DSCR Loan for a first time REI
New to Real Estate · Metro Detroit Michigan · Member since 2024 · 28 posts · 12 votes
DSCR Loan for a first time REI
Most Popular Reply
Stacy RaskinBusiness Member
Lender · Member since 2022 · 1k+ posts · 508 votesThere are DSCR loan programs for first time investors. Many DSCR programs require an investor to have a mortgage history- there are some DSCR mortgage programs that will work with investors who are renting- some refer to them as first time home buyers (FTHBs)- DSCR loans are only for investment properties where the owner isn't living there. There are loan programs that will do a 20% down payment with a 680 or above credit score.
More on DSCR loans: 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. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.
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
If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.
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
19 Replies
- Lender · Nashville, TN · Member since 2024 · 700 posts · 284 votes1y
Yes Aaron!
Love to hear your getting in the game at 21! For a DSCR loan you can be a first time homebuyer, we do a lot of these actually.We won’t look at your income, all that really matters is your capital, credit and the asset itself.
- 1yElias HalvorsonBusiness MemberHI · Member since 2024 · 225 posts · 130 votes
Hey Aaron,
Sorry to hear about your rough start! With a DSCR loan, it is perfectly feasible, but they are much different than a Conventional loan. DSCR loans typically require 25% down, and have higher interest rates and fees. The primary requirement is that the expected rent would cover the mortgage on the home - and that expected rent is typically determined by a combination of the appraiser and some service like airdna (a site which determines fair market rent). Hope this helps!
V/r,
Elias
Elias Halvorson C2 Hawaii NMLS#1697041HI Branch NMLS#1244222 585 Reviews - Lender · Member since 2021 · 495 posts · 130 votes1yAaron,
Quote from @Aaron Raffaelli:
As the title suggests, I am just starting to enter the REI world. My first deal looks like it will fall through because the bank doesn't like my work history. (4 months as a union electrician, which the bank considers contract work). I am wondering if any lenders or knowledgeable investors know how feasible it could be to get a DSCR loan as a first-time home buyer/investor. I am 21 with excellent credit and have enough/will have enough for the high down payment they require. I know and am prepared to do all the overhead work necessary to find a property that will qualify, but I just want to know if it is possible in my situation. If so (and even if not), I would love any recommendations to a loan officer in the metro Detroit area.
Thank you in advance,
Aaron Raffaelli
Yes, it should be entirely possible! I’m local and happy to connect if we can help. - 1yDevin PetersonBusiness MemberLender · Sarasota, FL · Member since 2022 · 2k+ posts · 667 votesDo you have either;
Quote from @Aaron Raffaelli:
As the title suggests, I am just starting to enter the REI world. My first deal looks like it will fall through because the bank doesn't like my work history. (4 months as a union electrician, which the bank considers contract work). I am wondering if any lenders or knowledgeable investors know how feasible it could be to get a DSCR loan as a first-time home buyer/investor. I am 21 with excellent credit and have enough/will have enough for the high down payment they require. I know and am prepared to do all the overhead work necessary to find a property that will qualify, but I just want to know if it is possible in my situation. If so (and even if not), I would love any recommendations to a loan officer in the metro Detroit area.
Thank you in advance,
Aaron Raffaelli
A- existing primary mortgage payment history.
or,
B- 12 month verification of rent payments (as your primary housing)
you should be able to land a DSCR loan no problem with that approach. Happy to connect and talk creative solutions any time. Good luck!
ProAlpha Capital56 Reviews - 1yRaymond J. RodriguesBusiness MemberLender · Miami, FL · Member since 2017 · 1k+ posts · 797 votes
@Aaron Raffaelli, I’m sorry to hear that you are having issues qualifying. Is your income considered variable in nature depending on job sites and that you do not work a set amount of hours per week? Different lenders can view income in various ways depending on who you speak with. I worked with a travel nurse who does shift work and 5 lenders said that they couldn’t finance her primary residence purchase and I ended up making it happen for her.
Aside from that, there are DSCR loans out there that cater to first time homebuyers, some that even allow those that live rent free to purchase as well. Feel free to reach out with any questions.
Helm Mortgage Corp.5127 Reviews - 1yDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
@Aaron Raffaelli what did you do before this job?
Guessing you are in the apprenticeship program => which is not stable enough to offset the 4 months.
DSR might work with 20-25% down.
If you are buying to live in, you could also do FHA with a cosigner.
Logical Property Management4.9459 Reviews - 1yDerek BrickleyBusiness MemberLender · Ann Arbor, MI · Member since 2021 · 666 posts · 227 votes
Hey Aaron!
Yes first-time buyer DSCR is actually fairly common, especially here in Southern MI. With DSCR, credit and down payment are the major factors (plus the property itself of course) so it is very possible since a lot of the properties in the area cashflow pretty well. Feel free to reach out if you have any questions though!
Gold Star Mortgage Financial Group548 Reviews - 1yTravis TimmonsPro MemberRental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
Take your time and don't let FOMO distract you from your long term goals. 20 years from now, it won't matter whether you bought a house this year or next. A DSCR loan is going to require more down, have high fees at closing, a higher interest rate, a pre-payment penalty, and will require you to have cash reserves that you likely don't have at the moment. Don't force it.
Keep working, saving money, and buy the best asset that your budget allows. Buy the property you want to own the most 10 years from now...and house hack before you buy an investment property.
- 1yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
It is very easy to get a DSCR loan as a first time buyer. The underwriter will just want to verify that you won't live in the property you are planning to purchase. Be prepared to show a lease, some utility bill, or credit card statement showing you live somewhere else. Traditionally most lenders will require 25% down, however there are a handful that can do 20% down without any experience.
