· Programs · Sayasone Phongvichith
Rental Loan (DSCR): does the rent carry the loan?
RED's Rental Loan qualifies on property cash flow, not personal income. Here is how the desk reads a single rental, from DSCR to leverage to what we ask for.
Most rental loans start with one question: does the property pay for itself? The Rental Loan (DSCR) program is built around that question. Qualification is driven by property cash flow, not personal income.
What it finances
A single cash-flowing 1 to 4 unit rental: a purchase, a rate-and-term refinance or a cash-out refinance. Loans run from $75,000 to $2,000,000 on a 30-year term. Structures include a 30-year fixed and 5/6, 7/6 and 10/6 ARMs, and partial interest-only is available on every structure. An LLC or corporation must hold title.
How the DSCR works
DSCR is the debt service coverage ratio: the property's monthly in-place gross rent divided by its monthly PITIA (principal, interest, taxes, insurance and association dues). The published minimum is 1.05x. At 1.00x the rent exactly covers the payment, so 1.05x asks for a little cushion on top.
For a purchase, a property may be delivered vacant and underwritten to market rent. On a refinance, one unit of a 2 to 4 unit property may be vacant.
How leverage moves with credit
The maximum is 80% LTV on a purchase or rate-and-term refinance and 75% on a cash-out refinance, and it steps down with the guarantor's FICO:
- 700 and up: 80% on a purchase or rate-and-term refinance, 75% cash-out.
- 680 to 699: 75% on a purchase or rate-and-term refinance, 70% cash-out.
- 660 to 679: 65% on a purchase or rate-and-term refinance, 60% cash-out.
The minimum FICO is 660, based on the lowest mid-score among the personal guarantors. Cash-out is not available within 90 days of purchase.
Reserves
Closing costs plus 3 months of PITIA on a purchase, and 6 months on a refinance.
What to send the desk
The property address and the purchase contract (or the deed), executed leases for occupied units, two consecutive months of bank statements from a single account, tax, insurance and HOA documents, and the entity documents with the guarantor's credit authorization. Pricing is quoted per deal.
Not the right fit?
Two to ten rentals at once: look at Rental Portfolio. Rent-ready property you plan to refinance later: look at Stabilized Bridge.
Program figures are indicative only and subject to complete documentation, underwriting, appraisal and final credit approval. This post is general information, not financial or legal advice.