What is DSCR at Purchase?

Question

I am confused with what "DSCR at purchase" is. Does this not include the construction loan ?

For example, when the DSCR is 3.00x and the Loan to Purchase is 68% , does this mean that NOI is 3.00 x the debt from a loan with 68% of the purchase price?

Katherine Blazer · Answer

Typically DSCR loans are used for properties that are ready to be rented. To find the Debt Service Coverage Ratio- you divide your Net Operating Income by your Debt Service (Mortgage, Taxes, Insurance, Management Fees, HOA/Condo Fees, and any additional fees you pay). These loans are longer terms and commonly amortized. If the home needs construction, you would most likely need a bridge/flip loan. These loans are short-term and normally interest-only. You can structure the loan to finance the construction costs if the numbers make sense.

Cole Baker · Answer

This is Great! Thank you for this! This is straightforward !

Tyler Solomon · Answer

Correct. If you have a property that you intend to rehab/renovate, you will typically purchase the property and fun part of the rehab costs with a short term, hard money loan. After you are done with the value add portion of the property, the home is rent ready, and you are ready to refinance into some longer term debt, the DSCR loan will come into play. Feel free to reach out, happy to help answer any other questions!

Katherine Blazer · Answer

Correct! Typically there is at least a 6-month seasoning needed from taking title.

Jack Tulloch · Answer

PITI = Principal Interest Taxes Insurance

Katherine Blazer · Answer

Seasoning is another word for time. Sometimes it is used for the time you have had the property rented; other times it is time that you have owned it. For all of the banks and funds, I work with it is time the investor has owned the property.

Cole Baker · Answer

What do you mean by seasoning?

Cole Baker · Answer

Thank you!

Cole Baker · Answer

UNDERSTOOD. That makes sense. So for a "Value-add" deal DSCR isn't necessarily relevant until the refinance? Am I understanding that correctly?

What is DSCR at Purchase?

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