DSCR Loan Florida [2023]: Know-Hows of DSCR Loans FL

Are you interested in investing in real estate in Florida? Consider the DSCR loan, designed specifically for real estate investors. For qualifying, your rental income from the property you are financing will be necessary, and there is no need for personal income verification.

Are you curious about the process of obtaining a DSCR loan in Florida?

This article will delve into the details of DSCR loans in Florida, explaining how they work and why they could be a wise choice for your next investment in the Sunshine State.

How Does DSCR Loan in Florida Work?

To qualify for the DSCR Loan in Florida, a crucial criterion is that your property’s income must exceed its debt obligation. It means your property must generate enough income to cover the mortgage payments. 

DSCR loans don’t require traditional documentation such as W2s, income verification, bank statements, and income or employment history, as DSCR is a real estate investment loan. 

Hence, your personal income is irrelevant here, and you can get the loan based on your property’s income-generating potential.

Check your eligibility for a DSCR loan in Florida.

What is the Minimum DSCR to Qualify for the DSCR Loan Florida?

DSCR	Loan Approval	Down Payment
DSCR < 1	Possible	40%
DSCR = 1	Possible	20%-25%
DSCR > 1	Ideal	20%-25%

A DSCR ratio of 1 or higher is ideal for obtaining a loan. However, even if your ratio is less than 1, some lenders may still consider offering you a loan based on your specific scenario, credit history, and a higher down payment.

Find the best DSCR lenders in Florida.

Requirements for DSCR Loan in Florida

Here is what you need to get approved for the DSCR loan in Florida.

1. Credit Score of 620: The borrower needs a credit score of 620. With higher down payments and interest rates, some lenders might give you loans with a minimum credit score.
2. Down Payment of 20%: You need to pay a down payment of 20-25%; it may vary depending on the lender and your DSCR ratio and credit score.
3. DSCR Ratio of 1: You need DSCR ≥ 1 to get approved for the DSCR loan in Florida. Some DSCR lenders might give you a loan with a DSCR < 1, but the interest rate and down payment will be higher.

How to Get a DSCR Loan in Florida?

Now that we know what DSCR Loan is, how to calculate it, and the minimum requirement to qualify for the loan, let’s understand the procedure to secure this helpful investment tool.

Step 1: Find a DSCR Lender

The first and foremost step is to find a reliable mortgage lender who provides such loans in Florida. HomeAbroad can connect you with experienced and dedicated DSCR lenders who can help you crack the investment deal.

Step 2: Submit the Application and Calculate DSCR Ratio 

You must prove that your real estate property has enough cash flow to cover the loan payments. Mortgage lenders want a detailed analysis of your property’s cash flow to ensure the loan payments reach them on time.  

Step 3: Property Appraisal and 1007 Rent Schedule 

Once you submit the loan application, the lender will order a real estate appraisal to determine your property value and ensure it matches DSCR. Additionally, they may ask for Form 1007 Rent Schedule to validate projected future rental income.

Step 4: Prepare Down Payment

Having a down payment ready is also essential, as most lenders will require you to put down a minimum of 20-25% of the purchase price.

Step 5: Underwriting Process

Once the lender has all the required information, they will start the underwriting process. The underwriting process assesses the risks associated with the loan and determines whether you are eligible for it.

Step 6: Approval

If everything goes well, you will be approved for the loan and can close the property quickly.

Here is a DSCR loan guide for detailed information on the topic. Moreover, HomeAbroad can help you connect with DSCR lenders in Florida and compare the rates.

How to Analyze the Property in Florida for DSCR Loan?

Analyzing a property for DSCR Loan is quite different from the pre-approval process of conventional loans. The lender would be interested in knowing about the property’s potential to generate income and the property’s cash flow generated. 

Thus, they would like to know things like:

1. Potential Rental Income 

The first step in analyzing a property for DSCR loans is calculating the potential rental income. You can do it by multiplying the monthly rent by 12.

Lenders rely on Form 1007 to evaluate rental income and make informed assessments. An annual rental income analysis clearly illustrates the property’s potential to generate revenue. 

2. Vacancy Loss

Vacancy Loss is money you lose when apartments or spaces in your property are empty. To calculate it, you usually multiply a 5% vacancy rate by the total rent you could earn in a year if all units were full.

It gives you the money you expect to lose because some places are empty. Subtract this amount when considering a DSCR loan to know if you can afford it. 

3. Net Operating Income

Subtracting operating expenses (NOI) from the annual income would be best. These expenses can include things like property taxes, insurance, and repairs. It will give you the rental property’s net operating income (NOI).

4. Debt Service

To determine your monthly debt payments, you’ll need to consider the loan amount, the interest rate, and the loan term. You can use an amortization formula or a loan calculator to get the accurate monthly payment amount.

It includes the money you borrowed (the principal) and the Interest. It gives you the total amount you need to pay each month.

5. DSCR

The Debt Service Coverage Ratio (DSCR) measures the cash flow available to pay debt obligations, calculated by dividing the net operating income by the total debt service.

Get and compare quotes from the best DSCR lenders.

How to Calculate the DSCR Loan for Buying Rental Property in Florida?

DSCR, or Debt Service Coverage Ratio, is a number that depicts the capacity of the borrower’s ability to make timely payments on their debts.

