When to Do a No-DSCR Loan

So, you know what a DSCR loan is. But do you know what a No-DSCR loan is?

“Wait,” you might be thinking. “No-DSCR loans are a thing? Really? Aren’t they just the exact opposite of a DSCR loan?”

Not exactly.

Though similar, there are differences between a DSCR loan and a No-DSCR loan. Don’t think of them as siblings; more like cousins. No-DSCR and DSCR-based loans offer different advantages to different investors, depending on their financial status and the type of investment property they are acquiring.

But let’s recap before we go any further. What exactly is a DSCR loan? When you use a DSCR loan, you are choosing a loan driven by the ratio of monthly rent to mortgage payment, taxes and insurance. This ratio will drive the size of the loan and the pricing. (But, like, you already knew that.)

Now, what is a No-DSCR loan? Well, with a No-DSCR loan, the same ratio used in a DSCR loan is considered, but it’s not the primary consideration for the money lender when it comes to the size of the loan and the price. These are asset-based loans, based on the value of the property. For example, with a No-DSCR loan, you will get up to 70% of the value based on the appraisal with a rate falling within the lender’s range. Pricing incentives may be given for good credit scores, loan-to-value, zip code, and loan size. It’s just a simple financing option that allows you to use the value of the property instead of the DSCR to get the loan you need. And as an added bonus, with a No DSCR loan, you won’t need all the typical documentation, either. No W2s, no tax returns, no 4506s and the credit standards are often lower compared to DSCR loans. A No-DSCR loan can be used for vacation rentals, single-family homes, multifamily properties, apartment buildings and more.

To quote Larry David, that’s “Pretty, pretty, pretty good.”

Now, not all rental property investors will need or even want this type of loan, whether they are looking into investment property loans, fix and flip loans, or rental property loans. So, the question is, how do you know if you need a No-DSCR loan and, more importantly, when should you do a No-DSRC loan? We here at loanguys.com have the answers.

For those with income that is difficult to prove or are lacking a track record of delivering an income, a No-DSCR loan may be especially appealing. No-DSCR loans are much easier to qualify for compared with DSCR loans, as long as you have the cash reserves to cover the principal, interest, taxes, and insurance (aka, PITI). Basically, if it’s difficult to verify your income due to various reasons, a No-DSCR loan might be perfect for you.

Also, for those real estate investors looking to purchase or refinance in hot markets where the rents have not caught up to the property values, a No-DSCR loan can also be perfect, as it allows for a much speedier process. For example, if you are getting an amazing deal on a possible rental property that currently has low occupancy or below-market rents, the DSCR requirement can quickly become seemingly insurmountable and you may need an investment property loan program that does not have a DSCR requirement, like…wait for it…a No-DSCR loan. Rental properties that you already own and just require some updating also might benefit from these types of investment property loans.  

Now, just so you know, the loan terms available through a No-DSCR program may differ from a loan program that takes DSCR into account, such as a higher interest rate or more money down. But if you need to close fast (loanguys.com can close within 10 to 14 days) or you need to close without conventional income verification, then it might be the perfect time to consider a No-DSCR loan. Whether you’re investing in your first rental property or you’ve been investing in rental properties for years, leveraging a No-DSCR loan may be the right choice for you.