For property investors and others in unique financial situations, the Debt-Service Coverage Ratio (DSCR) is an important tool that can open the door to financing, even if your personal income doesn’t qualify under traditional lending guidelines. With a DSCR loan from First Ohio Home Finance, the income generated by the property itself is the key to getting approved.

The DSCR is a financial metric used to evaluate whether a property generates enough income to cover its mortgage payments. The DSCR measures the ratio between a property’s net operating income (NOI) and its total debt service (the sum of the loan’s principal and interest payments).

A DSCR of 1.2 or higher is considered favorable, meaning the property generates at least 20% more income than what’s required to cover the loan payments. The higher the DSCR, the more financially stable the investment appears.

The DSCR loan is ideal for real estate investors and others who rely on rental income or commercial properties to generate revenue. Unlike traditional loans, which focus heavily on personal income and employment history, the DSCR loan allows borrowers to use the cash flow from the property to qualify for financing. This means you could be approved for a loan even if your personal income isn’t high enough or doesn’t meet conventional lending requirements.

Here’s a look at who can take advantage of DSCR loans:

• Real Estate Investors: If you own or plan to acquire rental properties, a DSCR loan allows you to qualify based on the rental income your properties generate. Whether you’re a first-time investor or a seasoned professional with a portfolio of properties, DSCR loans can be an ideal solution.
• Self-Employed Borrowers: Traditional mortgages often require proof of stable personal income, which can be a hurdle for self-employed individuals with fluctuating earnings. With a DSCR loan, your personal income takes a backseat, and the focus shifts to the income produced by the property.
• Retirees and High-Net-Worth Individuals: Even if you’re no longer earning a traditional paycheck, you can use a DSCR loan to qualify based on the revenue your property generates.

While DSCR loans offer a more flexible route to financing, there are still specific eligibility requirements to keep in mind:

• Property Income: The main requirement for a DSCR loan is that the property generates enough income to meet the minimum DSCR ratio. The higher the income-to-debt ratio, the better your chances of approval.
• Down Payment or Equity: Like traditional loans, DSCR loans typically require a down payment or existing equity in the property. The down payment amount can vary, but a common range is 20-25% for investment properties.
• Loan-to-Value (LTV) Ratio: The LTV ratio measures how much you’re borrowing compared to the property’s value. Most LTV ratios for DSCR loans cap at around 75-80%, meaning you’ll need to have at least 20-25% equity or cash down for the loan.

Applying for a DSCR loan with First Ohio Home Finance is a straightforward process. Here’s what you can expect:

• Gather Financial Documents for the Property: Gather financial information about the property, including rental income, operating expenses, and any documentation related to existing debts or liens.
• Property Appraisal: Just like with a traditional mortgage, we’ll order an appraisal to determine the property’s value and its potential income-producing capabilities.
• Down Payment Requirements: Be prepared to make a down payment of at least 20-25% or have that amount in equity if you already own the property.
• Underwriting and Approval: Once you’ve submitted the necessary documents, the underwriter will evaluate the property’s financial performance and confirm that it meets the lender’s DSCR and other requirements. If all goes well, you’ll receive approval for your loan.
• Closing: After approval, you’ll sign the loan documents, pay any required closing costs, and officially secure financing for your investment property.

First Ohio’s experienced mortgage professionals are here to help you explore the potential of a DSCR loan for reaching your financial goals. Use the form below to get started today!