PURCHASE LOANS (LONG TERM):

Investing in Real Estate historically stands out as a more secure investment strategy. Over the long run, the values of Real Estate will always exhibit an upward trend. Rental Property demonstrates more resilience when compared to stocks, mutual funds, or even foreign currencies, given their ability to rebound from declines and show increased values over time.

To secure a Rental Property Loan, a minimum Down Payment of 20% of the Purchase Price is required at closing. It is important to note that opting for a higher Down Payment often leads to obtaining a more favorable Interest Rate, and sometimes the overall Terms of the Loan will improve as well. Rental Property Purchase Loans offer flexibility with options for either a 30-year Fixed-Rate Mortgage or an Adjustable-Rate Mortgage (ARM) with configurations such as a 5/1, 7/1, and 10/1. (FYI: The 1st number is the fixed-rate period, in years, and the 2nd number represents how often the Interest Rate adjusts per year after that.)

WHAT IS DSCR?

DSCR stands for Debt Service Coverage Ratio. It is used to evaluate a performing Property’s ability to cover the debt obligations. In layman’s terms, this simply means – “Cash Flow”. For a Residential Property, the DSCR, (or, Cash Flow) is calculated by dividing the Rental Income by the annual Principal, Interest, Taxes, Insurance, and Association (PITIA).

Abbreviated, the formula for Residential Property DSCR is: DSCR = Rental Income / PITIA.

The resulting DSCR value indicates how many times the income generated by the property covers its debt obligations. A DSCR value greater than 1 suggests that the property generates enough income to cover its debt payments once. A value less than 1 typically indicates potential financial strain while a DSCR of 1.2 means that the Property’s income is 1.2 times greater than its debt obligations, and thereby indicating a healthy level of coverage. DSCR is used as a key factor in assessing the riskiness of a Loan.