What is a Colorado DSCR mortgage loan?
These days Colorado real estate investors are looking for as many advantages as they can such as low interest rates, growing location, popular areas, and an easy loan qualifying process like those offered by DSCR loans.
By choosing a DSCR loan, the lender will only use income from your rental property during the underwriting process. Without your tax returns and other income documents, it means the process is a lot easier.
The DSCR loan is the ideal choice for borrowers who want to avoid high-interest private loans in the double digits with demanding lending requirements because this type of investor loan doesn't require your personal income or employment.
The DSCR loan is a creative type of non-QM loan (also called an investor cash flow mortgage) made for real estate investors that focuses only on the investment property's rental income, your credit history, and property type. This makes it basically a no doc investor mortgage.
How do DSCR mortgage loans in Colorado work?
To qualify for a DSCR loan, the property’s rental income has to meet or be greater than the coverage ratio requirements set by the lender. The coverage ratio is calculated by dividing the monthly rental income by the new mortgage payment.
As an example, if the lender’s guideline states that the minimum debt service coverage ratio is 1.0 and the property receives $4,000 every month for rent, the highest allowed mortgage payment is also $4,000.
If the rents are just 0.75 of the proposed mortgage payment then you must either
a.) bring in more down payment funds until it is equal
b.) agree to accept an additional lender fee for the increased risk.
Keep in mind only a few DSCR lenders will offer option “b” depending on the entire transaction. A coverage ratio of 1 or more is more widely accepted and the number you should be shooting for.
When deciding what a good DSCR ratio is lenders need to ensure that the borrower is able to repay the loan.
Example of Debt Service Coverage Ratio calculationA real estate investor could be considering a property with a $4,200 gross monthly rental income and $3,300 monthly debt. When you divide $4,200 by $3,300 the DSCR result is 1.27, which means that the property makes 27% more income than is needed to repay the mortgage.
This is also a good signal to the lender because it shows positive cash flow. On the other hand a property with income of $3,000 per month and mortgage debt payment of $3,300 would need to pay a higher interest rate or pay an additional fee.
Colorado DSCR Loan Qualification Guidelines
Credit Score Requirements
The lowest possible credit score allowed for a DSCR mortgage varies from one lender to the next but in general it is 640 to 660.
What are the advantages of a DSCR mortgage loan in Colorado?
A DSCR real estate loan is an great choice for Colorado investors. One reason is it has easier qualifying guidelines as well as other benefits, such as:
- – No personal income or employment history is required or disclosed.
- – No limit to the number of investment properties owned or financed.
- – Title to the property can be in a corporation, LLC, and/or partnership in good standing.
- – As little as 15% down payment (zero down with gift funds or exp'd investor).
- – loan amounts from $150,000 up to $5 million.
- – Interest-only loan payment is available.
- – Non-warrantable condo investments are allowed.
- – Airbnb or VRBO short-term rental income is allowed to qualify.
- – First-time real estate investors are allowed.
Begin or increase your real estate investment portfolio. The DSCR loans we offer clients are a great mortgage alternative for both new and experienced investors, enabling you to build your portfolio without having to be concerned over qualifying with your personal income or job.
Common DSCR Questions
Yes. To figure out the maximum allowable loan amount and DSCR ratios the property value thru an appraisal is necessary. The appraisal is performed by a local state licensed appraiser who is familiar with real estate values and rents in the area.
An appraisal is not needed if it was purchased within the last six months or purchased 12 months ago and is re-certified by the appraiser.
Yes. Whether you're a W2, self-employed, retired or not employed at all you may be eligible for a DSCR mortgage loan.
This depends on a number of factors like your credit score, purchase price, leases, number of properties owned, and property type. Once this is known the proper loan program can be chosen. Some examples are listed below.
For experienced investors who own 5 or more rentals in the last five years, the down payment can range from "0-5 percent" or you may use gift funds for the down payment to make it a zero down payment or 100% LTV DSCR loan.
The down payment can range from "15-20 percent" on the DSCR investor loan for eligible borrowers or entities. Other loan programs range from 25% to 30% when the rents do not cover the mortgage payment. A 2-4 unit property may require more. Ultimately, it is based on the underwriter's discretion.
If the subject property is located in Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas, El Paso, Larimer, or Weld county in Colorado with a year round stable population rents used in some instances may be either annual or short term. While in Pitkin and Eagle counties it may be best to use short term rents to calculate the DSCR.
This depends on the DSCR loan product the property qualifies under. In some situations, no liquid reserves are required for loans under $1,000,000. However, most situations require for a minimum of 3 months liquid reserves.
Single family homes, condos, townhomes, duplex, triplex, fourplex, condotels, non-warrantable condos, and 5-8 unit residential properties.
The 5-to-8 unit loan program has slightly stricter guidelines:
- 25% minimum down payment
- Minimum loan amount of $400,000
- No first time investors. 15, 30- and 40-year fixed terms.
-Interest only payment option.
- Minimum DSCR of 1.0 or more.
-Short term rental income is allowed with a 12-month documented history from AirBnb, VRBO and other verifiable third party providers.
- Only 2 units can be vacant.
Yes. Investors who want to own a rental property in another state we can help you close that loan also. AZ, CA, CT, DE, FL (if closing in the name of an LLC), GA, HI, IA, IL, KY, MD, MT, OH, SC, TN, TX, WA, WI, and WY