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DSCR Loans in St. Johns County, Florida: No-Doc Way To Build Your Real Estate Portfolio Quickly

Most counties in The Sunshine State seem to have it all, and St. Johns County is no exception. From quaint downtown shops to beautiful master-planned communities and scenic beaches, there's much you can do or see here. But Florida is not only renowned for its vibrant nightlife, laid-back lifestyle, and beautiful tropical weather; it also boasts a thriving real estate market with tons of excellent opportunities.

To enter this lucrative market, most opt for debt service coverage ratio (DSCR) loans, which, as opposed to conventional financing, focus on the rental property's revenue rather than the applicant's income.

Continue reading to learn how DSCR loans render borrowing far easier and faster for investors than traditional loans.


Why Get a DSCR Loan in St. Johns County, Florida?

The Florida real estate market remains hot and is projected to remain so for a while. And for St. Johns County, in particular, the case isn't any different.

If you're a real estate investor, this is terrific news because it means property values are rising. Additionally, there isn't stiff selling competition; therefore, you'll often have the advantage of picking from the best deals available.

For even better insight, let's look at how The Sunshine State's real estate market compares to its at the onset of spring, which is usually one of the busiest real estate seasons. Compared to the previous year, property prices at the national level grew by 20.9% in March 2022. Within the same period, see which states had the highest year-over-year home price increases:

  • Florida - 31.4%
  • Tennessee - 26.7%
  • Arizona - 28.7%

According to these stats, Florida housing prices surpassed the national housing prices in March by 50%, which is pretty wild!

On that note, here are a few good reasons why you should get a DSCR Loan and invest in St. Johns County, Florida:


Thriving Real Estate Market

Epidemic or otherwise, the Sunshine State's housing market remains among the most lucrative in the county. Its commercial hub and tourist destination appeal allow for a thriving real estate market.


Rapid Population Growth

Florida is currently the third-most populous state in the United States. With such a fast-growing population, investing in the Florida real estate scene is an easy decision. Remember that as the population grows, so will the number of tenants and prospective home buyers.


Dynamic Job Market

Florida is brimming with different work possibilities in multiple industries, from business to information, software, and healthcare.

It is also home to major multinational corporations' headquarters such as TechData, World Atlantic Airlines, AutoNation, Burger King, and NASCAR – all of which make for a lucrative housing scene.


How Does a DSCR Loan Work?

To qualify for a DSCR loan, the revenue from the chosen property should be greater than the monthly payment. This simplifies borrowing for investors because no personal income verification is necessary.

Borrowers, genuine estate investors, sometimes have complex tax forms that might not accurately portray their revenue. Because of the limitations, qualifying for a traditional mortgage is often tricky.

The DSCR loan, on the other hand, is a different story—it offers borrowers a viable financing option.


How is DSCR Calculated?

DSCR is always written in decimal forms, like 1.4 or 1.4x. A 1.4x DCSR property provides 40% more income than is required to cover the monthly payment.

To compute DSCR, we employ the following formula:

Income / Payment = DSCR

The higher the DSCR, the more cash flow the property generates. A DSCR of 1.30, for example, represents a 30% surplus in revenue, while a DSCR of 1.50 denotes a 50% surplus in income.

The opposite also applies. A DSCR less than 1.0, for example, indicates negative cash flow, whereas a ratio of 1.0 implies breaking even.


Determining DSCR Income

DSCR loans for residential investment properties typically use the monthly rental revenue. On the other hand, commercial properties employ NOI (Net Running Income), which is calculated by deducting operating expenses like maintenance and utilities from the borrower's pretax income.


Determining DSCR Payment

DSCR loans employ the principle, interest, HOA, insurance, taxes, and other fees—collectively known as PITIA—to calculate the monthly payment amount.


Example - How a higher rent can increase DSCR.

Income ($) Payment ($) DSCR
3250 2500 1.3
3800 2500 1.52

Example - How lower payment can improve DSCR

Income ($) Payment ($) DSCR
4500 3200 1.41
4500 3350 1.34

Pro Tip - Alter the numbers on a property you're keen on to see if you can lower the payment or increase the revenue. A higher DSCR will increase your chances of getting approved.


What's the Minimum DSCR to Qualify in St. Johns County, Florida?

