(Mar 27, 2023)
DSCR loans make it easy for anyone to get into the real estate business because they base their determinations on the borrower's property's potential to generate income to help make future payments. This results in an easy, no-doc way to borrow for property investments.
Many investors use these loans to seize property investment opportunities and broaden their portfolios.
Why get a DSCR loan in Wakulla County, Florida?
Florida is undeniably one of the best places in the country for real estate investing. The Flower State is defined by low housing prices, steady rents, and a fast-expanding population due to the influx of many people from the north.
This strong activity is also present in the state's northern region. The demand for homes significantly outnumbers the supply, local governments have passed business-friendly measures, and employment and the population are growing.
Wakulla County is a famous state in the northern region of Florida for property investors. It is near several large cities and has a beautiful climate. The property taxes here are low compared to the entire state, and there's also no income tax, meaning you keep most of what you earn.
You can use DSCR loans to venture into this expanding real estate market, which will probably result in a favorable return on your investment. The loan application and qualification process are simple, easy, and fast.
How do DSCR loans work?
For some investors, a standard loan might not be an option because of the write-offs or deductions they take on their income to reduce taxes. It's typical of new and experienced real estate investors not to disclose a significant amount of their income on their tax returns.
However, this makes it hard to qualify for conventional mortgages since institutions like Freddie Mae require thorough documentation of a borrower's employment history and income.
On the other hand, DSCR borrowers do not encounter such troubles. DSCR lenders base their decisions on your rental property's ability to help you meet future payment commitments.
In essence, this is the most sensible course of action. After all, if the investment is solid enough to lift its weight, why even bother confirming the investor's current income?
Your lender will approve your loan request, provided they feel the investment property will bring in enough income to cover the loan installments and related costs.
DSCR mortgage rates in Wakulla County, Florida
DSCR interest rates are usually higher than standard mortgage rates because they offer a different option for financing property investments. However, these loans are never too pricey to turn away potential investors.
In Wakulla County, the interest rates on DSCR loans usually are just 1% higher than traditional mortgages; in exceptional situations, they may even be less costly.
How is DSCR determined?
Indeed, DSCR compares the income the property will generate against associated payments.
It's computed as income divided by total payment and expressed in decimal format, such as 1.5X or 1.50.
How to calculate your DSCR income
For residential properties, the rental income is simply the monthly rental revenue. On the other hand, you have to calculate the net operating income (NOI) if you are dealing with commercial properties, office buildings, or five or more-unit homes. NOI is gross income minus operating costs.
How to calculate DSCR payments
Lenders call a property's total payments PITIA, which is just short for related principal, interest, taxes, insurance, homeowners' association fees, and associated costs.
Naturally, it's impossible to figure out a property's DSCR unless you talk to a lender and find out how much interest rate and other expenses they may charge you. It's also wise to speak with many lenders because they don't charge the same rates and fees. The lower your PITIA, the better your DSCR.
An example of a DSCR calculation
Consider a house with monthly rental revenue of $1,820 and a PITIA of $1,400; the income/payments ratio is 1.3.
A 1.0 DSCR implies that the property's rental income and total payments are equal, while a DSCR > 1 shows that the rental income surpasses associated payments.
What DSCR do Wakulla County, Florida lenders require?
Although each lender has a different minimum DSCR cutoff, most tolerate ratios above 1.25. That said, you might find lenders accepting ratios as low as 1.0, depending on the investor's unique situation.
Please discuss your circumstances with a dependable DSCR lender to get their opinion about your rental property, potential revenue, and payment obligations to determine your DSCR.
Don't forget that the lender may require you to fulfill additional requirements before approving your DSCR loan request.
If your DSCR falls short of what lenders want, consider increasing rental income or lowering total payments. Remember that you may only increase rent slightly above similar houses in the area; otherwise, you won't find any tenants, and whatever chances you had of being approved for an investment mortgage will be dashed.
Condominiums are popular in Florida, so purchasing one might seem a wise investment. But they usually involve high HOA dues, which drive up PITIA. Consider putting your money into single-family homes instead. Sure, they are pricey, but they usually don't involve home association dues, which means lower PITIA.
