Are You A Rental Property Investor Who Needs To Buy Or Refinance, But Lack The Personal Income To Qualify, Or Would Prefer Not To Submit Your Tax, Financial And Employment Documents?
With SLGs Investor Cash Flow Mortgage the focus is on qualifying the property, unlike some loan products that undertake an invasive examination of the owner. As we like to say around here, if the property is self-supporting, why do we need to probe the owner?
As stated in the name, this mortgage is offered to investors, but we qualify the loan by concentrating on the cash flow of the property. In fact, one of the main features of this product is to help our real estate investment clients keep their personal and business finances separate. These are the things you need to know about this product:
- Since the focus is on rental income from the units, as opposed to the personal income of the owner, this means the client can purchase or refinance a rental property without submitting tax returns, W-2s, pay stubs or other personal financial documents. In fact, some of our DSCR/Cash Flow Mortgage products don’t even verify employment.
- We establish an acceptable debt service coverage ratio, more specifically, the percentage of the monthly rental income generated by your units needed to make the proposed monthly mortgage payment. Depending on the borrower, lender, and property involved, this ratio can be anywhere from 0.65x to 2.0x the monthly payment, although it typically ranges from 1.0x to 1.5x.
- Here’s how it works: Let’s assume you own a fourplex in Orange County California. Each unit is 1,200 square feet with 3 bedrooms and 2 baths. Each unit generates $2,500 in monthly rent for a total of $10,000 in monthly rental income. The units are worth $1,300,000 and you currently owe $675,000. You’d like to refinance and cash-out $200,000. Your new monthly payment, including principal, interest, taxes and insurance will be $5,618.51. The lender requires a Debt Service Coverage Ratio of 1.1X. See Table 1 below:
In the above example, if the required debt service coverage ratio was 2.0x (two times the mortgage payment, or $11,237.020) instead of 1.10x, the loan would not have qualified. On the other hand, if the required debt service coverage ratio is 0.65x the monthly rental income would only need to be 65% of the proposed mortgage payment, in this instance $3,652.03.
- Since qualifying for an Investor Cash Flow Mortgage is based on the rental income generated by the asset instead of personal income, the application process is less burdensome and less time consuming. Of course this assumes you have your records in order and none of your leases have expired, etc.
- The debt service coverage ratio is the pivotal qualifying factor for an Investor Cash Flow Mortgage. It’s calculated by using the income derived from signed lease agreements, or in the absence of lease agreements, from the rent schedule from the property appraisal (Form 1007 or 1025, depending on the property type).
- As stated above, the coverage ratio is usually in the 1.0x to 1.5x range. It can be lower with a higher down payment.
- Lenders really prefer to calculate the ratios with income from a signed lease agreement. When income is taken from an appraisal rent schedule it does not carry the same weight.
- The maximum loan-to-value (LTV) for an Investor Cash Flow Mortgage is typically 80%.
- Fixed rate, adjustable rate and interest-only mortgages are available.
- Maximum loan amounts usually cap at $3,000,000.
- Purchases and refinances are allowed. Refinances can be rate and term or cash-out.
- Prepayment penalties may be imposed on these types of loans. If the issue arises this can usually be negotiated.
- Property Types: SFR, 2 – 4 Units, Condos, Non-warrantable Condos, Townhomes, PUDs, Rural
- Minimum credit score: 640
- Number of properties financed: Typically no limit.
To find out more about SLG’s Investor Cash Flow Mortgage, please contact us today.
Call 855.SLG.FUND (855.754.3863) or Inquire below.
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