By: Alejandra Torres
There’s a wide spectrum of borrowers looking to lock in agency loans in the real estate market, but here’s the thing: not all will easily qualify.
That’s why it’s important for mortgage pros like you to understand which solutions fit your clients – even the ones who keep getting rejected by traditional lenders.
If and when this happens, you can consider a DSCR-based program, an alternative solution for borrowers who are unable to secure agency loans.
Need a refresher on how DSCR programs work? Below we break down everything you need to know about these solutions: what they are, who they’re for, and—most importantly—how you can start closing more of these types of deals and become a more well-rounded solution provider for your clients.
What is a DSCR Program?
The DSCR products that lenders offer today typically involve Single Family Rental/2-4-unit investment properties. The core difference between this type of solution and a standard conforming loan lies in the underwriting methodology.
Simply put — instead of examining the borrower’s income to determine whether they are able to repay the loan, lenders review the subject property’s ability to generate enough monthly income to cover the debt.
In other words, the Debt to Income (DTI) test is replaced with a Debt Service Coverage Ratio (DSCR) calculation.
This underwriting nuance represents a great opportunity for investors who don’t qualify for an agency loan due to the income shown on their tax returns. If their property generates sufficient income, they may qualify for an alternative solution.
Which borrowers benefit from this solution?
Quickly identifying which clients can take advantage of this program is important to help you get more approvals.
Below are a few common characteristics you’ll see from these borrowers:
- Borrower does not meet DTI requirements
- Borrower owns multiple investment properties
- Borrower is not willing to provide tax returns
For these reasons, it’s likely they won’t qualify for traditional agency financing. However, with a DSCR solution, these borrowers have more flexibility because the lender will examine the business and whether or not there is sufficient cash flow.
Pro-tip: Communicate with your clients thoroughly before submitting a deal. The more details you provide your lender, the more likely you will deliver a smooth and speedy transaction for your borrower. Click here to learn more about different communication techniques you can adopt to help you better connect with borrowers.
Closing DSCR loans with the Silver Hill Wholesale Network
As a solution provider, you want to make sure you’re giving clients the best deal while also generating income with each closing. Here’s how you get that when you partner with us:
- Broker Benefits: No lender points paired with broker compensation (up to 4 points) allows you more control to structure fees as you see fit for your business.
- Borrower Improvements: A flat $2,000 borrower fee, low rates, and flexible terms (5-Year ARM, 30-Year Fixed) give investors more opportunities to secure financing.
- Better Service: Brokers have access to the industry’s top commercial experts to guide them through the complete transaction process.
Next Steps
While the mortgage industry is a competitive field, there are ways you can get ahead of the rest of the competition and grow your business.
Ready to close DSCR loans? Head to our Get Approved page to drop details about your deals and connect with one of our team members to help get you started with our network.
