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Debt Service Coverage Ratio: No-Income Mortgage Loan

Qualify for a home loan without using your tax returns. As a real estate investor, you can avoid high rates and high points of private loans, lengthy approval processes, and strict lending criteria with a debt service coverage ratio loan, which is a type of no-income loan. Qualify for a loan based on your property’s cash flow, not your income. Securing a debt service coverage ratio loan can help you expand your investment portfolio easier than ever before.

 

How Does a DSCR Loan Work?

Because real estate investors write off expenses on their properties, some may not qualify for a conventional loan. The debt service coverage ratio loan allows these individuals to qualify more easily because they don’t require proof of income via tax returns or pay stubs that investors either don’t have or that don’t represent their true income due to write-offs and business deductions.

 

What Is the Debt Service Coverage Ratio (DSCR)?

The Debt Service Coverage Ratio is a ratio of a property’s annual net operating income and its annual mortgage debt, including principal and interest. Lenders use DSCR to analyze how much of a loan can be supported by the income coming from the property as well as to determine how much income coverage there will be at a specific loan amount.

 

Interest-Only Option

If you’re searching for an affordable way to purchase a property, you may want to look into an interest-only mortgage. Instead of making payments toward the principal balance, investors only have to make interest payments.
 

When you take out an interest-only mortgage, you will only have to pay interest on the loan for a predetermined amount of time. Generally, this interest-only period lasts for about five to ten years, depending on the terms set by your lender. During this initial term, you’re welcome to make payments towards the principal loan amount, but this isn’t required. If you can afford it, you might want to consider paying the principal on interest-only loan early because it can help reduce your debt.

After the interest-only period ends, you will begin paying down the principal balance until the remainder of the loan is paid. Keep in mind that your mortgage payments will increase once you’re past the interest-only portion of the loan terms, so you’ll need to plan accordingly. You do have the option to pay off the remaining balance in a lump sum or refinance your loan if you so wish.
 

Interest-only loans are typically structured as adjustable-rate mortgages (ARMs). This means the interest rate on your mortgage will be locked in for a certain timeframe—but, after that introductory period expires, your interest rate will change according to market conditions. While ARMs tend to offer a low introductory rate, be aware that your interest rate can fluctuate later in the life of your mortgage. In addition to ARM loans, I have lenders that also offers interest only fixed rate mortgages either on a 40yr fixed term or a 30yr fixed term. For example:

• 30yr fixed rate with the first 10yrs being interest only, after 10yrs the loan reamortize to a 20yr fixed term at the same rate

• 40yr fixed rate with the first 10yrs being interest only, after 10yrs the loan reamortize to a 30yr fixed term at the same rate
   

In general, more people are able to qualify for our non-QM loan program compared to qualified mortgages (QMs). That’s because QMs have stricter qualification criteria and more stringent income verification standards. Non-QM loans, on the other hand, don’t rely on traditional income verification methods. This can make interest-only loans attractive prospects for real estate investors and other individuals whose income isn’t accurately reflected on tax returns, W-2s, and other income documents.

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Rental Portfolios

We do offer rental portfolios to purchase or refinance multiple non-owner occupied rental properties 1-4 units.

 

Find Out If You Qualify for a DSCR Loan

If you want to learn more about DSCR loans, reach out to Naomi. I can help you find out if you qualify for a DSCR loan. If you qualify, I can guide you through the loan process. If for some reason you don’t qualify, I can provide you with alternative options that you may find valuable instead. Please email me at naomi@keckcapital.com or call/text (239) 933-5300. I am happy to answer any questions you may have and get the loan process started when you feel ready.