(Mar 31, 2023)
Why Get DSCR Loans in Holmes County, Florida?
For real estate investors, there are many merits of securing a DSCR loan in Holmes County instead of a traditional mortgage. First, borrowers don't have to worry about employment history verification or offering proof of income. The simplification of the loan application procedure means that these loans tend to move much quicker, which translates to shorter closing times.
When you apply for a DSCR mortgage, you can rest assured of competitive interest rates on your mortgage. You won't have to break the bank and sacrifice a reasonable to secure fundings that will enable you to invest in rental homes.
You have access to funding of up to $5,000,000, and you can invest in as many properties as you want. If you want the money and freedom to invest in many rental homes, DSCR loans in Holmes County are an excellent solution.
How Does a DSCR Loan Work?
While DSCR mortgages are used to buy homes, they differ from other home loans in Holmes County. Debt service coverage ratio loans usually use investors' DSCR instead of their income and assets to see whether they qualify for a loan. Generally, your DSCR is the rental property income your home offers annually versus the cost of making mortgage payments annually on that home.
Debt service coverage ratio loans are non-QM loans, meaning you won't be subjected to the typical loan qualification process before you secure them. Typically, a borrower would have to give lenders information such as employment history verification and proof of income.
As mentioned earlier, these loans allow you to invest in many rental homes as long as your annual rental income is sufficient to pay for your property's annual debt obligations. Because debt service coverage ratio loans are usually based on rental income, they're reserved for rental homes and not owner-occupied dwellings.
How is DSCR Loan Calculated?
To qualify for debt service coverage ratio mortgage loans, you must have an acceptable DSCR. Your DSCR is calculated using the following formula:
DSCR = Income / Payment
The result is usually expressed in decimal format. A DSCR above 1 shows that your property's annual rental income surpasses your yearly debt.
For instance, if you have a rental income of $50,000 annually, but it costs you an annual payment of $40,000 to keep up with taxes, insurance, and loan payments, your DSCR equals 1.25.
50,000 / 40,000 = 1.25
Your property's rental income is 25% greater than your annual loan payment. So, you have enough money to make good on your annual loan payment and still have cash left over at the end of every year.
If your DSCR is too low to secure a mortgage, you can apply for other types of non-QM loans, such as bank statement loans. Asset-based loans can also help you get the funding you need.
As you explore your investment home options in Holmes County, you can manipulate your property's rental income and monthly loan payment to attain your perfect DSCR.
How to Determine DSCR Income
The DSCR income is your home's monthly rental income for residential properties.
On the other hand, for commercial properties, lenders use the net operating income (NOI). This is your income minus utilities, maintenance, and additional operating costs.
Reach out to your DSCR lender to help determine your desired property's income amount.
How to Determine DSCR Payment
The DSCR payment amount typically includes interest, principal, insurance, homeowner association (HOA) fees, taxes, and other fees. All these costs are usually abbreviated as PITIA.
Example - How higher monthly rent can improve DSCR
| Income | Payment | DSCR |
|---|---|---|
| $3,800 | $3,400 | 1.12 |
| $4,200 | $3,400 | 1.25 |
Example - How lower monthly payment can improve DSCR
| Income | Payment | DSCR |
|---|---|---|
| $4,500 | $4,300 | 1.05 |
| $4,500 | $4,000 | 1.13 |
Whatever property you settle for, play with the numbers and look for ways to increase your home's income or reduce the loan payment. The higher your DSCR, the higher your chances of getting approved.
What's the Minimum DSCR to Qualify in Holmes County, Florida?
If you want to apply for DSCR loans, it's vital to understand what's required of you. When it comes to the minimum DSCR to qualify, the ideal ratio varies greatly depending on several factors, such as your property's location.
However, for the most part, DSCR lenders usually settle for a ratio above 1.25. However, you can get DSCR loans with a score as low as 0.75.
Higher DSCR ratios show that investors are more likely to make their monthly loan payments and show lenders that they have a consistent cash flow. A good DSCR has many benefits, including lower interest rates and down payments.
If your debt service coverage ratio is below 0.75, that doesn't mean you've got no alternatives for purchasing investment homes. Many lenders offer other types of home loans, like asset-based and recent credit event loans, which might suit you best.
Remember that you'll also need to meet other loan requirements to secure DSCR loans, as discussed below.
DSCR Loan Guidelines in Holmes County, Florida
For traditional loans, you'd have to submit your credit history, pay stubs, proof of employment, and bank statement, among other things, to be accepted. With DSCR loans in Holmes County, you must determine the debt service coverage ratio for a rental home and apply for a mortgage based on that.
As mentioned earlier, you'll also need to be an investor buying rental homes. This is because you can't use DSCR loans to buy owner-occupied properties.
Remember that each lender will come with different loan requirements, but below is an ultimate guide to the general DSCR loan requirements you should expect from most.
Loan-to-value (LTV) ratio
The maximum LTV for DSCR loans in Holmes County is usually 80%. This means you'll have to make a down payment of as low as 20%.
This loan-to-value ratio is lower than the maximum ratio for a standard single-unit investment home purchase mortgage loan but higher than the LTV ratio for a rental home refinance.
Generally, the lower the loan-to-value ratio, the more down payment you'll be required to pay, or the higher the equity you'll need in your property.
Credit/FICO score
The minimum FICO score needed for DSCR loans varies considerably based on your DSCR loan lender and many other factors, but it is usually 640. This is similar to the credit score needed for standard investment home loans.
Loan purpose
You can only use DSCR loans to buy an investment property, take cash out, or refinance existing homes. So, if you have other plans with your home loan, you'll be better off applying for other non-QM loan options.
