(Mar 26, 2023)
This makes it possible for property investors to obtain a mortgage for an investment property without revealing their current income or employment history.
Lenders can quickly ascertain whether an applicant qualifies for a loan or loans by looking at their proposed property's rental income vis-à-vis total payment. Many investors are taking advantage of these loans to venture into hot real estate markets and expand their portfolios.
Why get a DSCR loan in Glades County, Florida?
There is little doubt that Florida is among the top states in the nation for real estate investing. The Sunshine State is characterized by inexpensive home prices, stable rentals, and a rapidly rising population, thanks to many folks flocking here from the north.
The southwest part of the state is also experiencing this robust activity. The population and employment are expanding; local governments are open to business, and the demand for properties far outweighs the supply.
Moreover, Glades County is a part of the state's Opportunity Zones, which offer investors a tax incentive to redeploy their unachieved capital gains in specially designated Opportunity Funds.
These opportunities, coupled with the state's no-income-tax policies, are the stuff of property investors' wet dreams.
You can take advantage of DSCR loans to exploit these opportunities, which will likely lead to a favorable return on your investment. DSCR loans solely consider a property's cash flow vs. associated payments, making the loan application and qualification procedure more straightforward, faster, and more manageable.
How do DSCR loans work?
For confident investors, a typical loan may not be possible because of the write-offs or deductions they make on their income to enjoy reduced taxes. Indeed, it's common for some amateur and experienced real estate investors to fail to disclose a significant amount of their income on their tax returns.
One of the main reasons most people choose property investments is to escape employment tax. However, this makes it difficult to qualify for conventional mortgages since lenders like Freddie Mae require comprehensive documentation of a borrower's income and employment history.
On the other hand, DSCR loans help avoid such troubles. DSCR underwriters base their determinations on the potential of your rental property to help you meet future payment obligations.
This is the logical way to go about it. After all, why bother verifying the investor's income when the investment is strong enough to stand independently?
As long as the bank can determine that the intended investment property will generate enough revenue to repay the loan installments and accompanying expenses, you'll be eligible for the loan.
DSCR mortgage rates in Glades County, Florida
Since they provide an alternative option for funding property acquisitions, DSCR mortgage rates are frequently higher than typical mortgage rates. That said, they are never overly expensive to put off potential investors.
Indeed, DSCR loan interest rates in Glades County are usually only 1% higher than those on conventional mortgages; in some situations, they can even be less expensive, based on the borrower's DSCR ratio.
How is DSCR determined?
DSCR compares the income the property will generate vis-a-vis its total payment.
It's computed as income/revenue and expressed in decimal formats, such as 1.5X or just 1.50.
How to figure out your DSCR income
Income can be easily calculated for residential investment properties. It's simply the property's monthly rental income.
On the other hand, for office buildings, five or more-unit homes, and other commercial properties, the net operating income, aka NOI, is the figure you want to use. Naturally, NOI is just gross income minus operating costs.
How to calculate DSCR payments
The total payments comprise the principal, interest, taxes, insurance, homeowners' association fees, and other costs associated with a property. These are collectively referred to as PITIA.
You won't be able to determine your DSCR unless you find out what interest rate and other costs a lender may charge you. Shop around and assess overall costs before choosing a lender because not all lenders charge the same rates and fees.
Example of DSCR determination
For example, a property with a monthly rental income of $1820 and $1400 in total payments has a 1.30 DCSR.
A DCSR > 1 indicates that the rental income from the property exceeds the number of associated payments, while a 1.0 or 1.0X DSCR indicates that the income and total payments are equal.
Many lenders require high DSCR ratios to ensure investors won't miss payments.
What DSCR do Glade County, Florida lenders require?
Although the minimum DSCR requirements vary by lender, most accept ratios higher than 1.25.
Nevertheless, some banks are relatively lenient and accept figures as low as 1.0, depending on the borrower's unique circumstances.
Please talk to a reputable DSCR lender about your situation and get their opinion of your rental property, estimated income, and payment commitment to estimate your DSCR.
