DSCR Loans in Arizona

What Is a DSCR Loan?

Traditional Arizona home loans require you to submit tax returns and pay stubs and go through an often tedious application process. Debt service coverage ratio (DSCR) loans are a type of non-QM loan that allows investors to skip some of the hassles of investing in real estate. 

Investors who aren’t able to qualify for a traditional mortgage may choose a non-QM DSCR loan to save time and make it easier to invest. DSCR loans in Arizona allow investors to secure a loan based on the ratio of the rental income of a property compared to its debt obligations.

If you want to invest in real estate, DSCR loans in Arizona can help you expand your investment portfolio and build a passive income stream.

How Does an Arizona DSCR Loan Work?

If you’re considering applying for a DSCR loan in Arizona, you probably have a few questions about how they work. DSCR loans are used to invest in real estate and are a smart option for people who can’t qualify for a regular mortgage or who don’t want to go through the full documentation loan process.

Unlike traditional mortgage loans, debt service coverage ratio loans in Arizona compare the annual rental income of a property to the annual debt obligations of the property. This number is referred to as your DSCR, and it’s what lenders use to determine if you’re eligible for a loan.

Keep in mind that DSCR loans essentially work the same way in every state. Typically, the only thing that changes from state to state is the cost of a property and the average rental value of a property.

How Is DSCR Calculated?

To see if you qualify for a DSCR loan, lenders will look at your debt service coverage ratio (DSCR). DSCR is your annual gross rental income divided by your property’s debt obligations. Here’s how it works:

1. First, we calculate your gross rental income using your lease agreement and an appraiser’s estimate of your rental rate. The lower of the two values is used as your rental income. If you have 12 months of rental income that you can prove, you can use that instead of the appraiser’s rent schedule.
2. Next, we’ll look at your annual debt, which includes principal, interest, taxes, insurance, and HOA payments if you make them.
3. Finally, we’ll divide your gross rental income by your annual debt to calculate your DSCR and determine your eligibility for a DSCR loan.

If you would like to quickly estimate your debt service coverage ratio, feel free to use our DSCR calculator.

What Is a Good DSCR Ratio?

Typically, a good DSCR ratio is one that’s above 1.0, which means you’re generating positive income compared to your debt obligations. However, Griffin Funding allows real estate investors to apply for DSCR loans in Arizona with a DSCR ratio of less than 1.0 in certain cases. Keep in mind that a higher DSCR ratio will typically result in a lower DSCR loan rate in Arizona, but that doesn’t mean you need an exceptionally high DSCR ratio to invest.

Note that DSCR loan requirements in Arizona will vary based on the lender you work with. At Griffin Funding, we offer flexible qualification requirements in addition to industry-leading expertise.

What Do DSCR Lenders Look for?

As mentioned, the most important factor DSCR lenders look at is your rental income to property debt obligation ratio. However, there are other requirements you must meet to be approved for a DSCR loan.

For example, at Griffin Funding, if you have a DSCR ratio of less than 1.0, you’ll also need at least 12 months of reserves to qualify for a loan. Reserves are assets you have immediate access to—cash being the most common—that you can use to pay your mortgage in case of emergency. Reserves are calculated after you’ve made a down payment and paid closing costs. Minimum credit scores are required.

Who Is a DSCR Loan Best Suited for?

DSCR loans in Arizona are designed for real estate investors looking to start or expand their real estate investment portfolio. This type of financing is a great option for investors who take tax write-offs or don’t have the traditional income streams required to qualify for a conventional loan.

DSCR loans are not for those looking to buy a primary residence or fix-and-flip properties. In order to qualify for a DSCR mortgage in Arizona, you must be purchasing an income-producing rental property.

If you’re self-employed and don’t have W-2s and pay stubs—and don’t plan on investing in multiple properties— bank statement loans may be a better option for you.

Arizona DSCR Loan Highlights

Below are some of the key benefits offered by DSCR loans in Arizona:

• No traditional income verification: Qualify for a DSCR loan in Arizona using a property’s cash flow rather than W-2s or tax returns.
• Flexible qualification requirements: As a non-QM loan, DSCR loans aren’t subject to the strict requirements that traditional mortgages adhere to. This means lenders can be more flexible when it comes to things like credit score, DTI, and down payment.
• Buy multiple properties: An Arizona DSCR loan enables you to purchase multiple properties simultaneously. Unlike with conventional loans, there are no limits on the number of properties you can finance using a DSCR loan.
• Secure generous amounts of financing: When you work with Griffin Funding, you can secure jumbo DSCR loans with loan amounts reaching up to $20 million.
• Streamlined approval process: We offer a streamlined approval process for Arizona DSCR loans, meaning you can avoid submitting overwhelming amounts of paperwork and close on a property quickly.

If you still have questions about Arizona DSCR loans, speak with one of our knowledgeable specialists today who can help find the best loan solution for you.

Other Loan Options for Borrowers with Low DSCR

If you have a low DSCR or a DSCR loan doesn’t align with your needs, there may be some other loan options for you to consider:

• Asset-based loans: Asset-based loans use assets as income to secure a mortgage. These loans are often used by owners of small- and medium-sized businesses.
• Bank statement loans: A bank statement loan allows you to apply for a mortgage using only bank statements, rather than tax returns and W-2s.
• Recent credit event loans: If your credit score dropped due to a recent event such as bankruptcy or foreclosure, you still may be able to secure a mortgage with one of these loans.

Apply for a DSCR Loan in Arizona

DSCR loans provide a great opportunity for real estate investors to get the funding they need to invest in more properties and grow their portfolio. Griffin Funding is a leading DSCR lender in Arizona, and we offer excellent customer service and expertise to all of our clients. Additionally, we provide tools like the Griffin Gold app for those who want to manage their finances and compare their mortgage options.

Ready to lock in your DSCR loan rate in Arizona? Apply for a DSCR loan with Griffin Funding or call (855) 394-8288 to learn more about our mortgage programs.