Buy or refinance a property with or without showing your tax returns
Why Consider North Carolina DSCR Loans?
If traditional financing options are out of reach, North Carolina DSCR loans can be a valuable tool for funding rental property investments. These loans are particularly beneficial for real estate investors seeking flexible terms and simplified qualification processes. Key advantages include:
- Streamlined approvals with faster closings
- No employment or income verification required
- Open to both seasoned and first-time investors
- Suitable for both short-term and long-term rental properties
- No reserves required for cash-out refinances; limited reserves for purchases
- Loans available up to $4 million
- Financing allowed for mixed-use and properties with up to 10 units
- No cap on the number of properties you can finance
- Interest-only payments available to simplify qualification
Wondering if a North Carolina DSCR loan fits your needs? Call us at (818) 309-2999 for expert advice.
Understanding North Carolina DSCR Loans
Obtaining rental property loans in North Carolina can be tough, especially for borrowers who lack W-2s or traditional proof of income. For real estate investors, North Carolina DSCR (Debt Service Coverage Ratio) loans provide an alternative route to financing. These non-QM loans are tailored for those who don’t qualify under conventional mortgage guidelines.
The DSCR evaluates how well your rental income covers the property’s annual debt, giving lenders confidence in your ability to manage payments. With DSCR loans, borrowers can qualify without providing W-2s, pay stubs, or tax returns, though a minimum credit score is necessary.
Interested in learning more? Contact us today for details!
How to Calculate DSCR
DSCR loans, like asset-based loans, are determined by the Debt Service Coverage Ratio, which measures how well your rental income covers property debt. Understanding DSCR is crucial for assessing your financing options. Here’s a simplified guide to calculating it:
- Estimate Gross Rental Income: Lenders may evaluate your lease agreements or use an appraiser’s Single-Family Comparable Rent Schedule (Form 1007). Depending on your documentation, they’ll use either the lower of these figures or a 12-month rental income history.
- Calculate Annual Debt: Include all annual property expenses, such as mortgage payments, property taxes, insurance, and HOA fees if applicable.
- Determine DSCR: Divide your annual rental income by your annual debt obligations. For instance, if both your monthly expenses and rent are $1,000, the DSCR would be 1. If rent doubles the expenses, the DSCR becomes 2.
Once calculated, DSCR helps lenders evaluate risk. A higher ratio suggests robust cash flow, increasing your likelihood of favorable loan terms or higher borrowing limits. For example, a DSCR above 1.25 indicates a financial buffer, signaling reduced risk to lenders. Ratios below 1, however, may result in stricter requirements, like larger down payments.
Investors can particularly benefit from DSCR loans when expanding property portfolios. These loans focus on rental income instead of personal income, allowing borrowers to separate finances and prioritize cash flow. This flexibility makes DSCR loans ideal for acquiring multiple properties and achieving sustainable growth in North Carolina’s rental market.
Getting a Good DSCR Ratio
Lenders use the Debt Service Coverage Ratio (DSCR) to determine eligibility for these loans. A DSCR of 1 typically means the rental income matches the property’s debt payments. Ratios above 1 indicate the property is generating positive cash flow and suggest a stronger ability to meet loan obligations.
At LBC Mortgage, we provide flexible options, including DSCR loans for ratios as low as 0.75. Additionally, we offer No Ratio DSCR loans, where qualification is possible even if the property generates no income. In these cases, a minimum 25% down payment is required.
If a North Carolina DSCR loan isn’t suitable, other financing options are available. Bank statement loans, for example, allow borrowers to verify income through deposits instead of tax returns. For those with irregular income or unique financial profiles, asset-based or no-doc loans can be alternatives, using assets or deposits to qualify. These flexible options help borrowers align financing with their specific investment goals.
North Carolina DSCR Loan Requirements
Eligibility for DSCR loans in North Carolina typically follows standard guidelines. Key requirements include:
- DSCR of 0.75 or higher (lower ratios may require a larger down payment)
- Minimum 20% down payment
- Credit score of 620 or better
- Loan amounts starting at $150,000
- Property appraisal
DSCR loans focus on the property’s income rather than the borrower’s financial documentation. This means no tax returns, pay stubs, or W-2s are necessary if the minimum DSCR threshold is met. This streamlined process simplifies qualification, making DSCR loans a popular choice for investors seeking efficiency and flexibility.
Down Payment Requirements for DSCR Loans
DSCR loans, like conventional mortgages, require a down payment to secure financing. At LBC Mortgage, the minimum down payment for DSCR loan is 20%, ensuring borrowers have a vested interest in the property while helping to minimize risk for lenders. A larger initial investment can also benefit borrowers by lowering monthly payments, decreasing total interest, and improving cash flow—key factors for a successful investment.
In some situations, exceeding the 20% minimum can offer additional advantages. A higher down payment reduces the loan amount needed and signals a stronger commitment, which may help offset a lower DSCR ratio and improve approval chances.
For borrowers who don’t meet DSCR loan requirements, other non-QM (non-qualified mortgage) options, such as bank statement loans, asset-based financing, VOE programs, or Profit and Loss Program loans, offer alternative pathways to securing funding. These options accommodate diverse financial profiles, making property investment accessible to a broader range of borrowers and supporting growth in the real estate market.
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Start or expand your real estate investment portfolio without requiring private funding. Our DSCR loans are a great mortgage alternative for both – new and experienced investors, allowing you to develop your portfolio without worrying about mortgage issues.
Do you want to learn more about our non-QM loans before applying? Please feel free to contact us online or call (855) 696-0240.