It's the lenders' responsibility to define their DSCR qualifying standards; therefore, the ratio to qualify in St. Johns County may differ depending on which lender you choose. Most lenders, nonetheless, need a baseline DSCR ratio of 1.25x to qualify.

Furthermore, some lenders are willing to take lower DSCRs, and you might even come to encounter a few with no specified minimum DSCR.


House model and jar with coins


Qualifying for a DSCR Loan in St. Johns County, Florida

If you discover a suitable property, you may easily cut it for a DSCR loan in St. Johns County, Florida.

DSCR loans were established with every investor's unique situation in mind. Since they're often unable to demonstrate inside-the-box income verification, investors typically find traditional loans tricky to get. After all, they are not usually employed on a W2 basis.

A DSCR loan, on the other hand, permits investors to apply based on property revenue rather than verification of earned income.

As previously stated, different lenders in St. Johns County will have slightly varied DSCR borrowing criteria. However, below is a general guide to what most DSCR lenders expect.

  • Credit Score - As with other loans, a FICO score of 640 or higher is preferable for DSCR loan qualification. However, some lenders prefer a better rating, whereas others are content with a lower one.

  • Loan-to-value (LTV) Ratio - For DSCR loans, the maximum LTV usually is 75% to 80%, which translates to a 20% to 25% down payment.

  • Allowed Property Types - The DSCR allows different property types depending on the provider. However, they often include townhomes, single-family homes, 2-4-unit properties, and condominiums.

  • Loan Purpose - Your DSCR loan can be used to purchase, refinance, or cash out a property.

  • Income and Debt-to-income (DTI) Ratios - Remember that DSCR lenders do not require income or employment proof, and there is no DTI cap. They are more interested in the income generated by your property.

  • Property Use - DSCR lenders typically allow long- and short-term rentals and solely rental and investment. Nonetheless, primary inhabitants are not permitted.

  • Cash Reserves - Most DSCR lenders expect borrowers to have six months' worth of mortgage payments in cash reserves. On the contrary, low DSCRs may demand 12-month financial buffers.

  • Verifying the Property's Future Rental Revenue - The lender must assess your projected revenue when determining your eligibility. According to the DSCR eligibility standards, an appraiser should complete the Single-Family Comparable Rent Schedule, otherwise referred to as Fannie Mae Form 1007. Commercial properties with five or even more units, as well as office buildings, are allowed. However, you might want to check in with your DSCR lender to determine which property types are authorized in your area.

  • Prepayment Penalties - These penalties may apply if you repay your loan, refinance, or sell your home too early. And, as with other considerations, the policies dictating these fines differ from lender to lender. So, for further information and specifics regarding prepayment penalties, be sure to contact your preferred lender.

  • Loan Options - Depending on the provider, you may have an array of loan programs, typically ranging from interest-only and 5-year ARMs to 30-year fixed rates.

  • The Maximum Number of Owned Properties - Most DSCR lenders do not impose a cap on how many investment properties a borrower can possess.

  • Maximum Loan Amount - Generally, peak loan sums are often in the $5 million range. This, however, is dependent on the lender.

  • Closing in the Name of an LLC - Lenders typically permit investors to close in the name of an LLC.

  • Seller-paid Closing Costs - Sellers frequently pay a portion of the closing costs. Nonetheless, ensure that you consult your DSCR creditor to see if seller-paid closing costs are allowed.

The Best Places to Invest in St. Johns County, Florida

As previously said, real estate experts anticipate the Florida real estate market to remain vital for years. And If you've been planning to invest in Florida, particularly in the St. Johns County real estate space, this is the time.

On that note, read on as we explore the best places to invest in St. Johns County, Florida.


St. Augustine

St. Augustine, founded in 1565, offers a unique blend of seaside appeal, historical integrity, southern hospitality, and small-town charm. The city boasts a historic downtown brimming with family-friendly diversions, arts and culture, old-world gems, and delectable cuisines.

St. Augustine's real estate market has expanded significantly in recent years. With an average market price growth of 19.9%, it cuts it among Florida's fastest-growing markets, and the appeal of working from home is propelling this growth. As of August 2022, St. Augustine's median home price stood at $431,500, which is 12% higher than last year's.


St. Augustine Beach

Reputable for its broad, sandy beaches and unique suburban lifestyle, St. Augustine Beach is a city situated right across the Intracoastal Waterway Park from St. Augustine's Historic Downtown.

