Demand for Florida DSCR investor loans has continued to grow, especially in the last few years. There’s no doubt FL has remained very popular when it comes to long-term and short-term rentals like Airbnb or VRBO.
In fact, Jacksonville, Orlando, Tampa, and Miami remain some of the top markets for real estate investors in FL. DSCR investor loans provide a good solution for real estate investors who want to grow their real estate portfolio without the trouble of dealing with traditional mortgage lending guidelines.
Many investors know regular conforming loans are very difficult, especially when it comes to documenting income. DSCR (Debt Service Coverage Ratio) loans are non-QM loans and eliminate the need for borrowers to provide income or employment documentation. The are no debt-to-income ratio “limits” and no need for tax returns or W2s like traditional agency mortgages.
Since many investors are self-employed and have very complex tax returns and many write-offs, DSCR loans are great time savers and help them grow their real estate portfolio quickly.
DSCR loans are heavily focused on the cash flow of the property. The Debt Service Coverage Ratio is a ratio of a property’s annual gross rental income and its annual mortgage debt. This includes expenses like principal, interest, taxes, insurance, and HOA fees (if applicable). 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.
*Note that expenses such as property management, maintenance, utilities, etc, are not included in the debt-service-coverage ratio calculation. Most lenders want to see the DSCR at least 1.0% and in some cases down to 0% with a greater down payment.
Example: Joe the real estate investor might be purchasing a property in Orlando with a gross rental income of $100,000 and an annual debt of $80,000. When you divide $100,000 by $80,000, you get a DSCR of 1.25, this means that the property generates 25% more income than what is required to repay the loan. Your exact DSCR requirement will depend highly on your credit score and loan to value.
Florida DSCR Loan Advantages:
- No income or employment documentation. Personal and/or business debts not considered when qualifying
- Close in a few weeks, not months like regular bank loans.
- DSCR down to .5% for well-qualified investors. Negative DSCR options also available now with a greater down payment
- Min loan amounts of $75,000
- Max Jumbo DSCR loan amounts of $4,000,000 – helpful in more high-cost locations like Key West, Miami and Naples
- Maximum loan to value (LTV) is 80% on purchase transactions
- Max loan to value of 75% for cash-out refinance transactions
- First-time investors welcome
- Gift funds are permitted, buyer must have at least 5% of their own money invested
- Credit scores down to 620 permitted
- Common 30 years fix, and 5/7/10 ARM terms are available.
- Interest only – IO payment option
- Single Family Homes, Condos, Townhomes and 2-8 Unit properties are all eligible for financing
- Investors can commit to several properties at the same time
- Close in the name of your LLC
DSCR Loan Disadvantages:
- This program is strictly for investor property transactions, not primary or vacation home purchases.
- DSCR loans will have a slightly higher interest rate than comparable conforming mortgages. Typically, 1.5% -2.5% higher
- The down payment for DSCR loans can be a little higher as well. However, many investor-conforming loans at a local bank will likely require a min of 20% down payment as well
- DSCR loans will have an early payoff or “pre-payment” penalty, normally 3–5 years. The term and the amount of the prepay penalty will depend on factors like the loan-to-value
Questions about getting started? Learn more about applying for a Florida DSCR Loan Here. Serving investors across Florida: Daytona Beach, Orlando, Tampa, Jacksonville, Miami, Naples, Gainesville, and Panama City.