(Mar 20, 2023)
If you're looking for a quick and easy way to finance your real estate investment, you should consider a DSCR loan. Read on to learn more about these loans to get started.
What are DSCR Loans?
A DSCR loan is a type of commercial loan typically used to finance the purchase of a property. The loan is repaid through the business's future cash flow, which is why it is sometimes called a cash flow loan. The full name for a DSCR loan is "debt service coverage ratio.
DSCR loans can be an excellent option for businesses that need financing but don't have the collateral to qualify for a traditional loan. Additionally, because the loan is repaid through future cash flow, there is no need to have a favorable credit rating, which can be helpful for investors without a good credit history.
Why Get a DSCR Loan in Citrus County, Florida?
For many reasons, Citrus County, Florida, is a great place to invest in real estate.
Firstly, the county has a population of over 158,000 and is growing rapidly. The median home value in Citrus County is around $270,000, an increase of 25.58% from last year.
Citrus County is also home to several tourist attractions, which can help increase the value of your investment. The county is home to several state parks, golf courses, and other recreational activities that draw tourists from all over the country.
It is a good investment for your portfolio and will grow over time. Second, it will provide you with more than just an income stream from the rent or sale of the property. It will also give you access to other forms of passive income, such as capital appreciation and rental income.
You'll profit from the leverage effect if you buy Citrus County property through a DSCR loan. Leverage effect means the benefit of buying real estate with little or no effort on your part – the asset will increase its value due to the money someone else has invested in it (DSCR loan).
DSCR Loans are fast-paced loans designed to help you become a homeowner. The average time it takes to close on a home loan is 30 days, but with DSCR Loans, homes are closed in as little as 20 days.
DSCR Loan allows you to obtain a loan for several properties in Citrus County. This means you can buy as many properties as possible with your DSCR Loan and still get approved for one loan.
Also, no income or job history verification is required. There's no need for extensive verification processes like most traditional lenders require when approving loans for borrowers who don't fit their traditional profile of borrowers – like first-time buyers or people with no income or employment history.
How Does a DSCR Loan Work?
DSCR loans, also known as investor cash flow loans, use the cash flow generated by your investment property instead of your income. The main difference between a DSCR Loan and a personal loan is that the borrower is still responsible for paying back the loan, which can be an issue if they lose their job or fail to meet their financial obligations.
The catch with DSCR Loans is that they must be backed by a borrower's cash flow from the property investment rather than their income. This means you'll need to qualify for the loan based on the amount of money you can generate only from rental income within your property portfolio.
While traditional lenders require borrowers to have good credit scores and decent incomes to qualify for loans, the DSCR loan allows people with bad credit to get financing without proof of income or assets. So, even if you don't have a lot of cash, you can borrow a DSCR loan and quickly build your real estate portfolio in Citrus County, Florida.
By the simple fact that DSCR loans without proof of income and other assets, it's safe to say that these loans offer a lending solution and an equal opportunity to real estate investors.
How Is DSCR Calculated?
DSCR, or debt service coverage ratio, is a financial metric used to assess borrowers' ability to repay their debts. It is calculated by dividing a property's net income by debt obligations.
A high DSCR means that the borrower has a larger margin of safety and is less likely to default on their debts. A property with a DSCR of 1.0 or higher generally has enough cash flow to cover its debt payments.
Conversely, a low DSCR indicates that the borrower may have difficulty repaying their debts and is at a greater risk of default.
For example, a borrower has a net operating income of $100,000 and total debt service obligations of $50,000. Their DSCR would be:
DSCR = Net Operating Income/Total Debt Service
$100,000/$50,000 = 2
2.0 indicates that they have enough income to cover their debt obligations. It means the property has twice its income to cover its debt payments.
DSCR is an essential metric for lenders to consider when assessing a borrower's creditworthiness. Lenders will often require a minimum DSCR for borrowers looking to take out a loan. A high DSCR is typically seen as a sign of a strong borrower, while a low DSCR may indicate that a borrower is at a higher risk.
How To Determine DSCR Income
DSCR Income for commercial properties is calculated by taking the annual gross income and subtracting all operating expenses. For commercial houses, the DSCR income is the net operating income (NOI).
Example - If you have a commercial property with $5,000 per month in rent and $2,000 in monthly operating expenses, your DSCR income would be:
Annual Income $5,000 x 12 = $60,000
Annual Operating Expenses $2,000 x 12 = $24,000
DSCR income / Net Operating Income (NOI) = $60,000 - $24,000 = $36,000
For a rental property, the DSCR income is its monthly rental income.
How To Determine DSCR Payment
When determining DSCR payments, lenders use the PITIA method. This denotes (principal, interest rates, taxes, insurance cover, and associated costs. Check out this example:
Higher rent payments Vs. DSCR
| Income | Payments | DSCR |
|---|---|---|
| $4,000 | $3,000 | 1.3 |
| $4,500 | $3,000 | 1.5 |
From the above table, you can see how DSCR increases with higher rental income.
Lower payments Vs. DSCR
| Income | Payments | DSCR |
|---|---|---|
| $5,000 | $4,000 | 1.25 |
| $5,000 | $3,500 | 1.4 |
As you can see above, the lower payments increase the DSCR.
Since a higher DSCR translates to higher chances of being approved for a DSCR loan in Citrus County, you should focus on increasing the property income and reducing the monthly payment.
What Is the Minimum DSCR To Qualify in Citrus County, Florida?