DSCR loan guidelines for Wakulla County, Florida borrowers
Here are further DSCR loan guidelines that you'll have to meet before receiving funds:
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Loan-to-value ratio - Most banks will only provide 75–80% of the property's assessed price, meaning you'll have to put down at least 20% of the price yourself.
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Creditworthiness - Although some DSCR lenders accept lower credit scores, the optimal number is 640.
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Property's potential income - The lender will send an appraiser to assess the investment and generate the Single-Family Comparable Rent Schedule Form 1007. This will help them determine if the property will generate enough rental income to help you meet all associated annual debts.
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Loan purpose - A DSCR loan can be used for cash, acquiring, or refinancing rental property deals.
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Allowed properties - Both commercial buildings with five units or more and residential apartment complexes with one to four units are eligible. Unique homes and non-warrantable condos are occasionally allowed as well. Furthermore, DSCR loans are available for commercial real estates, such as offices and other buildings. To find out more, talk to your local DSCR loan provider.
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Property usage - Only rental properties are allowed.
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Loan Type - DSCR can be fixed-interest, interest-only, or an ARM mortgage, depending on the lending company.
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Employment, earnings, and DTI - DSCR loans don't need income verification, so your job or DTI doesn't matter.
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Loan size - Although some DSCR lenders offer up to $5M, the typical sum is in the $1M–$2M range.
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Max number of investment properties - If you want to buy several properties, you can apply for multiple DSCR loans, provided each investment can lift its weight. That means each separate property must meet or surpass the lender's DSCRs. You can even work with multiple lenders if necessary.
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Penalties for early payments - Penalties apply if you refinance, sell or pay the loan balance too soon. Penalties differ by lender.
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Cash reserves - Many lenders stipulate that applicants must have sufficient funds to cover the loan. Usually, they require at least six months' worth of cash reserves. But speak to your lender for more information.
- The seller paid closing costs - Depending on the mortgage company's DSCR guidelines, the seller may be allowed to pay closing costs.
The Benefits of DSCR Loans in Wakulla County, Florida
DSCR loans have several benefits for real estate investors compared to traditional loans. Take a look:
No income verification
DSCR underwriters won't ask for proof of an investor's current earnings because they base their decisions on whether the rental property will be able to generate enough income to help meet associated annual payments.
This is favorable for self-employed investors, individuals with complex tax returns, or those whose W-2s don't fully reflect their income due to tax write-offs and deductions.
No employment history examination
Banks won't need to contact your employer because they don't need information about your income. This is excellent since it expedites the loan request and approval process, which shortens the closing period.
It's also advantageous for self-employed investors since producing proof of employment and tax records is always a hassle when applying for conventional loans.
Doesn't affect the borrower's finances
Conventional mortgages always affect the borrower's DTI and, therefore, future borrowing capacity for personal needs. On the other hand, DSCR doesn't impact personal finances.
Even better, you might be allowed to close your DSCR loan under an LLC name, keeping it from reflecting on your credit file. Your DSCR loan won't impact your capacity to borrow money for private purposes in the future.
Multiple properties may be bought simultaneously
The only thing that matters is a property's DSCR vis-a-vis the lender's cutoff point. Therefore, if you want to buy several properties, you can apply for multiple DSCR loans, provided each investment can lift its weight. You can even work with multiple lenders if necessary.
Shorter closing period
DSCR eliminates the need for income and employment history verification, which reduces the loan application and approval process.
Moreover, these loans are typically made available by private lenders that can cut through red tape and make speedy determinations.
Flexible underwriting
People, not machines, evaluate borrowers' DSCRs and situations, meaning it's possible to qualify with less-than-ideal DSCRs depending on the borrower's circumstances.
The best cities to invest in are Wakulla, Florida
Wakulla is a county in the northern region of Florida with a population of about 35,000. The county's annual average population growth is about 0.95%. Crawfordville, the county seat, has the highest population density.
