business loan in Utah?
DSCR lenders in Utah typically have similar guidelines, but their processes are different. Not all DSCR loans have the exact same documentation requirements. However, in general, you can expect your lender to ask for the following documentation to determine whether you qualify for a DSCR loan in Utah and the loan amount:
- Credit authorization: Your Utah DSCR lender will send you a credit authorization document to sign that authorizes them to pull your credit report.
- Bank statements: Even though DSCR loans in Utah don’t emphasize personal income, lenders may still ask for bank statements to prove that you have reserves.
- Property insurance: DSCR loans require proof of property insurance to ensure the lender can recover their investment if the property is damaged or destroyed.
- Leases: Your lender will also ask for lease agreements to ensure your rental income will be enough to cover the cost of the loan. If a lease is not available, the appraiser’s comparable rent schedule will be used.
- Short-term rental history: If the property is a short-term rental, lenders may ask for recent booking information and receipts to prove the income of the property. In some cases, we are able to use Airbnb comparables to establish the average annual gross rental income.
- Business documents: Businesses taking out a DSCR business loan in Utah need to provide entity documents, such as Articles of Organization or Operating Agreement, if they wish to close as an LLC.
What types of properties can I purchase with a Utah DSCR business loan?
The types of properties you can purchase with a Utah DSCR business loan vary by lender. At Griffin Funding, you can invest in the following types of residential and commercial properties:
- Single- and multi-family homes
- 1-4 unit properties
These properties can only be used for business purposes only, meaning you can’t use them as your primary residence or for personal use.