New Jersey DSCR Loans
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If you you’re looking for a DSCR rental loan in New Jersey, we have you covered.
West Forest Capital is a leading New Jersey DSCR rental loan provider, financing real estate investments up to $3 million.
What is a DSCR Rental Loan?
- A DSCR (Debt Service Coverage Ratio) rental loan is long term real estate financing – often up to 30 years
- Personal income and personal credit are not significant factors in the underwriting
- The loan is based off the property value, and the income it generates
- Fast closing, can be done within 2-3 weeks
Property Types and Uses
|Loan Size||$100,000 - $3,000,000|
|Loan to Value||Up to 80%|
|Primary Residence||Not accepted|
|Rental status||Rented preferred but not required (can use market rents)|
|Term||Up to 30 years|
|Format||Fixed or Variable available|
|Rate||Varies by product, correlation with Treasury Rates|
We provide DSCR rental loans in the following counties in New Jersey:
- Hudson County
- Bergen County
- Passaic County
- Essex County
- Morris County
- Sussex County
- Warren County
- Union County
- Somerset County
- Middlesex County
- Hunterdon County
- Mercer County
- Monmouth County
- Burlington County
- Ocean County
- Atlantic County
- Cape May County
Why Use a New Jersey DSCR Rental Loan
- If you own your own business. Business owners have many expenses and unpredictable income. Your business might have significant income, but you personally might not. Since a DSCR loan does not require personal income, it’s ideal for business owners.
- If you have imperfect credit. To qualify for a DSCR rental loan, the underlying customer metrics, such as FICO score, are less important than the actual asset – your rental property. Typically, if your FICO is in the mid-600s or above, we can work with you.
- Fast approval process. DSCR rental loans have a much faster approval process (2-3 weeks) than traditional loans, allowing investors to secure financing quickly and take advantage of investment opportunities as they arise.
- Flexible Repayment Terms. DSCR rental loans come with flexible repayment terms. This can be especially beneficial for investors who have multiple rental properties and need to manage their cash flow effectively. Examples of options are 30 year fixed rate or a 5/1 ARM (which simply means the rate is fixed for 5 years and then resets every year going forward; there are also 7/1 ARMs, and so on).
Why Choose a New Jersey DSCR Loan
Investing in rental properties can be a lucrative opportunity and builds long term wealth, but it also requires a significant amount of capital. For many investors, securing financing is a critical step in acquiring and maintaining a successful rental property portfolio. However, finding the right loan can be a challenge, especially if you are looking for a loan that takes into account your property’s income potential and not your personal credit or declared income.
That’s where New Jersey DSCR rental loans come in.
New Jersey is a great state to invest in rental properties: it offers high rents, very strong rental demand, and stable property values with attractive cap rates.
Places like Newark, Jersey City, and Hoboken offer city-like living, while maintaining a neighborhood feel. This combination is very attractive to potential tenants, and therefore, the vacancy rate is always low, and demand for housing high. Other towns like Fort Lee, Union, Plainfield, or Edison offer a suburban environment, close to nearby NYC. These towns are known as great options for commuters looking for rental properties. Because demand outstrips supply of available housing, investors in these properties will be rewarded.
Getting a DSCR Rental Loan in New Jersey
Real estate investment loans in New Jersey have historically been challenging to obtain from banks. This is especially the case if you have a limited credit history or are looking to acquire multiple properties. For example, one person usually cannot acquire more than 10 properties and quality for conventional financing, and even substantially less properties may be difficult to finance because the DTI (Debt-to-Income) ratio is increased with every purchase.
There is good news for New Jersey real estate investors looking for DSCR rental loans: every real estate investment is evaluated on a stand-alone basis using the property value and cashflow, and there is no limit to the number of loans you can receive! If you’re not able to get bank financing, or if you just don’t want to deal with all the red tape of a bank loan, a New Jersey DSCR rental loan is an excellent option.
Asset Based Lender Providing Rental Loans in New Jersey
We get it. There are many challenges that rental property investors face, and so, we try to make the financing of your New Jersey investment property the least of your worries. That’s why we offer DSCR rental loans with flexible terms, reduced requirements, and competitive rates. Whether you are looking to purchase your first rental property or expand your existing portfolio, we are here to help.
Ready to get started? Contact us today to learn more about our DSCR rental loan program.
1. What is a DSCR rental loan, and how does it differ from a traditional mortgage?
Also known as a Debt Service Coverage Ratio loan, a DSCR loan is a type of real estate mortage loan that can be used to purchase or refinance a property. They differ from a traditional mortgage loans in two primary ways:
They are intended for investment properties only and they are based on the value and rental income potential of the property rather than the income of the borrower.
