Use your property’s cash flow to fund the purchase
Many of Ark’s clients are investors — people who buy residential real estate to grow their wealth and/or to get income from tenants paying rent.
We’ve made it easier for them to purchase properties by offering our Investor’s Loan. Also known as a DSCR (Debt Service Coverage Ratio) loan, the Investor’s Loan features a streamlined approval process that doesn’t involve traditional income verification. That can be a big help when you’re trying to write off income to lower your taxes, but would need the higher reported income to qualify for a loan!
What we look at instead is the rental income of the purchase property, making sure it exceeds expenses. The Investor’s Loan allows you to accumulate as many properties as you want as long as the rent covers the expense (conditions apply). And because real estate often rises in value over time, the investment reaps double rewards: rent today and resale tomorrow.
The rate for DSCR loans is affected by the same factors as in a conventional mortgage: good credit and a high down payment will get you a lower rate. You’ll also need a loan-to-value ratio (LTV) of 80% or less to get the apply.
To calculate the DSCR, just take the annual gross rental Income and divide it by the annual debt obligations (principal, interest, insurance, taxes and HOA fees, if applicable). A ratio of 1.25 is considered a healthy DSCR.
What about a refi?
No problem. Investors refinance investment and rental properties using the DSCR program all the time. As with a traditional refinance, there are several reasons to look at this option: cash out, lower rates, and shorter terms are the main ones.
Say, for example, you have your eye on another 4-family property in the same neighborhood, but don’t have the ready cash to make a 20% downpayment and get a favorable rate. You can refi a rental property you already own, and take out enough cash to buy the second property. This is how portfolios are built!
Is the Investor’s Loan right for me?
Let’s do a quick Pros and Cons. Pros:
- Don’t need to demonstrate personal income
- Less paperwork
- Fewer restrictions than conventional loans
- No “penalty” for making tax write-offs
- Can purchase up to a 4-unit property
- Can close in the name of an LLC
Cons:
- May require higher down payment
- Higher interest rates
- Not for primary residence or flipping
- Risk of tenant vacancy
FAQs
Can I still get the loan if the property has a low DSCR?
While we have minimum requirements, you can often find ways to improve the ratio: put more money down; check to see if the market will support higher rents; or lower costs like insurance coverage.
What credit score do I need?
We generally look for a FICO score of 640 or greater. But talk to us — we may be able to find ways to make the loan work.
What kind of properties can I finance with DSCR?
Single family homes, multi-family up to 4 units, and condos can all be financed.
How much can I borrow?
We are currently lending up to $2.5MM for a DSCR loan.
Pair with Other Programs
Certified Pre-Approval
A pre-approval makes the house hunting process simpler for you. Show sellers and real estate agents you’re approved for mortgage financing.
Multi-Property Discount
Purchasing two or more properties? Submit all applications within 30 days and pay only a single application and commitment fee for the remaining properties.
Ready to talk about your options?
Ark Advisors are here to help.