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DSCR Loan Texas: 6+ Most Popular DSCR Loan Lenders!

Published On January 5, 2024

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Did you know that getting a loan for your rental property in Texas just got better? The interest rates for DSCR loans have dropped by 0.77% recently. Now, most loans funds are between 7.69% to 8.25%. Now, let’s talk about why DSCR loans are awesome for growing your rental property collection in Texas.

These loans are like a helpful hand, which gives you the funds you need for your property plans. Choosing the right DSCR lender is important, and we are here to help with that.

We want to make sure your time-sensitive transactions go smoothly. In this article, we will discuss more about the DSCR loan Texas.

What is the DSCR Loan in Texas?

DSCR stands for Debt Service Coverage Ratio, and it shows if the rental income from a property can cover its annual debt. A positive DSCR means you can afford the loan. In Texas, DSCR loans help investors get funding without the hassle of traditional home loans.

These loans, also known as non-QM (Non-Qualified Mortgage) loans, offer flexibility in the application process. Unlike regular mortgages, they have more adaptable requirements, making it easier for investors to secure the funding they need for their Texas investments.

There are various types of non-QM loans, and DSCR loans are a valuable option for those looking to invest in Texas real estate.

What are the key features of the DSCR Loan Texas?

Focus on Property Cash Flow: DSCR loans care more about how much money a property can make than the borrower’s personal finances. You might not need to prove your income or work history.

Flexible Qualification: DSCR loans are often easier to qualify for, even if you have a lower credit score or limited personal income.

Lower Down Payments: You might need a lower down payment, starting at around 20%, making it easier for investors to spread their money across multiple properties.

Faster Closing Times: Because DSCR loans look at the property’s income, they can have quicker approval and closing processes.

Diverse Property Types: You can use DSCR loans for different property types, like homes, businesses, or mixed-use spaces.

These features make DSCR loan Texas a great choice for real estate investors who want flexibility and an easier way to get money, especially for properties that generate income.

Eligibility Criteria for a DSCR Loan Texas

  • Credit Score: Aim for a minimum credit score of 620. Some lenders may ask for higher scores like 660 or 720 for better terms.
  • Debt Service Coverage Ratio (DSCR): This ratio compares your rental property’s monthly income to your loan payment. Most lenders want a DSCR of 1.25 or higher, but a few might accept 0.75 with extra conditions.
  • Down Payment: Usually, you will need at least 20% of the property’s purchase price. Some lenders might allow lower amounts.
  • Type: DSCR loans are limited to residential investment properties, typically single-family homes, or 1-4 unit multifamily buildings.
  • Location: The property must be in Texas.
  • Purchase Purpose: These loans are for investment purposes only, not for your primary residence.
  • U.S. Citizenship or Permanent Residency: While not always necessary, some lenders may require it.
  • Experience: Some lenders might prefer borrowers with experience in managing rental properties.

Meeting these criteria increases your chances of qualifying for a DSCR loan Texas, making the process smoother for your real estate investment.

How Does a DSCR Loan Texas calculate?

Calculating Debt Service Coverage Ratio (DSCR) is a straightforward process that helps determine your eligibility for a DSCR loan in Texas. The formula for DSCR involves a simple ratio of your rental income to your debt. Here’s how it works:

DSCR Formula: Debt service coverage ratio (DSCR) = annual rental income ÷ annual debt

  • Annual Rental Income: This is determined using lease agreements and a licensed appraiser’s rent schedule. The lower of the two values is considered your rental income.
  • Annual Debt: This includes the total amount you pay each year for principal, interest, taxes, insurance, and HOA fees (if applicable).

By dividing your total annual rental income by your total annual debt, you get the DSCR. This ratio plays a crucial role in qualifying you for a DSCR loan in Texas. The higher the DSCR, the more likely you are to meet the eligibility criteria for the loan.

How to Apply for a DSCR Loan Texas?

To secure DSCR loans in Texas involves  well-defined steps. 