LuxePrivate Investments LLC 572 Reviews - 1yStacy RaskinBusiness MemberLender · Member since 2022 · 1k+ posts · 508 votes
There are DSCR loan programs for first time investors. Many DSCR programs require an investor to have a mortgage history- there are some DSCR mortgage programs that will work with investors who are renting- some refer to them as first time home buyers (FTHBs)- DSCR loans are only for investment properties where the owner isn't living there. There are loan programs that will do a 20% down payment with a 680 or above credit score.
More on DSCR loans: 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. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.
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 = 1.23If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.
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 - 1yBrittany MinocchiBusiness MemberLender · Massillon, OH · Member since 2022 · 1k+ posts · 486 votes
Shouldn't be an issue as a first time investor, but if you are also a first time homebuyer (aka renting or living rent-free) lenders sometimes have issues with that. If you have excellent credit and enough for a down payment/closing costs without totally wiping out your funds, I say go for it! Happy to connect if you have other questions.
Brittany Minocchi - Barrett Financial Group, LLC522 Reviews - New to Real Estate · Metro Detroit Michigan · Member since 2024 · 28 posts · 12 votes1y
Quote from @Travis Timmons:
Take your time and don't let FOMO distract you from your long term goals. 20 years from now, it won't matter whether you bought a house this year or next. A DSCR loan is going to require more down, have high fees at closing, a higher interest rate, a pre-payment penalty, and will require you to have cash reserves that you likely don't have at the moment. Don't force it.
Keep working, saving money, and buy the best asset that your budget allows. Buy the property you want to own the most 10 years from now...and house hack before you buy an investment property.
Thank you SO much for this advice. I really appreciate the advice of everyone, but I always feel like BP is way too optimistic about everything. It is good to take a step or two back to make sure I’m not burying myself.
- New to Real Estate · Metro Detroit Michigan · Member since 2024 · 28 posts · 12 votes1yAwesome breakdown, thank you so much. I will connect in the future to discuss further
Quote from @Stacy Raskin:
There are DSCR loan programs for first time investors. Many DSCR programs require an investor to have a mortgage history- there are some DSCR mortgage programs that will work with investors who are renting- some refer to them as first time home buyers (FTHBs)- DSCR loans are only for investment properties where the owner isn't living there. There are loan programs that will do a 20% down payment with a 680 or above credit score.
More on DSCR loans: 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. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.
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 = 1.23If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.
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.
- New to Real Estate · Metro Detroit Michigan · Member since 2024 · 28 posts · 12 votes1y
Quote from @Raymond J. Rodrigues:
@Aaron Raffaelli, I’m sorry to hear that you are having issues qualifying. Is your income considered variable in nature depending on job sites and that you do not work a set amount of hours per week? Different lenders can view income in various ways depending on who you speak with. I worked with a travel nurse who does shift work and 5 lenders said that they couldn’t finance her primary residence purchase and I ended up making it happen for her.
Aside from that, there are DSCR loans out there that cater to first time homebuyers, some that even allow those that live rent free to purchase as well. Feel free to reach out with any questions.
My income is variable because I move companies semi-frequently and I have only been in it a few months. I will be happy to connect with you here soon
- New to Real Estate · Metro Detroit Michigan · Member since 2024 · 28 posts · 12 votes1yThanks for the response. I am interested in local lenders, so i will contact you soon
Quote from @Derek Brickley:
Hey Aaron!
Yes first-time buyer DSCR is actually fairly common, especially here in Southern MI. With DSCR, credit and down payment are the major factors (plus the property itself of course) so it is very possible since a lot of the properties in the area cashflow pretty well. Feel free to reach out if you have any questions though!
- 1yStacy RaskinBusiness MemberLender · Member since 2022 · 1k+ posts · 508 votes
Quote from @Aaron Raffaelli:
Awesome breakdown, thank you so much. I will connect in the future to discuss furtherQuote from @Stacy Raskin:
There are DSCR loan programs for first time investors. Many DSCR programs require an investor to have a mortgage history- there are some DSCR mortgage programs that will work with investors who are renting- some refer to them as first time home buyers (FTHBs)- DSCR loans are only for investment properties where the owner isn't living there. There are loan programs that will do a 20% down payment with a 680 or above credit score.
More on DSCR loans: 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. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.
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 = 1.23If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.
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.
Aaron- you're welcome! Glad you found the information helpful! Sounds good about connecting in the future. I'll send you a message as well.
Bright Skyline518 Reviews - 1yJeffrey BlackmanPro MemberLender · Chicago, IL · Member since 2017 · 108 posts · 34 votes
Hi @Aaron Raffaelli, you've gotten good advice here as well as some good options. I'm an investor and mortgage broker and have DSCR options for first-time investors with as little as 15% down. Feel free to DM me to discuss my experience as an investor or lender.
Jeff
- Las Vegas · Member since 2019 · 4 posts · 18 votes1y
Quote from @Stacy Raskin:
There are DSCR loan programs for first time investors. Many DSCR programs require an investor to have a mortgage history- there are some DSCR mortgage programs that will work with investors who are renting- some refer to them as first time home buyers (FTHBs)- DSCR loans are only for investment properties where the owner isn't living there. There are loan programs that will do a 20% down payment with a 680 or above credit score.
More on DSCR loans: 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. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.
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 = 1.23If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.
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.
Hi Stacy,
This is very helpful! Thank you for sharing.
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