New York DSCR Loans
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If you you’re looking for a DSCR rental loan in New York, we have you covered.
West Forest Capital is a leading New York 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
|$100,000 - $3,000,000
|Loan to Value
|Up to 80%
|Rented preferred but not required (can use market rents)
|Up to 30 years
|Fixed or Variable available
|Varies by product, correlation with Treasury Rates
Why Use a New York 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 York DSCR Rental Loan
Investing in rental properties within New York City and its surrounding areas presents an exceptional opportunity to capitalize on the long-term advantages of real estate investments: rising rents, historically strong appreciation, and the accounting benefits of real estate depreciation. For astute real estate investors, securing financing plays a pivotal role in acquiring and managing a profitable rental property portfolio. However, navigating the search for the right loan can be challenging and complex, particularly when seeking a loan primarily based on property value and rental income rather than personal FICO scores or individual income.
DSCR rental loans within New York City and its neighboring regions offer a practical avenue for property financing, bypassing the arduous document requests and stringent prerequisites often associated with traditional bank loans. Beyond the efficiency of obtaining such loans, DSCR rental loans also offer the advantage of locking in long-term financing for up to 30 years at attractive rates. This extended duration is not typically offered by banks, which usually reserve their best terms for shorter-duration loans ranging from 5 to 10 years.
New York City and surrounding suburbs boast a vibrant lifestyle and a dynamic corporate landscape. The demand to be in and around NYC is at all time highs. These areas are particularly attractive for renters, fueling a strong demand for rental properties and creating excellent investment opportunities for real estate investors. As a result, investors in and around New York City have the potential to realize substantial gains in both rental income and property valuations.
The strength of New York City’s economy is undeniable, with a robust growth rate and a unique status as a global financial and cultural hub. The city’s permanent residents and the influx of professionals and students contribute to a steady population trend, offering a promising outlook for rental income with considerable upside potential – a perfect match for the requirements of a DSCR loan.
Getting a DSCR Rental Loan in New York
Obtaining a DSCR Rental Loan within New York City and its surrounding areas is considerably more straightforward compared to securing a traditional bank loan, and in fact, easier to do as compared to many areas of the country. Conventional financial institutions often impose stringent criteria for real estate loans, particularly for individuals with less-than-ideal credit histories or real estate professionals, who need to “prove” their income. However, DSCR rental loans enable lenders to evaluate each property individually, minimizing the impact of traditional income sources such as a W2, personal credit history, number of properties owned. Moreover, the loan approval process is notably swift, with DSCR loans in New York City and its neighboring areas often funded within a short two to three weeks.
Asset Based Lender Providing DSCR Rental Loans in New York
As a specialized asset-based lender in the New York City area, we focus on providing loans based on real estate assets, and we look for the property NOI to exceed the required debt service. We don’t require high (or even consistent) personal income and can work with you if you have poor credit (650 FICO or above works). Our aim is to streamline the lending process, sparing you the burden of extensive documentation related to income and bank statements. Whether you’re seeking your first rental property in the city or looking to expand an existing portfolio, we are here to help you.
Contact us today to understand the DSCR rental loan program tailored for your investment properties in and around New York City.
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.
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.
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.
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.