No Income Investment DSCR Cash Out Refinance
The no income investment DSCR cash out refinance is a way to qualify for a mortgage without personal income and is based on the cash flow of the property. This debt-service coverage ratio is calculated using the following equation:
Rent / (Principal and Interest (P&I) + Taxes + Insurance + Homeowner’s Association Dues (HOA)) = Debt-Service Coverage Ratio (DSCR)
Terms will vary depending on how well the property cash flows, but there are no ratio options available.
Example on How to Calculate the DSCR Ratio
First one must figure out the rental income – the rental income for investment DSCR cash out refinance will be the lesser of:
- Appraiser’s fair market of rent, which is prepared by an appraiser on a form known as the comparable rent schedule; or
- What the property is rented for.
Principal and interested (P&I) can be calculated by using a mortgage calculator or asking a licensed Loan Originator to calculate the payment.
Monthly insurance is calculated by dividing the yearly premium by twelve.
Monthly taxes are calculated by using a yearly tax bill and dividing it by twelve.
If applicable, one would take the monthly HOA and use the figure in the equation. Example:
Rent: $2,000
P&I: $1,350
Insurance: $115
Taxes: $275
HOA dues: $60
Then plug into the equation: $2,000 / ($1,350 + $275 + $115 + $60) = 1.11.
A debt-service coverage ratio of 1.11 would mean that the property cash flows positive, which is a strong ratio for an investment property. The higher the ratio, the better the property cash flows.
What is a DSCR Loan
The no income investment DSCR cash out refinance allows borrowers to cash out up to 80% loan-to-value (LTV) and as little as 15% down on an investment property purchase. These loans:
- Are not backed by Fannie Mae and Freddie Mac.
- Are made available through Non-QM lending.
- They can close in a Limited Liability Company (LLC), Corporation, or personal name.
Eligible properties include:
- Single family residences, planned unit developments (PUD), condominiums, and townhomes.
- 2 to 4 multi- unit properties.
- Mixed use properties – 2 to 8 units.
- Condotels.
Interest Rate and Down Payment
In most cases, the interest rate is slightly higher than a traditional loan, but will allow financing with no limit on number of properties owned without having to provide income documentation. Pricing and down payment will depend on:
- The debt-service coverage ratio.
- Credit score.
- Property type.
- Primary residence – own, rent or live rent free.
- Loan amount.
- Purchase price.
- State.
Property Must Meet Conventional Appraisal Standards
The no income investment DSCR cash out refinance and purchase property condition must meet conventional appraisal standards. When a property does not meet conventional appraisal standards, there are rehab loans for:
- Financing the acquisition of the property and rehab.
- They are short term interest only loans to sell for profit or refinance after completion to a permanent loan.