If your DSCR is less than lenders require, look for ways to boost rental revenue or reduce total payments. Remember, you may only raise rent slightly higher than nearby properties; otherwise, you won't get any tenants, and bang! Goes any fond hopes of qualifying for the investment mortgage.
Many people moving to Florida prefers condos, so you'd think investing in condominiums is the right move. However, they frequently have hefty HOA dues, which raise PITIA. As an alternative, consider investing in single-family houses. They are expensive but do not come with home association fees, so that's a lower PITIA for you.
Please remember that you must also meet the additional requirements below to qualify for a DSCR loan.
DSCR loan guidelines for Glades County, Florida borrowers
DSCR loans are often simpler to qualify for than traditional property investment loans. Lenders will likely approve your loan request, provided the property you want to purchase meets or exceeds their DSCR caps.
Of course, they'll also base their determination on other criteria, such as:
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Loan-to-value ratio - Most DSCR lenders will only fund 75–80 percent of the property's appraised price, meaning they'll require you to put down at least a 20% down payment.
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Creditworthiness - Usually, you'll need at least a 640 FICO score. Although some lenders accept lower scores, depending on borrowers' unique circumstances.
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Property's potential income - The bank will send in an appraiser to inspect the property and complete the Single-Family Comparable Rent Schedule Form 1007 to determine how much rental income it'll generate.
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Loan purpose - You can use a DSCR loan for cash, property purchase, or refinance.
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Allowed properties - Residential apartment complexes with 1-4 units and commercial buildings with 5+ units are both eligible. In some cases, unique residences and non-warrantable condominiums are also accepted. Additionally, office spaces and other commercial properties are eligible for DSCR loans. Speak with your loan provider to learn more.
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Property usage - Only investment properties are permitted. They can be long- or short-term rentals.
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Loan Type - depending on the loan provider.
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Employment, earnings, and DTI - Lenders do not require any exact DTI, income, or employment documentation. Instead, they examine the rental property's projected income stream vs. its overall number of payments.
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Loan size - Some lenders offer up to $5 million, but the usual amount is in the $1M-$2M range.
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Max number of investment properties - You can request more than one DSCR loan to purchase multiple properties, provided each investment is strong enough to carry its weight. They each must meet the lender's or lenders' DSCRs.
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Penalties for early payments - If you decide to sell, refinance, or pay off the loan too soon, there could be consequences. Your lender will provide you with specific guidelines relating to these penalties.
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Cash reserves - Many lenders demand that applicants have enough cash on hand to cover the entire loan amount. Your bank will determine how much cash you need in reserve.
- The seller paid closing costs - The seller could be allowed to cover the closing fees, depending on your lender's DSCR policies.
Benefits of DSCR loans
For property investors, DSCR loans offer a variety of advantages over conventional loans. Here's the breakdown:
No need for Personal income documents
Since DSCR underwriters base their determinations on how much rental income a proposed property will generate, they won't request documentation of an investor's current income.
This is advantageous for self-employed investors or those with complicated tax statements or W-2s that don't accurately reflect their income because of tax write-offs and deductions.
No need to confirm employment
Since DSCR does not require your current personal income, banks won't have to contact your employer. This is great for self-employed investors because it streamlines the loan request and approval process, leading to a shorter closing period.
Doesn't affect the borrower's finances
Most lenders require that the payments associated with conventional loans and property investments fit into the investor's monthly household budget. That means the investor's future borrowing ability for personal needs is reduced.
In contrast, DSCR financing keeps personal and investment finances separate. Therefore, borrowing under the DSCR won't affect your ability to borrow in the future for personal purposes. Better yet, you might be able to finalize the loan using an LLC name to keep it from reflecting on your credit report.
Multiple properties may be bought simultaneously
A rental property's income vis-à-vis its total payments is what matters. That means there's no limit on how many loans you can request at once, provided each investment meets or exceeds the lender or lenders' DSCRs and is, therefore, strong enough to carry its weight.
Shorter closing period
DSCR loans close more quickly than standard mortgages. Banks can act swiftly because they don't have to take their time researching your employment record and current income.
