There are a lot of ways to build wealth over time, such as investing in stocks or bonds, high-yield savings accounts and even buying gold. But for some people, real estate is a preferred method.
It’s something you can rent out, build equity in and potentially sell for a profit later. But getting started can feel out of reach, especially if you’re a first-time investor with limited funds.
A DSCR loan might make this easier because you can qualify using the income from the property itself – and not your personal income.
What is a DSCR Loan?
DSCR stands for Debt Service Coverage Ratio. But don’t let that intimidate you.
The concept is simple: Instead of qualifying for a loan based on your 9-to-5 income, a DSCR loan looks at how much money the investment property is expected to bring in, or its cash flow.
So if you’re buying a rental property that will generate enough income to cover the monthly loan payments, that’s what the lender cares about. This type of loan is great for self-employed people, first-time investors or anyone who doesn’t have a high income on paper but wants to get into real estate.
What You Need to Qualify
The good news is that you don’t need perfect credit to qualify. You can finance up to 80% of the property’s value, meaning you only need to bring 20% to the table. And on top of that, sellers can contribute up to 6% to help with closing costs.
Loan amounts typically range from $100,000 to $2.5 million. So whether you’re buying a small rental or a more expensive short-term rental in a popular area, DSCR loans can work.
And don’t worry if you’ve never invested in real estate before. These loans are available to first-time investors. You just need a solid property with the potential to produce income.
Keep in mind, too, that short-term rentals do qualify for DSCR loans, so you’re not limited to long-term tenants. This is a big plus if you’re eyeing a vacation rental.
FirstBank Mortgage proudly offers DSCR loans, and we’d be happy to run a rate estimate for you if you’re considering one for an investment home. Contact a local loan expert to learn more!