There are countless things to do here, from paddle boarding and kayaking to surfing. And let's not even get started on the spectacular ocean views you will get to catch while indulging in vibrant Floridian flavors from the city's coastal eateries.

St. Augustine Beach is among the best places to live in The Sunshine State, with most people loving it for its urban-suburban lifestyle balance. It also boasts plenty of parks, coffee shops, restaurants, and more, not to mention that most people living here own their residences.

Even more impressive, the city's real estate scene is booming, with the median home purchase price at $550,000 as of September 2022—up by 18.3% from last year's.


Vilano Beach

Situated on Florida's northeastern coast and bordered by water on practically every side, Vilano Beach is renowned for its pristine seas and sands. It is a picture-perfect, tropical Florida town flanked south by the St. Augustine Inlet, west by the Intercoastal waterway, and east by the Atlantic Ocean.

Besides being a great vacation hotspot, Vilano Beach also boasts a real estate scene that accommodates all types of prospective investors. Properties for sale here range from high-end waterfront villas to typical residential properties.

So, if you're looking to invest in a property near the beach, Vilano Beach might be your spot.


Five Tips for Real Estate Investors in St. Johns County, Florida

If you're looking to navigate the real estate market and build your investment portfolio in St. Johns County, here are some essential tips you should have at your fingertips.


Work with a Team of Local Realtors

Because most investors associated with properties in St. Johns County may not be, it would be best if you collaborate with a group of local specialists who know the area in and out.

The properties in St. Johns County tend to be pretty affordable, and there exist many opportunities even for new investors who do not have a profound enough portfolio to sustain significant investments in their home state.

As a result, many novice investors are inclined to concentrate solely on the state's opportunities, ignoring the locals' input. That's why you should build a team of realtors to advise you on how to get the most out of your investment in that market, in our case, St. Johns County.

Moreover, just like any other state, Florida's economy is varied, with industries ranging from entertainment and elite sports to education and health services. Understanding the nuances of local public economies may shed some light on what's needed in the market.


Do Your Research

As previously stated, St. Johns County and greater Florida are teeming with opportunities. As an entrepreneur, it's vital that you focus on your specific goals and only go for investment opportunities that fall in line with them.

Do you wish to invest in short-term rentals in Vilano Beach? Renovate single-family rental residences in or near St. Augustine? Or should you buy a lovely Vilano Beach waterfront estate?

It's all up to you; make sure your investments benefit everyone—you and the tenants.


Remember Your Tenants

Before beginning any property upgrade or makeover, assess who you wish your tenant to be. If you bring improvements that necessitate a higher rent cost than renters in the area expect, you could be compelled to lower the rent or face difficulty finding tenants, jeopardizing potential profit.


Be Ready to Splurge More Money

Most beginner investors don't budget for unforeseen costs, only to be plagued by glitches afterward. Always have a cash cushion to avoid such inconveniences when acquiring a property investment.

With some extra money saved aside, you'll be prepared whenever unprecedented upgrades or repairs are required before subletting your home.


Opt for Holiday Short-term Rentals

We're talking about Florida, the Sunshine State synonymous with a superb all-year climate, a rich diversity, an ample supply of beaches, world-class amenities, and more. Florida is unquestionably a charm for anyone getting ready for a getaway.

For that reason, you could invest in various holiday and vacation rentals in St. Johns County, Florida, since their markets are already established.

And, with all Florida has to offer, from natural scenery to a unique history, there are hardly enough sights and activities to keep one busy all year. With tourists flocking here all year round, investors may discover a booming market for vacation homes in St. Johns County.


Get Your DSCR Loan Today and Grow Your Portfolio

St. Johns County, Florida, is a great place to kickstart your real estate career and grow your investment portfolio. But as earlier mentioned, it may be difficult for some investors to meet the paperwork requirements for traditional financing.

Assuming you're in such a situation, you could consider leveraging DSCR loans to help you catch up with the ever-changing real estate market and, most importantly, build your portfolio. So, why stall anymore? Apply for your DSCR loan today!

With over 50 years of mortgage industry experience, we are here to help you achieve the American dream of owning a home. We strive to provide the best education before, during, and after you buy a home. Our advice is based on experience with Phil Ganz and Team closing over One billion dollars and helping countless families.

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