2. Who is eligible for a DSCR rental loan, and what are the requirements to qualify?
You are typically eligible for a DSCR loan if the below conditions are met:
- The property is a condo, single-family residence, a duplex, triplex, quadplex, or multi-family
- Investment property, cannot be primary residence
- The property does not require rehab
- The property is an LLC rather than a personal name (can be transferred to an LLC upon closing)
- Insurance and taxes are up to date
Since DSCR loans are primarily lent on the asset rather than the borrower’s credit or income, FICO requirements are limited. Typically, a score above 660 will work.
Additionally, since the property must be able to be able to produce income, vacant land, or primary residences are not permitted.
3. What is the minimum DSCR ratio required for a DSCR rental loan, and how is it calculated?
The minimum DSCR ratio requirement is typically 1.1x. DSCR ratios are calculated by dividing the Net Operating Income (NOI) by the Property Debt Service. The NOI is equal to the total rent minus taxes and insurance, while the Debt Service is equal to the mortage payment (principal plus interest).
4. How does a DSCR rental loan help borrowers with a non-traditional income source or non-W2 income?
DSCR loans make it possible for borrowers with non-W2 income and other non-traditional income sources to receive a loan to purchase real estate since they are based on the value of the property and the property’s ability to generate rental income and cashflow. As mentioned, these types of loans are not based on personal income, making the borrower’s income irrelevant.
5. What are the benefits of a DSCR rental loan compared to other types of loans or financing options?
There are several benefits which make DSCR loans superior to bank loans or other real estate financing products. First, DSCR loans make it possible for borrowers with non-traditional forms of income to obtain a mortgage. Second, even if you can satisfy a bank’s requirements for income, DSCR loans allow borrowers with credit issues to secure a mortgage. Finally, DSCR loans are simply much faster to get – they can be approved within as little as two weeks, a significantly shorter amount of time than a traditional mortgage loan.
6. What are the common misconceptions about DSCR loans, and how can borrowers avoid them?
The most common misconception about DSCR loans is that borrowers assume the qualification terms are the same for these types of loans as they are for traditional mortgage loans. But this is incorrect. Unlike mortgage loans, DSCR loans do not have any income requirements, and much fewer credit requirements. This makes it more likely for borrowers to receive funding for real estate properties that they otherwise would not qualify for.
7. What are the potential drawbacks of a DSCR loan, and how can borrowers minimize their risk when taking out one?
One potential drawback to a DSCR loan can be the down payment requirement upon purchase, which can sometimes be close to 20 or 25% of the purchase price. A second drawback is that the mortgage rates tend to be a bit higher than traditional mortgage loans. And finally, unlike traditional mortgage loans, DSCR loans are usually provided by smaller lending companies, so it’s important to understand the loan and be comfortable with the company providing it.
8. How does a lender evaluate a borrower's ability to repay a DSCR rental loan, and what factors do they consider?
A lender evaluates the borrower’s ability to repay a DSCR loan based on the property’s DSCR ratio. As mentioned earlier, this metric takes into account the property’s NOI (Net Operating Income) and the total debt service.
The NOI is the income amount expected to be generated by a property after all operating expenses have been deducted (utilities, maintenance on the property, management fees, etc.).
The total debt service includes both the principal amount and interest payments due on the loan.
When both are taken into consideration, the ratio often needs to be at least 1.1x to show lenders that the borrower will have enough cash flow coming from the property to make the mortgage payments on the loan.
9. How can borrowers improve their chances of getting approved for a DSCR loan, and what steps should they take before applying?
Borrowers can improve their chances of getting approved for a DSCR loan by having cash on hand to cover the down payment amount in the event of a purchase (which can be close to 20-25% of the purchase price). (It’s worthwhile to note that borrowers don’t need to come up with a down payment when refinancing into a DSCR loan). They also can improve their chances of being approved by having the property held in an LLC, rather than in the borrower’s name. The type of property and its use will matter as well – investment properties such as condos, single-family residences, multi-family homes, and some commercial properties will likely be easier to approve than land, primary residences, or properties for industrial use.
10. How can borrowers use a DSCR rental loan to invest in a rental property and expand their rental property business, and what are the considerations they need to make before doing so?
Borrowers can use a DSCR loan to expand their business by purchasing their first rental property and additional rental properties thereafter. In fact, when using DSCR loans, there is no limit on the number of properties that can be acquired, so long as each property is able to produce cash flow with an acceptable DSCR ratio (typically 1.1x or more). Before applying for a loan, borrowers should have enough cash to cover the down payment on the property. They should also evaluate the costs associated with each rental purchase, including utility fees, any potential HOA costs, management fees, and maintenance expenses. These costs, plus the mortgage payment should be compared against the actual or potential rents to make sure there is sufficient coverage. In the event of refinancing, a DSCR loan can also be used. In this case, the borrower should make sure that the maximum loan amount can be covered by the same calculation.