Step 1: Research and Selection

Begin by looking for reputable lenders that specialize in DSCR loans in Texas. Check their terms, interest rates, and track record. This initial phase is crucial as it sets the tone for a successful loan application.

Step 2: Paperwork

Gather the necessary documents, including property details and financial records related to the property. Even though DSCR loans offer more flexibility than traditional loans, proper documentation is essential to ensure a smooth application process.

Step 3: Application Submission

Submit your loan application through the lender’s designated platform. Online applications are often preferred for their convenience and efficiency, allowing you to start the process from the comfort of your workspace.

Step 4: Underwriting and Evaluation

In this phase, the lender will thoroughly evaluate your application. They are going to assess many factors such as the property’s potential rental income, operating expenses, and dscr. 

Step 5: Loan Offer and Acceptance

Upon successful evaluation, you will receive a loan offer detailing the terms, interest rates, and associated fees. Carefully review these terms to ensure they align with your investment goals before accepting the offer.

Step 6: Closing and Disbursement

The last step involves signing the paperwork and legal documents. Once signing is completed, the funds will get disbursed to facilitate your real estate investment.

Most Popular DSCR Loan Lenders in Texas

LenderKey Features
New SilverOrigination fee from 1.875% – Loan to cost up to 90% – 100% construction financing available – Loan to ARV up to 80% – Terms typically 24 months – Loan amounts from $100,000 to $5 million – Minimum FICO score is 650 – No hard credit pull required
Griffin FundingNo income or job history verification required – No limits on the number of properties – Loan amount up to $5 million – Minimum 20% down required – Interest-only option available – Both long-term and short-term rentals are eligible – No reserve required on cashout loans
Angel Oak– Loans up to $1.5 million – No income or employment information required – Short-term rentals and VRBOs allowed – Properties can be in LLC’s name – No limit on the number of properties – 40 year fixed interest-only available – Non-warrantable condos allowed – Purchase, cash-out or rate-term refinance
JMAC LendingLoan amounts up to $3.5 million for DSCR ratios >= 1.0 – Loan amounts up to $3 million for DSCR ratios < 1.0 – No DSCR ratio restrictions – No income and no job required – Foreign Nationals OK – Gift funds allowed after 10% from borrower’s own funds – Only 30-days of assets docs for closing funds and reserves – First-time investors: Up to 75% LTV – Only one appraisal required up to $2M – 30-year fixed, SOFR ARMs 5/6 & 7/6 with Interest-Only options – Purchase up to 80% LTV and cash-out up to 75% LTV – SFR, condo, 2-4 units, and short-term rentals
Truss Financial GroupLoans based on the debt service coverage ratio – No ratio loans with 25% equity and strong FICO scores – 30-year-fixed rate from $100,000 up to $3 million – No tax returns or 4506 required
CoreVest5+ rental properties eligible – Single-family, condo, townhome, multifamily properties are OK – Stabilized (90% leased) portfolio – Can lend up to 75% of value – 3, 5, 7, or 10-year fixed loan options – Purchase or refinance – Non-recourse options available – Foreign nationals eligible

Conclusion

Securing DSCR loans in Texas opens doors to exciting possibilities in the ever-changing real estate market. By understanding the requirements, qualifications, and following the step-by-step process outlined in this guide, you are well-prepared to start your investment journey with confidence. Always remember that a DSCR loan is a way for your investment property and you can make a mark in the thriving Texas real estate market. We hope you have got enough information regarding Texas DSCR loan through this article.

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Debt service coverage ratio (DSCR) is a financial measure that looks at how much money a property makes compared to its loan payments. Usually, lenders want the DSCR to be at least 1.2 to 1.25. This means that the property should be earning at least 120-125% of the yearly loan payments.

DSCR loans are specifically designed for rental properties, meaning they can’t be used to buy a home for living or for flipping houses. These loans are exclusively meant for properties that generate rental income, ensuring you can only use them for real estate investments with cash flow.

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