Unlike traditional mortgages, a DSCR mortgage loan provides funding for real estate investors based on the property's features and value, not the investor's credit history. Understanding the facts about DSCR mortgage loans helps you determine if this type of financing is the right solution for your situation. Here are some of the things that you need to know.
DSCR Loans are Secured
Perhaps one of the biggest misconceptions about DSCR loans is that they have no collateral or security. This is not the case. The property in question that the loan is used for serves as the security for the loan. If the payments default, the bank takes the property. This is the same structure as a traditional mortgage loan and one of the only similarities between the two.
DSCR Loans Offer Residential Property Investment Funds
If you are considering a commercial property investment, a DSCR loan isn't the solution for you. However, if you're buying residential property, you are in the right place. DSCR loans are ideal for rental property investment but not for a commercial strip mall, for example.
DSCR Loans Are Business-Purpose Investments
Although a DSCR loan requires you to buy a residential property, you must intend that residential property for a business purpose. That means you can't use a DSCR loan to buy your own home. However, if you're ready to become a landlord and want to invest in your first rental property, that's what a DSCR loan is made for. By renting the property out instead of living in it, you qualify under the business purpose guidelines.
DSCR Loan Decisions Depend Largely On The Property
If you have ever applied for a traditional mortgage loan, you know how difficult the underwriting and financial assessment is. When you apply for a DSCR loan, the process might surprise you. The approval process for these loans actually depends more on the property and its value than your financial situation. You'll still have to provide some financial information, but the largest part of the decision is based on the property itself.
DSCR Loans Require Turn-Key Properties
You can't buy a rehab property or a fixer-upper under a DSCR loan no matter how good the deal. These loans require any property you buy to be turn-key and ready to turn a profit.
These are the basic facts to understand about DSCR loans if you're considering an investment. Reach out to a lender today for more information.
For more info, contact a local company like NewFi Lending.