DSCR Second Mortgage for Investment Properties
Looking to cash out on an investment property, but your current mortgage has a good interest rate? A debt-service coverage ratio second mortgage for investment properties is a solution to tap into the equity while leaving the first mortgage untouched. These types of loan are ideal for:
- Accessing funds for new investment properties.
- Funding renovations.
- Tapping into equity.
- Paying off debt.
DSCR loans do not require personal income – they qualify based off property cash flow.
DSCR Property Cash Flow Calculation
DSCR second mortgages are for real estate investors that need a loan that does not take personal income into consideration for a qualifying factor. They do not require tax returns, W-2s, or debt-to income constraints. The DSCR ratio is calculated by:
- Rent ÷ (principal and interest for the first and second mortgage (P&I) + taxes + insurance + home owner’s association dues (HOA)) = debt-service coverage ratio
Example on how to calculate using: monthly rent=$4,400, first mortgage P&I= $2,000, monthly taxes = $600, monthly homeowners insurance =$125, HOA does = $0, and second mortgage = $1,375
- $4,400 ÷ ($2,000 + $600 + $125 + $1,375) = 1.07
The first and second mortgage will need to be included in this equation. The minimum ratio is 1, but first mortgages allow for no ratio. The DSCR Second mortgage even allows properties to close in an LLC or Corporation.
Qualifications
- Eligible property types are single family residences, planned unit developments, and 2 to 4 unit.
- Minimum FICO is 680.
- Maximum loan amount is $500,000 with a $75,000 minimum.
- Maximum combined loan-to-value is 80% for a single family residence.
- No reserve requirements.
Property Appraisal Requirements
Properties must meet conventional appraisal requirements when it comes to condition of the property. The rent will go off the lessor of:
- What the property is rented for.
- Form 1025 or 1007 rent schedule.