DSCR Loans in Michigan

Where We Lend

If you’re considering a DSCR loan in Michigan, Griffin Funding serves the following areas:

What is a DSCR Loan?

A DSCR loan in Michigan is a mortgage loan that uses your debt service coverage ratio (shortened to “DSCR”) to qualify for a loan to buy an investment property. DSCR is the ratio between your annual rental property income and the annual debt obligation of the property you’re looking to invest in.

With DSCR loans, instead of using conventional pay stubs and tax returns to qualify, you leverage the rental income you earn yearly. And because you’re using your rental properties to help qualify, DSCR loans in Michigan are a great option for self-employed individuals or those who cannot prove consistent income for a conventional loan.

Who Should Consider a Michigan DSCR Loan?

Unlike other types of Michigan home loans, DSCR loans in MI are tailored specifically to suit the needs of real estate investors or those who want to expand their portfolio of rental properties. Their different application processes make them suitable for both new and experienced investors, and they offer competitive interest rates and other noteworthy benefits.

The Michigan real estate market is experiencing significant growth, with the median home value increasing by 6.6% over the past year. This growth reflects a robust market with great investment opportunities, making DSCR loans a solid option for investors.

How Does a DSCR Loan Work?

DSCR loans are non-QM loans, which are loans that have less strict requirements and approval processes compared to conventional mortgages. Non-QM loans can be well-suited to many types of borrowers, from self-employed individuals to real estate investors. Instead of having to submit W-2s, pay stubs, and employment verification documentation, non-QM loans offer alternative requirements that tend to be easier to qualify with.

Unlike other types of non-QM loans, such as asset-based loans, recent credit event loans, and bank statement loans, DSCR loans are designed explicitly for real estate investors. When you secure a DSCR loan, you can’t use that money to purchase owner-occupied properties. This is because DSCR measures how well a property’s rental income can pay the debts that the property creates.

What Is the Importance of DSCR for Real Estate Investment Loans?

DSCR, or debt service coverage ratio, is the amount of rental income you have compared to your annual debt. If your annual rental income is higher than your annual debt, lenders will see that you’re capable of making your loan payments on time.

Lenders offer DSCR loans so you can purchase a rental property and use the rental income to pay your monthly loan payments. If you have a DSCR of at least 1, that means your rental income is the same or higher than your annual debt. Most lenders have a specific minimum DSCR you must meet to qualify for a loan, although this number changes from lender to lender.

How Is DSCR Calculated?

Before you can qualify for DSCR loans in Michigan, lenders will have to calculate your DSCR ratio. Your DSCR is used to determine whether or not you’re eligible for a loan, so it’s an important metric. Here’s the formula for calculating DSCR:

Debt service coverage ratio (DSCR) = annual rental income ÷ annual debt

Here’s how Griffin Funding calculates your DSCR in detail:

1. First, we need to determine your annual rental income or the money you can make through rent payments. We determine this using your lease agreement and an estimate from an appraiser using Form 1007. The lower of the two numbers is used for your rental rate. Conversely, you can provide 12 months of rental income history to avoid an appraisal.
2. Next, we’ll calculate your annual debt. Your annual debt is the amount you pay in principal, interest, taxes, insurance, and HOA fees throughout the year.
3. Finally, we divide your rental income by your annual debt for an accurate DSCR.

Or, if you’d prefer to keep the math simple, try our quick & easy online DSCR calculator.

Pros and Cons of Michigan DSCR Loans

Choosing the right type of loan is important, and there are several benefits to Michigan DSCR loans. However, you should also be aware of any potential drawbacks. Here are some important pros and cons to consider:

Pros:

• DSCR loans may have faster closing times
• You don’t have to provide proof of income or employment verification
• Interest-only loans are available
• Available for both new and veteran investors to help expand their real estate portfolio
• Down payments as low as 20%
• Competitive interest rates
• Cash-out refinance options

Cons:

• A low DSCR may require a higher down payment. If you’re purchasing a high-value property, the average down payment of 20% – 30% may require substantial cash reserves.
• Though the rates are still competitive, DSCR mortgage loan rates in Michigan may be higher than those of a conventional mortgage.
• If you have vacant investment properties or the local real estate market is stagnant, meeting the minimum DSCR requirement may be difficult.

DSCR Loan Michigan Requirements

If you want to apply for DSCR loans in Michigan, you’ll need to have a DSCR that meets a certain threshold. Different lenders have their own minimums, but this is always a requirement.

To secure a loan, you must meet a certain DSCR threshold, have a minimum credit score, and make a down payment. We require a down payment of at least 20%, with higher down payments required for lower DSCR ratios. The average down payment tends to be between 20% and 30%.

While there are some requirements for DSCR loans in Michigan, these requirements are much more flexible than traditional loans. If you can’t qualify for a conventional loan, DSCR loans in Michigan are a good alternative.

You can download the Griffin Gold app today to monitor your credit score, learn more about Griffin Funding’s loan programs, and begin building an action plan for approval.

What DSCR Do Lenders Look for?

To be eligible for DSCR loans in Michigan, you must have a certain DSCR. Typically, lenders require a DSCR of 1.25. With Griffin Funding, you can secure a loan with a DSCR of less than 1.0. Higher is always better, and most lenders will consider a good DSCR as anything above 1.0.

Fortunately for many borrowers, getting a DSCR loan is not hard. Whether you’re new to real estate investment or are self-employed and can’t provide the necessary income for a conventional loan, Griffin Funding can help you find a program that works for your needs and budget.

Find Out If You Qualify for a Michigan DSCR Loan

Debt service coverage loans in MI from Griffin Funding are a great option if you need help investing in real estate. We provide flexible loan solutions, competitive rates, and a simple application process to make the process as painless as possible. Call (855) 394-8288 to speak with one of our loan officers today, or apply online to get started with your DSCR loan in MI.