Different properties in different markets will have different minimums for their DSCRs. For example, to qualify for a loan on a property in Citrus County, Florida, the minimum DSCR required is 1.25. Your monthly debt payments must be 1.25 times your monthly income.
If you have a DSCR of 1.5 or higher, lenders will consider you a "strong" borrower and may be eligible for more favorable loan terms.
If you're considering investing in a property in Citrus County, Florida, be sure to do your research and understand the minimum DSCR requirements. This way, you can be sure you're getting a good deal on a property that will be able to generate enough income to make your loan payments.
However, different enders in the citrus county have different minimum requirements. It's good to compare lenders to ensure you get the best DSCR loan deal.
Some considerations for a DSCR loan in Citrus County, Florida include the following:
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Verifying the property's future rental income. The first step for any lender is to verify that the property will generate enough rental income to cover the mortgage payments. They do this by determining DSCR - the historical data (if you have it) or by doing an analysis based on projected rents and expenses.
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Loan purpose. You might be able to use a DSCR loan to purchase a new single-family home. DSCR lenders may also help you refinance existing mortgages.
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Property types allowed. Most DSCR loan lenders prefer single- or multi-family homes with up to four units, townhouses, condos, condotels, and apartment buildings with five or more units. Many lenders consider these higher investment returns.
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Property use. The property must not be used as a primary residence by the borrower. DSCR loans can only be used for buying long- and short-term rental units.
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Income and employment, debt-to-income (DTI) ratio. Eligibility cannot be verified through pay stubs or W-2 forms.
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Loan type. Lenders in Citrus offer either a 30-year fixed term, a 5-year adjustable rate, or an interest-only ARM.
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Maximum properties owned. There is no maximum number of units the borrower can possess.
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Maximum loan amount. The maximum loan amount for a DSCR loan in Citrus County is $5 million. Some lenders may offer less or more depending on your property's DSCR.
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Cash reserves. A good DSCR requires cash for up to 6 months of mortgage payments. Lower DSCR may require a cash reserve of up to 123 months.
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Prepayment penalties. Paying off DSCR loans or refinancing too quickly will result in prepayment penalties.
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Seller-paid closing costs. In most cases, lenders allow sellers to pay up to a certain amount for closing costs.
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Closing in the name of an LLC. DSCR loan lenders in Citrus allow borrowers to close in the name of an LLC.
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Loan-to-value (LTV). Citrus County DSCR loans typically carry a 75%-80% maximum LTV or a 20% to 25% minimum down payment.
- Credit score. Borrowers in Citrus County, Florida, must have a credit score of at least 640 to qualify for DSCR loans. However, some lenders can accept lower credit scores than what is acceptable.
The Best Cities To Invest in Citrus County, Florida
Citrus County is a great place to invest in real estate. The county is home to several cities perfect for property investors looking to get the most bang for their buck.
Here are the best cities to invest in Citrus County, Florida:
Crystal River
Crystal River, a small city in Citrus County, is home to approximately 3,000 residents in 2020 and is growing at a rate of 0.85% annually. This growth is attributed to its proximity to Tampa, Florida (about 79 miles away) and the ease of access to the Gulf of Mexico via Interstate 75.
Crystal River is also great for investors because it has a stable economy and an excellent school system. The city's unemployment rate is only 6.4 %, which means plenty of jobs are available for new residents and those relocating from other areas. In addition, real estate market has been steadily increasing over the past five years, a recipe for successful real estate investment.
As far as schools go, Crystal River Public Schools' high ranking makes it an attractive place for families looking for good schools within their budget. It's also a good place for those just starting their careers who want a good education for their children at an affordable price.
Hernando
For many reasons, Hernando County is a wonderful place to invest in real estate. Firstly, the weather is fantastic. The average temperature in Hernando County ranges from about 66 degrees Fahrenheit in January to 84 degrees Fahrenheit in July, which means you can enjoy year-round outdoor activities without worrying about extreme climates.
Additionally, Hernando County has excellent schools, low crime rates, and easy access to both Tampa and Orlando (two major cities). In other words, you don't need to leave the area to enjoy all the amenities that larger metropolitan areas offer. Therefore, this city is an excellent spot for investing in real estate.
Inverness
Inverness is a great place to invest because it is a small city with good schools and a low crime rate. The city has an excellent library and museum and plenty of shopping opportunities. Also, the Gulf to Lakes Highway provides convenient access to Crystal River or Homosassa. You'll also find many homes available in Inverness at reasonable prices.
Also, the real estate market in Inverness is stable and staying steady. There are plenty of homes available for sale throughout Citrus County, so you'll have no problem finding something that meets your needs and fits within your budget.
A quick search on Realtor.com will show you homes available for purchase in this area, including those priced under $100,000 or $200,000, attracting those looking for cheap residential houses.
Lecanto
Lecanto is a great city to invest in for many reasons. It is the county seat of Citrus County, one of the fastest-growing counties in Florida. This means that the city has a lot of growth potential.
Second, Lecanto is home to great industries, such as Technology Conservation Group, Smart Interior II, and Walmart, which provide a stable economy. In addition to Lecanto's recreation and amenities, this city is a hot spot for real estate development.
Most importantly, the school system in Lecanto is appealing to families looking for good schools for their kids. For example, Lecanto High School is the largest secondary school in the Citrus County Schools district and is often praised for its high performance. This area would attract a property investor due to many families with school-going children coming to settle here.
(Mar 20, 2023)
