What Are DSCR Loans?
Debt service coverage loans, or DSCR loans, are a type of non-QM loan. Non-QM loans are mortgage programs that don’t require you to go through the traditional mortgage application process—including avoiding many of the restrictive qualification requirements. Your debt service coverage ratio (DSCR) is your rental income versus the amount of annual debt a property generates. Not only are non-QM loans a good option for borrowers who can’t qualify for a traditional loan, but they’re also specifically tailored to the needs of real estate investors.
Typically, borrowers who apply for DSCR loans in MD are real estate investors who are looking for capital to expand their portfolios to multiple rental properties. In fact, DSCR loans are only available for rental properties because your rental income is used to determine your eligibility for a Maryland debt service coverage ratio loan.
Benefits of Maryland DSCR Loans
There are lots of reasons a borrower might choose a DSCR loan over a conventional Maryland home loan. Some individuals opt for DSCR loans because they can’t qualify for a loan through the traditional mortgage process, but others may simply find it more advantageous. DSCR loans in Maryland can actually offer several benefits over conventional loans, including:
- Faster closing times in some cases
- Loans up to $5,000,000
- Unlimited number of properties
- Interest-only loans are available
- DSCR loans work for short-term and long-term rentals, including Airbnb
- Unlimited cashout on a refinance up to 80% of the value of your property
- Down payments as low as 20%
- 6 months reserves required on loans with a DSCR of 1 or higher
Keep in mind that DSCR loans in Maryland aren’t right for everybody. At Griffin Funding, we offer several different types of loans that may be suitable for real estate investors. One of our knowledgeable loan specialists can help you decide on the best loan based on your circumstances.
How Is DSCR Calculated?
How Is DSCR Calculated?
Before you are approved for a Maryland debt service coverage ratio loan, the lender will need to calculate your DSCR to see if you’re eligible. Fortunately, there’s a fairly straightforward process used to calculate DSCR:
- The first step is determining your rental income, which means looking at your lease agreement and having an appraisal provide an estimate of your rental rate. We’ll choose the lower one of these two numbers. However, you also have the option of providing 12 months of rental income history instead of having an appraiser provide an estimate.
- Next, we need to calculate your annual debt, which is the amount you pay toward principal, interest, taxes, insurance, and HOA payments (if applicable) on an annual basis.
- The last step is dividing your annual rental income by your annual debt to calculate your DSCR. If these two numbers are the same, you have a DSCR of 1.
Let’s say we estimate your annual rental income to be $125,000 and your annual debt to be $100,000. We’ll take $125,000 and divide that by $100,000, which equals a DSCR of 1.25. A good DSCR is essential to securing DSCR loans in Maryland and any other state—especially if you want the best loan terms.
What DSCR Do Lenders Look for?
When you apply for a DSCR loan, the first thing your lender will do is calculate your DSCR. Most lenders look for borrowers with a DSCR of at least 1.25 to be eligible for a loan, but that’s not always the case.
If your DSCR is lower than 1.25, you may still be eligible for a loan. Griffin Funding offers DSCR loans in MD as long as you have a DSCR of at least 0.75 and meet all the other requirements. If your DSCR is lower than 0.75, you may qualify for other types of non-QM loans, such as our recent credit event loans for borrowers who have taken a significant hit to their credit within the last few months or years. Minimum down-payment and credit score are required.
Maryland DSCR Loan Requirements
Maryland DSCR Loan Requirements
Your DSCR is the most important factor when it comes to qualifying for a DSCR loan in Maryland, but there are also other requirements. It’s important to note that different lenders will set their own standards for minimum DSCR.
In addition to a certain DSCR, lenders also require that you provide certain documentation with your application. Once your loan has been approved, you’ll be required to make a down payment in order to receive your funds. At Griffin Funding, we offer Maryland DSCR loans with down payments as low as 20%.
Keep in mind that your DSCR determines the terms of your loans, and a better DSCR will result in more favorable terms.
Where Can You Get a Maryland DSCR Loan?
Griffin Funding provides Maryland DSCR loans to borrowers throughout the state of Maryland, including:
- Ocean City
- Maryland City
- Bel Air
Don’t see your city listed, reach out to us to see if we can assist you with your DSCR loan.
Other Types of Loans for Borrowers with Low DSCR
If you’re not eligible for a DSCR loan because your DSCR isn’t high enough, there are other types of non-QM loans you can apply for through Griffin Funding. These include:
- Bank statement loans: These loans allow you to qualify for a home loan using bank statements instead of W-2s and tax returns as proof of income.
- Recent credit event loans: If your credit was negatively impacted by a recent event, you may still be eligible for a recent credit event loan.
- Interest-only home loans: With interest-only home loans, you spend a set period of time paying toward interest only. After that period of time, your payments are recalculated and you begin paying off the principal.
Each type of non-QM loan program has its own advantages. Our loan experts can help you decide what the best course of action is for you.
Apply for a Maryland DSCR Loan
Getting started with real estate investing can be tough, but DSCR loans in Maryland make it easier to invest in rental property. Griffin Funding is proud to offer diverse loans with competitive interest rates for real estate investors, so even if your DSCR isn’t 0.75 or higher, you might still be able to secure the funding you need. If you want to find out if you qualify for a DSCR loan call us at (855) 394-8288 or apply online now.