Compared to the national average, the cost of living here is 10% lower. The median property value in the county is $144,700, and the gross median rent is $918. It has a good mix of homebuyers, investors, and tenants.
In Wakulla County, 19.3% of properties are leased, compared to 35% in the entire state. The county's total occupancy rate for houses and apartments is 83.1%, while its vacancy rate is 16.9%.
Some of the best cities in the county to buy rental properties include:
Crawfordville
One of the most excellent locations to live in Florida is Crawfordville, in Wakulla County. Its population has increased by 3.83% annually over the last ten years to 4,113.
Residents of Crawfordville enjoy a suburban and rural mixed lifestyle. It boasts an excellent infrastructural network and plenty of services and is home to the Wakulla Environmental Institute and a Tallahassee Community College satellite campus.
The county's current median home value is $153,700, with an annual growth of 0.15% per year. Meanwhile, the gross median rent is $874, with an annual growth of 0.39% per year.
Property taxes in the county are about $1,311 on average, which is lower than the state ($1,872) and national ($2,342) averages.
The county's homeownership percentage is 76.8, while that for rented housing is 23.2%. In Crawfordville, the occupancy rate for all residential units is 93.43%, with an analogous vacancy rate of 6.57%.
St. Marks
St. Marks is an iconic Gulfport city and possibly the third oldest town in North America. This quaint waterfront community hid centuries' worth of fascinating tales, including legends of Apalachee Indians, Spanish adventurers, and Indian wars; tales of pirates, sunken ships, invading forces, forts, and cannon fire up to the American Civil War.
Over the decade, it has had an annual population growth average of 0.91%. Its vintage bed & breakfast inns, sports fishing opportunities, nature trails, museums, and wildlife refuges also draw many tourists.
Many (84%) folks here own their own homes, but there's also a decent population of renters. The median home value in St. Marks is $152,500, with an annual growth rate of -0.01. Meanwhile, the gross median rent is $1,028, with an annual growth rate of 3.34%.
The vacancy rate is undesirable, though. 62.89% occupied homes and apartments, compared to 37.11% unoccupied homes and apartment complexes. But as an investor, you should endeavor to look beyond on-paper "figures" and judge a city based on how you feel about its neighborhoods, rent, property prices, and other merits.
Is it a smart idea to seek a DSCR loan?
DSCR loans appeal to investors who want to grow their rental property portfolios quickly because of their simplicity, speed, and ease. They are favorable, especially for new investors who wish to keep their personal and portfolio funds separate. Moreover, one might purchase many homes at once by taking out multiple DSCR loans.
However, DSCR borrowing might not be ideal if you want a loan with a lower interest rate or want to purchase a big house. Discuss your alternatives with numerous lenders and choose the best one.
Are DSCR loans legitimate?
Yes. Since they are independent of the Dodd-Frank Act income verification requirement, these loans are usually referred to as "non-QM loans."
Lenders are free to offer DSCR loans if they choose, but they are not shielded by the same federal standards that cover lenders that offer only loans requiring strict income documentation. Nevertheless, they are legal.
Are DSCR loans regarded as hard money loans?
Some hard-money lending organizations offer DSCR loans, but they are not hard-money loans at all. They are just non-QMs, meaning the same guidelines as conventional loans do not bind them.
How do I locate DSCR lenders?
Building your financial future by investing in rental properties makes sense. But it would help if you moved quickly to take advantage of opportunities. The earlier you start looking at rental properties and financing options, the better.
DSCR lenders base their decisions on the ability of your property to help you make related future payments; they don't need your employment history or proof of your current income.
This is helpful for those whose tax records are complex, have no pay stubs, or have pay stubs that don't truly reflect their earnings due to tax deductions and write-offs.
However, not every lender has expertise in DSCR financing. Several well-known mortgage lenders prefer to eschew this type of lending altogether. If you wish to research DSCR financiers in your area, begin online or get in touch with a local financial expert.
Feel free to reach out to us as well. We'll be pleased to address any queries and offer support as necessary.
(Mar 27, 2023)