Also, these loans are usually available from private lenders who can skip the cumbersome red tape and make quick determinations.
Flexible underwriting
Borrowers' DSCRs are reviewed by actual people, not software, who consider particular circumstances. As a result, borrowers with less-than-ideal DSCRs might still be eligible for these loans.
The best cities to invest in Glades County, Florida
Glades is a county in southwest Florida with a population of about 13,600. The county's population has surged 23% in the past 20 years. The county seat is Moore Haven, boasting the highest population density.
The county has a median property value of $76,400 and a gross median rent of $746. It has a good mix of investors, tenants, and homebuyers. Compared to the national average, the cost of living here is 15% lower.
Some of the best cities in the county to buy rental properties include:
Moore Haven
Moore Haven is where the seat of the county and has a population of just above 2,500. It is located on the southwest brim of Lake Okeechobee, near the confluence of Lake Okeechobee and the Caloosahatchee River. It is a prominent location for visitors seeking a beachy atmosphere.
The current median home value is $62,100, with an annual appreciation rate of -0.07. Meanwhile, the gross median rent is $735.
Moore Haven has 77.73% inhabited apartments and houses and 22.27% unoccupied apartments and single-family structures.
Palmdale
Palmdale is a town in Glades County, Florida. It is located halfway between Moore Haven, LaBelle, and Lake Placid and is home to the Gatorama farm and the Fisheating Creek Resort. This city mainly attracts retirees and those looking for vacation fun. Hunting, hiking, and canoeing are among the activities.
There aren't many statistics available for the Palmdale, Florida, real estate market. However, to make your own investment decisions, you must look beyond numbers. Compared to places with strong "on-paper" figures, you'll probably perform better in a city where you feel good about its neighborhoods, property prices, and rent rates.
Is getting a DSCR loan a good idea?
Due to their simplicity, quickness, and ease, DSCR loans appeal to investors who wish to expand their rental property investments quickly. They are advantageous, especially for armature buyers who want to keep their investments and personal finances separate. Plus, one can take out several loans to buy multiple properties.
That said, if a lower-interest loan is what you are looking for or want to buy a large home, DSCR borrowing may not be the best way to go. Talk with multiple lenders, examine various loan options, and make the best decision.
Are DSCR loans legitimate?
Yes. These are frequently described as "non-QM loans" because they are exempt from the Dodd-Frank Act's stringent requirements for income verification.
Lenders can make DSCR loans if they wish, but they are not protected by the same federal laws that apply to lenders that only make thoroughly documented loans. They are legit, nevertheless.
How do I get this loan?
Most DSCR lenders demand a coverage ratio of at least 1.25, which indicates that the building creates 25% more cash inflows than expenses (total payments). Moreover, you will need to follow the lender's rules on the usage and type of property.
What down payment is required for DSCR loans?
Most DSCR lenders will only fund 75-80 percent of the property's appraised price, requiring you to put down at least a 20% down payment.
Are DSCR loans considered hard money loans?
Despite DSCR loans not being hard-money mortgages, some hard-money lending companies provide them. Since these are non-QMs, they deviate from the rules of traditional lending.
Where can I find DSCR lenders?
It makes sense to invest in rental homes to build your financial future. However, to seize opportunities, you must act swiftly. If you consider buying rental homes, the sooner you begin, the better.
DSCR lenders don't need to know how much income you are making now or whether you are employed or not; they base their determinations on the proposed property investment's ability to stand on its own.
That means they'll approve your loan request if they determine the proposed property will generate more rental income to help you make payments. This is advantageous for those with complicated tax documents, no pay stubs, or those that don't precisely reflect their income due to tax deductions and write-offs.
But not all lenders have experience in DSCR financing. Indeed, some popular mortgage companies choose to avoid this lending option altogether. If you want to check out DSCR lenders in your area, start online or contact a local financial advisor. Feel free to contact us too. We'll be happy to answer any questions and provide assistance where needed.
(Mar 26, 2023)
