If you are a new commercial real estate investor who is currently looking at purchasing a property, you may run into an odd problem: qualifying for a traditional mortgage. This problem usually arises because investors write off significant costs related to other properties, and therefore technically lack the income that mortgage lenders look for. Fortunately, there is a viable alternative in the form of debt service coverage ratio, or DSCR, loans. These loans evaluate your ability to pay back debt based not on tax return income, but on the rental income a commercial property is expected to generate each year. To learn more about some of the many advantages of DSCR loans, take a look below.
If you are an investor who is applying for a traditional seven-figure loan, you can expect the paperwork to pile up quickly. Traditional mortgage lenders will require forms verifying everything from personal income to job history to other leases that you currently have open. With a DSCR loan, you don't have to bother with any of this. Instead, lenders will simply crunch property-specific numbers to determine your eligibility and move forward with the loan process as soon as you are approved.
Another issue that traditional loan applicants will likely have to deal with is scalability. If you are looking to grow your commercial real estate business, you may be frustrated at having to pay off one loan before you can apply for another. Luckily, DSCR loans don't impose this same limit. They allow you to apply with as many properties as you wish and evaluate all of them in the same way. This can be a massive difference maker for those who are looking to take advantage of a buyer's market and don't want to spend years waiting to purchase their next property.
Because traditional loans have a corner on the residential real estate market, lenders can afford to be less flexible when it comes to application requirements. With DSCR loans, however, there is a lot more room for applicants who may not meet certain criteria. If your personal credit score is only average, or if your current cash flow does not allow you to put down a huge down payment, you may still qualify for a DSCR loan. This flexibility means that for many investors, choosing a DSCR mortgage loan is not just the easiest decision, but the smartest one too.
For more information, contact a company like NewFi Lending.
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