What Is a DSCR Loan?
A DSCR loan fills the need for the growing number of real estate investors who choose to invest in New Mexico properties that don’t qualify for regular mortgages. How can this help investors? For one thing, it negates the need for the traditional runaround of regular mortgage loans and makes it so that you don’t have to submit any tax forms.
Some call this type of loan a “non-income” loan because you don’t have to live up to the standards of the normal debt-to-income ratio criteria of most loan processes. Instead, it is calculated a bit differently to allow for more investors to be able to take part in the opportunities in today’s current real estate market.
How Is DSCR Calculated?
DSCR is calculated by taking the ratio of “debt service coverage” meaning how much you are making on rental homes in your area on an annual basis by your total mortgage payments including taxes and insurance.
This avoids following the conventional debt-to-income ratio of the average consumer and instead lets you lean on the amount of gross rental income you take in on a yearly basis and divide this by the debt you owe to maintain or run your rental business.
Formula for a DSCR Loan
To calculate your DSCR ratio, use the following formula:
Annual Gross Rental Income / Debt Obligations = Debt Service Coverage Ratio
What Is a Good DSCR Ratio?
Many banks require a DSCR of 1.0 in order to qualify for a DSCR loan, but at Griffin Funding we provide loans for those with a DSCR ratio as low as 0.75. Banks know they are likely to get their money back over time if they empower real estate investors to continue to grow and invest in more properties.
The bottom line of the DSCR ratio is that you must have enough positive cash flow as an investor to stay solvent and to continue to grow your investment properties so they, too, can profit from your solvency.
What Do DSCR Lenders Look for?
When looking for DSCR loans, New Mexico offers many options. What they are looking for is an investor who has shown a positive cash flow and a healthy annualized income that will offset any indebtedness that might slow down your ability to grow.
Who Is a DSCR Loan Best Suited for?
DSCR loans in New Mexico are best suited for the New Mexico resident who either has a personal or corporate interest in being a long-term real estate investor. For the real estate market, it’s all about the long-term advances you can make to become a stable investor in the market that continually makes good investments that pay off.
But your cash flow is the key component of your ability to secure a DSCR loan. If New Mexico mortgage bankers believe you will remain solid as an investment company, you may be more likely to qualify for a loan that can serve as a large cash advance towards your next purchase. This is why these kinds of loans are often referred to as “non-income” loans. It does require a cash upfront down-payment to purchase the homes or apartments you wish to rent out. And also it does take a positive cash flow from rental income, so that lender secures their investment in you.
DSCR Loan Requirements
Some of the primary requirements to secure a DSCR loan in New Mexico include:
- A minimum credit score
- A minimum down-payment of at least 20%
- A debt service coverage ratio of 0.75 or higher
- Liquid Assets/Reserves may be required on some DSCR loans
In the end, it all ends up in the same way regular loans do: Do you make enough money to pay your debts each month? However, it is believed by most lenders that if you have already generated a positive cash flow with your rental properties sufficient to pay your debts (excluding operations costs and other expenses), then they may be willing to take a chance on you.
How Does a New Mexico DSCR Loan Work?
If you are a resident of New Mexico and want a New Mexico rental property loan, you will need to provide the following:
- A record of your income and output for your real estate business such as a lease agreement
- Any other assets such as properties you have purchased outright and paid off to illustrate your ability to pay off any newly incurred debt in the future
- Stable rental properties that are profitable and not in need of many renovations
Areas We Serve
If you are interested in the New Mexico DSCR program, Griffin Funding can help meet your needs. Whether you prefer the urban areas or the sprawling untamed rural areas, we can help you secure a New Mexico DSCR loan that will suit your needs. We are happy to offer New Mexico DSCR loans with a competitive rate, no matter where you live.
Some of the New Mexico locations we serve include:
- Rio Rancho
- Las Cruces
- Santa Fe
- South Valley
What Are the Requirements for a DSCR Loan in New Mexico?
If you are ready to apply, get your paperwork together and remember the main requirements are:
- A minimum down-payment
- A minimum credit score
- Assets in case you need them
- DSCR ratio of 0.75 or higher
Apply for a DSCR Loan in New Mexico
To get your real estate investment loan, contact us at your earliest convenience. You’ll quickly see why so many borrowers and investors prefer us to our competition. We can work with you to help you secure the loan you need.
Apply for a New Mexico DSCR loan today with Griffin Funding, your best option for mortgage lenders. We honor both conventional and non-conventional loans. We also offer many different loan options besides the DSCR loan–from fixed-rate mortgages to VA loans–but a DSCR loan can be a great option for those who don’t want to use their income to qualify.