Hey folks, happy March. I have a new old program for you, or old new program for you. The Debt Service Coverage Ratio Loan. This is going to help you sell more homes in 2025. This is for investment properties only. Debt Service Coverage Ratio Loans.
You can finance multiple, multiple properties up to 20. Uhm, and you use the rental income to qualify, not the client’s existing, uhm, tax returns, not their, we don’t look at their tax returns, we don’t look at any of their income, we don’t look at their W-2s, any of that stuff.
We also don’t look at their existing debts, so if they have other multiple mortgages, none of that stuff even matters. We do look at their, uh, FICO scores of course, and credit is part of it, but, uhm, that’s a given on this on anything, right?
So how do these things work? Uh, debt service coverage ratio loans simply use the rental income to, to qualify. Rental income versus the actual mortgage payment.
You use the cash flow of the subject property to qualify. So, very important to understand this is for investment properties only, no first-time, uh, homebuyers, not for primary residences. If somebody doesn’t qualify on a primary, you can’t just switch them over to this and do that because these are non-QM loans.
They don’t, uh, they don’t go through the normal, the normal stuff. They’re business purpose type loans, right? So you got to have, uhm, some reserves, at least six months of, uhm, reserves are sort of required and that’s pretty normal for rental property anyway.
But how does the ratio portion work? Uhm, Let’s look at these three things. Let’s just say that the mortgage payment is $2,500. If the rent is $2,500, the mortgage is $2,500, you divide those out, that equals 1%. The, uh, the rent covers the mortgage.
That’s a good thing. That’s what you want, right? Example number two, if the rent was a little bit higher, $3,000 a month and the mortgage payment is $2,500, uh, that is a greater than 1%. That’s what you want.
Uhm, that allows you to get a little bit lower, uh, debt. Interest rate and a higher loan to value. The third example is if when it doesn’t cover, when the, when the rent itself does not cover the mortgage payment, you divide that out, it’s below 1%. Those are still possible.
And if you look over here on the right, I’m going to show you both of them. But you got to have better credit and they’re going to give you a little bit lower loan to value and the interest rate is going to be a little bit higher because the rent is risk is greater because the cashflow doesn’t cover the monthly payment.
Right? That makes sense. Okay. So this top box, when the debt service coverage ratio is one or higher, they’ll go up to 80% loan to value on a purchase.
You can only put 20% down. We’ll give you the other 80% you’re good to go, which is, which is pretty amazing.
We’ll do rate and term refinance. We’ll even do cash out up to 75% on an existing rental property. If the, uh, if the, uh, rents cover the mortgage, you can get cash out, you know, down below is if the rents do not cover your below 1% or there’s no ratio at all, they’ll still do 75% loan to value 25% down up to a million bucks. If you’ve got good credit and even cash out 65% of the value.
If you don’t have even have, you know, rent schedules, if you’ve been putting the money in your pocket and not even showing it, um, they’ll still give you cash out to do home improvements, things like that on these loans, which is pretty, pretty remarkable. So that’s your quick crash course in the debt service coverage ratio. Uh, this will help you if you’ve got folks that are trying to buy rental properties.
They’re not going to be limited on the amount that they can. It’s just you just got to have some money to play ball.
So, thanks for watching. If you have questions on this, as always, reach out to me. I’m happy to chat. If you’ve made it this far, thanks for watching. We’ll talk to you soon. Take care.
