The Best Financing Options For Zero Income Borrowers With High Savings
Rental Property Investor · New York, NY · Member since 2019 · 2 posts · 2 votes
The Best Financing Options For Zero Income Borrowers With High Savings
Most Popular Reply
Stacy RaskinBusiness Member
Lender · Member since 2022 · 1k+ posts · 510 votesIf buying an investment property, a DSCR loan can be a good option especially if you don't want your personal income considered.
Some DSCR lenders will go down to a $75K value and a $50K loan amount. It's the same work to do a $55K loan as a $500K loan so the fees will be higher due to the loan amount but will still be much lower than what a lender or broker gets paid on a higher loan amount.
DSCR loans won't use your income to underwrite the loan.
DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.
Here's a bit more in detail about how rates are calculated for DSCR loans:
1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders
2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.
3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.
4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.
I've included an example below to help illustrate this.
So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.
See example below:
DSCR < 1
Principal + Interest = $1,700
Taxes = $350, Insurance = $100, Association Dues = $50
Total PITIA = $2200
Rent = $2000
DSCR = Rent/PITIA = 2000/2200 = 0.91
Since the DSCR is 0.91, we know the expenses are greater than the income of the property.
DSCR >1
Principal + Interest = $1,500
Taxes = $250, Insurance = $100, Association Dues = $25
Total PITIA = $1875 Rent = $2300
DSCR = Rent/PITIA = 2300/1875 = 1.23
DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.
Happy to connect to discuss further.
Bright Skyline518 Reviews
8 Replies
- 2yKo KashiwagiPro MemberLender · Los Angeles, CA · Member since 2022 · 967 posts · 445 votes
Hi Rachel,
There are non-QM loan and investment loan programs that do not look at your income. Namely, the DSCR loan is a very popular program that investors use, where the qualifications are based primarily on rent/PITI and your FICO credit score.
Happy to discuss further.
- Lender · Member since 2021 · 495 posts · 130 votes2y
Quote from @Rachel Waldorf:
I have around 100k in savings that I would like to put towards the purchase of an investment property in Rochester, NY. I’m looking for income generating rental properties that cost under $90,000. What are the best financing options for this? Proof of income will only be the property’s current rental cash flow. Should I take out a secured loan using my savings account as collateral? Or is there a better option? (I also would like a loan that doesn’t require a high down payment).
This sounds like a great situation for a DSCR loan. The loan is based on the income of the property for qualifying purposes (in addition to credit score) versus your personal income. A great option if you have money but no income.
- 2yStacy RaskinBusiness MemberLender · Member since 2022 · 1k+ posts · 510 votes
If buying an investment property, a DSCR loan can be a good option especially if you don't want your personal income considered.
Some DSCR lenders will go down to a $75K value and a $50K loan amount. It's the same work to do a $55K loan as a $500K loan so the fees will be higher due to the loan amount but will still be much lower than what a lender or broker gets paid on a higher loan amount.
DSCR loans won't use your income to underwrite the loan.
DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.
Here's a bit more in detail about how rates are calculated for DSCR loans:
1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders
2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.
3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.
4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.
I've included an example below to help illustrate this.
So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.
See example below:
DSCR < 1
Principal + Interest = $1,700
Taxes = $350, Insurance = $100, Association Dues = $50
Total PITIA = $2200
Rent = $2000
DSCR = Rent/PITIA = 2000/2200 = 0.91
Since the DSCR is 0.91, we know the expenses are greater than the income of the property.
DSCR >1
Principal + Interest = $1,500
Taxes = $250, Insurance = $100, Association Dues = $25
Total PITIA = $1875 Rent = $2300
DSCR = Rent/PITIA = 2300/1875 = 1.23
DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.Happy to connect to discuss further.
Bright Skyline518 Reviews - 2yAJ ExnerPro MemberLender · Springfield, MO · Member since 2023 · 655 posts · 318 votes
Quote from @Rachel Waldorf:
I have around 100k in savings that I would like to put towards the purchase of an investment property in Rochester, NY. I’m looking for income generating rental properties that cost under $90,000. What are the best financing options for this? Proof of income will only be the property’s current rental cash flow. Should I take out a secured loan using my savings account as collateral? Or is there a better option? (I also would like a loan that doesn’t require a high down payment).
Hey Rachel,
So a DSCR is a great option, but it won't really help you on the down payment side of things. Even on most DSCR loans, you'll be looking at 20% down, so your best bet for low(er) down payment would be to utilize a BRRRR strategy with a rehab-focused bridge loan into a DSCR to get it stabilized and cash flowing.
Be sure when you talk with potential lenders to make sure that they are licensed to operate in NY as well. Licensure is a little different up there and you don't want to get caught going through the process only to find out that they can't actually lend there.
Good luck!
- Lender · Chandler, AZ · Member since 2023 · 88 posts · 48 votes2y
As many have mentioned, DSCR loans are great options for the scenario you are providing.
However, minimum loan amounts will get factored in. Most lenders won't do loan amounts under $125k, but that isn't to say you can't find one who will.
Loan Officers get paid a percentage of the loan amount, and most loan officers will pass on a deal like this as the pay is a faction of the work they will put in (transparently speaking). @Stacy Raskin has provided a great breakdown, and loos like she might be able to assist. I've heard great things about her.
- Lender · FL · Member since 2024 · 2 posts · 1 vote2y
I agree with Ko, Andrew, and Stacy that the DSCR product is the best fit since almost all other loans require some income to get approval.
However, my initial thoughts on this scenario are around risk management. Obviously, I don't have insight into your full financial situation, but I would have concerns from a risk management perspective about putting all of your hard-earned savings into purchasing a single property or even a single investment of any type. I would encourage you to consider using $75k to purchase 3 properties over time by using about $25k on each one to cover the down payment and closing costs. Once you have the first one cash-flowing buy the second one, then repeat with the 3rd. Doing this more gradually will likely be less stressful and allow you to learn some lessons with less financial exposure.
The second question is: Do you have experience as a landlord? If not, this is another risk that should be actively managed. Many investors find out too late that their deal doesn't cash flow sufficiently when using property management, and they themselves don't want to be active landlords. Depending on the property itself you will often need significant cash flow percentages each month to cover property management as well as regular maintenance and periodic repair costs.
I don't know the Rochester, NY market and there very well could be deals there that will cash flow quite well. But what we are seeing in the southeast is that prices have risen to the point where buying single-family rentals for cash flow doesn't often pencil out unless you have gotten a significant off-market deal.
Finally, there are other financial reasons to buy real estate beyond cash flow, such as appreciation and depreciation, but putting those aside right now, if your primary motivation is to take your $100k and turn it into cash flow, I would strongly consider private lending in the current market. You can conservatively expect 10% annual returns as a private lender in almost any market across the country which would net you $10k/year or an average of $833/month. It is unlikely that you find any single-family rental that will throw off $833/month in cash flow.
Leave it to a lender to prefer and suggest lending over land-lording. Ha ha.
- 12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes2y
You want to get something around 150k and put 25% down to leave yourself with some liquid to execute on another deal . you'll be able to obtain a 30 year fixed DSCR which is no income and no doc
- Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes2y
@Rachel Waldorf How do you live with 0 income? Are you thinking that you will live exclusively off the cash flow of your rental?
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