If you’re considering investing in real estate, you’re at the right place. The real estate market is flourishing, and experts are forecasting this will continue in the future. This boom in the market is partially driven by growing apartment rents and a lack of residential housing supply.
Among different types of mortgages, an investor cash flow loan is created specifically for those who want to invest in real estate. This type of loan has many benefits for real estate investors, like low mortgage rates, no debt-to-income ratio caps, and no limits on the number of properties you already have in your real estate portfolio.
This article explores investor cash flow loans and how you can get one, so keep on reading if you want to find out more and make a more informed investment decision.
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What Is an Investor Cash Flow Loan?
Also referred to as a debt service coverage ratio (DSCR) loan, the investor cash flow loan is a loan created specifically for real estate investors who want to avoid using their tax returns in order to qualify for a mortgage to buy an investment property.
DSCR refers to a calculation that determines how a property’s annual net operating income can pay its annual loan debt. Lenders often use investor cash flow loans to decide whether borrowers qualify for property investment loans.
Real estate investors often subtract considerable expenses from their rental properties. That’s why investor cash flow loans are favorable to qualify for. Compared to Freddie Mac and Fannie Mae, you won’t have a limit on the number of properties you can fund. Here, you can learn more about investor cash flow loans.
How to Qualify for an Investor Cash Flow Loan
If you want to know how to qualify for an investor cash flow loan, here are the general requirements for eligibility. Note that some lenders may include other requirements you’ll have to meet in order to qualify for this type of loan.
- Credit score: To qualify for an investor cash flow loan, you’ll usually need to have a credit score of 680 and up.
- LTV ratio: The loan-to-value (LTV) ratio on this type of loan is limited to 80%.
- Property cash flow: If your credit score is between 680 and 699, your DSCR needs to be at least 1.0. However, if you have a credit score of 700 or higher, you won’t be required to have a minimum DSCR and will have a maximum LTV of 75%.
- The type of property: You can use an investor cash flow loan to buy or refinance different types of properties, including vacation rentals by owner and short-term rentals, but you won’t be allowed to purchase nor refinance condos and hotels.
- Down payment: To obtain this loan, you’ll need a down payment of at least 20%.
How To Apply for an Investor Cash Loan?
To apply for an investor cash flow loan, you’ll have to either work with a mortgage broker or contact a lender. If you choose to contact the lender, you’ll have to give information about your property, including address, number of units, estimated rental income, and square footage. The process of application typically goes like this:
The lender will summarize every element of the loan, such as its value, fees, and terms, and calculate your DSCR.
Information About the Property
The regular loan paperwork must be completed for investment cash flow loans. Any financial documents you present for this type of loan will require information about your rental property, but not your previous income. Since the interest rates are only determined by your DSCR, you will want to pay special attention to them.
Submission and Closing
Since these loans don’t require your financial history, applications and closings are faster than with other types of loans. If your application gets accepted, your lender will provide you with a loan estimate, which contains the monthly payment, interest rate, and closing costs. Once you review and agree to the terms, your lender will send you a pre-qualification letter.
Next, you’ll have to pay for the appraisal of the property and give it to your lender. Once the assessment is done, you will continue with the loan underwriting procedure, align the remaining documents, and close on the mortgage. If you ever run into any problems with your property, you can always hire skilled public adjusters, such as the ones at Elite Resolutions, to help you file a claim and fight for what you rightly deserve.
The Advantages of an Investor Cash Flow Loan
Investor cash flow loans offer many advantages to their users, like:
- It’s an excellent way to finance rental properties as it enables you to use the cash flow from your properties instead of needing to present evidence of your income from your job.
- These loans are designed to help investors who need instant access to funds. They are often short-term and you’ll only need to pay interest until you repay the loan.
- This type of loan has lower interest rates than other loans, making them an affordable choice.
- You can use an investor cash flow loan to buy a property and refinance your current loan.
- With an investor cash flow loan, you can use the cash flow from your investment properties to qualify.
- They are based on the monthly rental income of the property you’re buying instead of the income from your job or other sources.
Use the Investor Cash Flow Loan to Your Advantage
After reading this article, you know a thing or two about investor cash flow loans and what you can use them for. If you’re an investor who doesn’t wish to give tax returns or information about employment, this type of loan can be an excellent option for you to finance your next property purchase.
These loans are also a good alternative for self-employed investors or those with complex financial sources as no personal income is needed to qualify. Instead, the lender will use your rental income for further calculations. This way, you’’ be able to bypass both tax returns and income statements.