DSCR loan vs investment loan that considers rental income

[Amy Mead]

Hi I am looking for a loan for a short term rental property purchase. Can someone explain the difference between a DSCR loan and an investment loan that takes the rental income into consideration? Also, I have cash tied up in receivables in my primary business; to close, I will need to use funds from my HELOC. Is this going to be a problem for either of these two types of loans? We have excellent credit and equity in two properties. Our personal debt to income does not quite cover this property but with its rental hx and strong vacation location it cashflows (up to a certain interest rate).

[Luis Somoza]

Quote from @Amy Mead:

Hi I am looking for a loan for a short term rental property purchase. Can someone explain the difference between a DSCR loan and an investment loan that takes the rental income into consideration? Also, I have cash tied up in receivables in my primary business; to close, I will need to use funds from my HELOC. Is this going to be a problem for either of these two types of loans? We have excellent credit and equity in two properties. Our personal debt to income does not quite cover this property but with its rental hx and strong vacation location it cashflows (up to a certain interest rate).

Using funds from the HELOC for the down payment will not be a problem. You may also need to show reserves available in your name.

DSCR loans will not require you to disclose any income or employment, but may require a larger down payment. A conventional loan can require a slight lower down payment but will require you to qualify from an income and asset perspective and that could be more difficult as self-employed borrowers usually have a harder time qualifying for a mortgage.

You could also look into a bank statement loan, but again, will need to show reserves after closing in your name mroe than likely, as funds held in a business name are not always accept by non-qm lenders.