DSCR Mortgage Loans: Are These Loans Good For The Average Buyer?

If you are planning to buy an investment property, this will likely be one of the largest investments you will ever make in your financial future. Along the way, you will learn that there are several different financing options that may be an option when it comes to obtaining financing to cover the cost. One such type of mortgage that may be mentioned is a DSCR mortgage. DSCR stands for debt service coverage ratio. 

DSCR mortgage financing uses a metric analysis of net income from the property compared to the debt. This can be a good option for people who may not qualify for a loan in a traditional sense due to income verification issues. In some cases, a DSCR home loan is a good option. Take a look at a few considerations to keep in mind about these types of loans. 

Down Payment Requirements 

DSCR loans rarely if ever cover all of the cost of the purchase. Therefore, having to come up with a substantial down payment should be expected. For example, you may find a lender offering a DSCR loan that covers only 80 percent of the purchase cost, which would leave you needing to fund the other 20 percent of the cost with your own funds. For some buyers, this is not an issue. But if you are looking to make an investment with as little out-of-pocket as possible, another loan type may be more feasible. 

Average Interest Rates 

Because the lender with a DSCR mortgage financing company is not verifying income in a traditional matter, they are accepting a greater risk with the transaction. For this reason, a DSCR mortgage can come along with a higher interest rate than usual. However, if you are planning to get the loan paid off as quickly as possible, the heightened interest rates may not be a major concern for you as a buyer. 

Loan Term Duration 

Loan term duration may also be different with a DSCR home loan, but not always. You can find some lenders willing to offer a loan term similar to what you would get with a standard mortgage, such as 15 or 30 years. However, depending on the purchase cost, your credit score, and other factors like net operating income, the loan term may be shorter. There may be room for negotiation with the loan terms, so keep this in mind as you work with lenders to find a term that works for you. 

Speak to a service like NewFi Lending to find out more.