Verifying your property's future rental income
To verify your property's potential income amount, an appraiser must complete Form 1007. This is the Single-Family Comparable Rate Schedule, which helps verify your home's future rental income.
Property types allowed
DSCR loans usually permit multiple types of homes that aren't allowed with standard investment home loans. This includes 2-4 unit properties, non-warrantable condos, townhomes, and more. Some lenders even allow commercial properties like 5+ unit apartments and office buildings.
An LLC can also own an investment property, which isn't allowed under standard mortgage guidelines. What's more, most lenders don't restrict the total number of investment homes you have financed, thus enabling you to grow and expand your property portfolio much faster.
Property use
You can use DSCR loans on short-term and long-term investment properties. Other home rental formats are also allowed.
Loan Type
Although a 30-year fixed rate is the most common DSCR loan type, DSCR lenders in Holmes County also offer adjustable rate (ARM) and interest-only loans.
Maximum loan limit
The maximum loan amount allowed depends on your lender, but it can sometimes amount to as high as $5,000,000.
This is much higher than the maximum mortgage amount for standard investment home programs. Some lenders in Holmes County may offer more or less.
Maximum properties owned
There's usually no limit to the number of homes you can own with DSCR loans.
Income and employment, debt-to-income ratio
Lenders typically use your home's income to determine whether you qualify, so they don't need employment verification, your income history, or DTI ratios. This reduces the documentation requirements.
Cash reserves
Real estate investors should pay at least 6 months of their total PITIA amount or 12 months if their DSCR is below 1.0.
Prepayment penalties
Unlike standard investment home loans, DSCR mortgages may include prepayment penalties. This can happen if you repay your mortgage, sell the home, or refinance too soon.
Make sure you carefully review your mortgage terms and conditions to understand any penalties you may be needed to pay and consult with your lender for specifics.
Closing the mortgage loan in the name of an LLC
If you want to invest in Holmes County, you'll be glad to know that many DSCR lenders here allow investors to close their mortgage loans in the name of an LLC.
Seller-paid closing costs
Closing costs for debt service coverage ratio mortgages are comparable to standard rental home loans and include escrow, title, appraisal, and lender fees.
In fact, some lenders allow seller-paid closing costs to a specific amount. Again, shopping multiple DSCR lenders will help you find the lowest costs.
DSCR Mortgage Rates in Holmes County, Florida
DSCR mortgage rates in Holmes County are comparable to standard loan rates. However, debt service coverage loan rates may be approximately 1-2% higher than standard rates.
According to OfferMarket's DSCR Loan Index, DSCR mortgage rates were about 1.25% higher than Freddie Mac and Fannie Mae's conventional loan interest rates in September 2022.
5 Best Cities to Invest in Holmes County, Florida
When you're looking at investing in real estate in Holmes County, you've got a lot of crucial things to consider. We know that, so we've put together this practical guide to help investors expand their portfolio in the Sunshine State.
Ever wanted to know the best places to invest in Holmes County? Here's your chance! Below, we'll talk about the top 5 spots every investor should know about.
Bonifay
Bonifay's population is about 2,680, making it one of the smallest but fast-growing towns in Holmes County. Aside from its charm and southern hospitality, the weather in Bonifay is fantastic year-round; residents get to enjoy steamy and perfect beach weather during the spring, summer, and fall.
This town is a perfect place to raise a family: it's safe and boasts lots of fun activities, from karate and dancing to swimming to playing baseball and soccer. There's also something for everyone, with farmers' and natural food markets nearby.
Westville
Westville is a pleasantly old-fashioned town in Holmes County with about 350 people. Residents here tend to be conventional and are very friendly. They enjoy staying in a suburban rural environment, and many own their homes.
Westville is quiet, peaceful, and safe, making it an ideal place to live for those who want to escape city life. The town is also chock-full of stores that provide great deals on foodstuffs and clothing items.
Ponce de Leon
As one of the many Florida towns with lots of things to offer, Ponce de Leon is just large enough to provide your tenants with the amenities of a suburb and still maintain a small-town feel. Like in many other places in Holmes County, residents here are conservative, so for those looking for a quiet town where locals know each other, Ponce de Leon might be the place to be.
While this place isn't prominent by any means, it has everything residents could ever need: there's a grocery store, a Dollar General store, gas stations, and restaurants. If you're searching for an affordable and peaceful town to buy rental homes, Ponce de Leon should be on your list.
Esto
With a population of roughly 400, Esto is a quiet town to settle down in and is among the best places to buy a home in Florida. It offers locals a suburban rural feel with excellent schools and a diverse population. Your tenants can find everything they need here: great restaurants, fantastic nightlife, and friendly neighbors.
Locals tend to be open-minded socially and conservative politically. Most of them own their homes, but plenty of options are also available for those interested in renting. The town boasts an eclectic mix of people who enjoy gathering for community events, such as neighborhood parties and parades.
Noma
In the hunt for a place that will give your tenants the best of both worlds? Search no further than Noma. This little town has just enough isolation to keep residents feeling like they're living in the middle of nowhere and just enough culture and people to keep things interesting.
Noma's population is approximately 260—a number that can feel much larger, especially considering how big the place is and how few individuals live there. Locals tend to be conventional - Noma isn't a town for hippies! However, they're friendly, kind, and welcoming to visitors and new neighbors.
Apply for DSCR Loans in Holmes County, Florida Today
If you're an investor interested in purchasing investment homes in Holmes County, DSCR loans are worth considering. With DSCR loans, you can buy as many investment properties as you want without showing proof of income.
All you need to qualify for a mortgage is a high enough DSCR. So, start your real estate investment journey today by applying for a home loan with favorable terms and low-interest rates.
(Mar 31, 2023)