Know the viability of your investment property with our DSCR calculator. When considering DSCR loans in Florida, evaluating the good DSCR value is essential. If you are wondering how to find DSCR, you can use the formula:

DSCR formula: DSCR = NOI/Annual Debt Payments

NOI (Net Operating Income)	Debt Payment	DSCR
$1,430	$1,100	1.00
$1,820	$1,400	1.05
$2,210	$1,700	1.20
$2,600	$2,000	1.30

NOI includes Interest, annual net income, depreciation, and non-cash items.

Annual debts include leases, loan interest payments, and principal repayment. 

For example, if Mr. Lord is looking to buy an investment property with an NOI of $40,000 and an annual debt of $32,000, DSCR, in this case, would be 1.25. It means Mr. Lord’s property generates 25 percent more income than required to service the debt.

Factors Affecting DSCR Loan Eligibility

1. NOI

Net Operating Income, commonly known as NOI, is a key concept in the realm of real estate investment. In layman’s terms, it represents the amount of money a rental property generates after subtracting all the operating expenses. 

• These expenses typically include costs associated with managing the property, such as property taxes, insurance, maintenance, and repairs. 
• Simply put, if you think of your rental property as a business, the NOI would be your profit after paying off all the necessary business expenses before accounting for debt service. 

For example- If an investor has two investment properties in Florida, one with an NOI of $ 50,000 and the other with an NOI of $ 100,000, the property with a higher NOI against debt obligation has a higher DSCR. Hence, improving the NOI is crucial for a good DSCR.

2. DSCR 

DSCR is a critical factor that affects loan eligibility. A high DSCR indicates that the borrower has an excellent capacity to repay their debts, which makes them eligible for the loan. 

On the other hand, a low DSCR indicates that the borrower might be unable to repay their debts on time, making them ineligible for the loan. 

3. Mortgage Terms

The longer the mortgage term, the higher the DSCR will be, as it gives more time to the borrower to repay the loan.

For instance, if two properties in Florida have the same NOI, but one has a mortgage term of 30 years while the other has a mortgage term of 15 years, the property with a longer mortgage term will have a better DSCR.

Thus, we can conclude that a shorter mortgage term can result in a lower DSCR.

4. Mortgage Rate

A higher mortgage rate would increase the DSCR, increasing the required debt service. However, a lower mortgage rate would decrease the DSCR.

For example- If two properties in Florida have the same NOI and mortgage term, but one has a mortgage rate of 6% while the other has a mortgage rate of 4%, then the property with the lower mortgage rate will have a better DSCR.

5. Prepayment Penalty

A prepayment penalty clause in the DSCR mortgage contract lowers the DSCR. This is because a borrower who wants to refinance or sell the property before the end of the loan term will have to pay a fee.

6. Loan-to-Value Ratio

The loan-to-value ratio (LTV) is another factor that affects the DSCR. It is a measure of the loan amount concerning the property’s value.

A higher LTV results in a lower DSCR because it implies the loan is for a more significant percentage of the property’s value. It makes it riskier for the lender, who will be less likely to get their money back if the borrower defaults.

7. Associated Fees

The fees associated with a loan can also lower the DSCR. These include origination fees, appraisal fees, and closing costs. These all add to the loan amount and increase the debt service required to repay it. 

• An origination fee: This is a one-time fee set by the lender at the time of loan origination. The origination fee is typically a percentage of the total loan amount, ranging from 1% to 5%.
• Appraisal fee: A fee charged by the lender to have the property appraised. The appraisal determines the property’s value and ensures it is worth the money lent.
• Closing costs: These are fees associated with closing on a loan, such as title insurance, recording fees, and attorney’s fees. 

When shopping for a loan, it’s essential to compare the DSCR of different lenders. It will give you an idea of which lender offers the best loan rates in Florida.

Use this calculator to determine your debt service coverage ratio to estimate your DSCR is also good. This way, you can be sure you’re getting the best possible deal on your loan.

Florida Real Estate Market: Why Investors Should Invest in Florida?

• Average home price: The average home price in Florida is $377,706, up 11.1% from the past year.
• Median home prices: Median home prices in Florida rose 5.6% from $373,990 to $395,000 in December, while condo and townhome prices increased by 8.8% yearly to $310,000.
• Appreciation: The property value appreciation in Florida for (2021 Q3 – 2022 Q3) was 26.35%.
• Rental Income: In Florida City, FL, the average monthly rent for a 1-bedroom flat is $1,500 as of April 2023. There has been a 58% increase compared to the prior year. 

Top 5 Cities in Florida for Real Estate Investment

City	Average Home Price	Rent	Value Appreciation
Miami	$532,420	$2,680	15.5%
Fort Lauderdale	$505,535	$2,000	13.8%
Tampa, FL	$371,253	$1,690	9%
Orlando, FL	$361,125	$1,650	8.3%
St. Petersburg, FL	$341,825	$1,500	11.2%

Is it a Good Time to Buy Property in Florida With Interest Rates at an All-Time High? 

Despite the higher rates, buying property in Florida can still be a sound investment. A significant factor to consider is the state’s real estate market dynamics, which have consistently grown. 

You can get a good investment return despite the high rates. Plus, if the rates go down in the future, you always have the option to do a cash-out refinance for lower rates. But to make that happen, it’s better to start building equity now. 

Therefore, for seasoned real estate investors who understand the nuances of the market and can weather the initial costs, buying property in Florida could be a valuable addition to their investment portfolio. 

Conclusion

DSCR loans can be a great way to finance your next real estate purchase in Florida. Working with an experienced lender will help you purchase the property and generate a rental income quickly and hassle-free.

Contact us to connect with the best DSCR lenders and compare the rates to choose the best one.

Frequently Asked Questions