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 who want to expand their portfolio of rental properties. These loans have a different application process that makes them suitable for both new and experienced investors, plus they offer competitive interest rates and other noteworthy benefits.
DSCR loans are used to purchase property that you intend to rent. As a matter of fact, you can’t use DSCR loans to purchase an owner-occupied property. However, there are other types of loans you can secure if you want to purchase a rental property, but it depends on what you’re eligible for and what loan program you prefer.
Where We Lend
If you’re considering a DSCR loan in Michigan, Griffin Funding serves the following areas:
- Ann Arbor
- Grand Rapids
- Farmington Hills
- Rochester Hills
- And more!
How Does a DSCR Loan Work?
How Does a DSCR Loan Work?
Understanding how debt service coverage ratio loans in MI work is an important first step. 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 is a measure of how well a property’s rental income can pay the debts that property creates.
Essentially, lenders are willing to provide DSCR loans for you to buy a house as long as you use the monthly rental income to make on-time payments. If your rental income isn’t enough to secure a loan, you might have to consider another option instead of a DSCR loan in MI.
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 the amount of annual debt you have. If your annual rental income is higher than your annual debt, that shows lenders that you’re capable of making your loan payments on time.
Lenders offer DSCR loans so you can purchase a rental property, from which you can 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 in order to qualify for a loan, although this number changes from lender to lender.
How Is DSCR Calculated?
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:
- 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 as well as 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.
- 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.
- Finally, we divide your rental income by your annual debt to get an accurate DSCR.
Benefits of Michigan DSCR Loans
Choosing the right type of loan is important, and there are several benefits to Michigan debt service coverage ratio loans, including:
- 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 new and veteran investors
- Down payments as low as 20%
- Competitive interest rates
- Cashout refinance options
If you’re not a real estate investor, don’t worry, we also have other loans that offer advantages over conventional loans.
Michigan DSCR Eligibility 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.
In addition to meeting a certain DSCR threshold, you also have to make a down payment to secure a loan. We require a down payment of at least 20%, with higher down payments required for lower DSCR ratios.
While there are some requirements for DSCR loans, 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.
What DSCR Do Lenders Look for?
In order to be eligible for DSCR loans in Michigan, you’ll need to have a certain DSCR. The minimum DSCR changes depending on the lender, but there’s always a minimum. For many lenders, you’re required to have a DSCR of 1.25. With Griffin Funding, you can secure a loan with a DSCR as low as 0.75.
Find Out If You Qualify for a Michigan DSCR Loan
Debt service coverage loans in MI from Griffin Funding are a strong option to consider if you need help investing in real estate. Not only do we provide flexible loan solutions, but we also offer competitive rates and a simple application process to make it as painless as possible. Call (855) 394-8288 to speak with one of our loan officers today or fill out our online application to get started with your DSCR loan in MI today.