This is a complete guide on Florida DSCR loans for landlords.
You’ll master how they work, how to calculate DSCR and what lenders expect.
Also how to get the maximum loan amount.
Here are the most important topics:
What is a DSCR loan?
DSCR loans use rental income to qualify real estate investors for long-term mortgages, without providing traditional income verification like tax returns or pay stubs. Compared to conventional loans offered by traditional banks, Debt Service Coverage Ratio loans, offer a simple route for investors to get financing for their rental properties without relying on personal income.
How do DSCR loans work?
In simple terms, DSCR loans assess the rental income of an investment property to determine the borrower’s ability to repay the mortgage without relying on personal savings. Unlike traditional mortgage loans, a DSCR loan Florida lender will only consider rental income from the investment property during the underwriting process.
This is appealing for real estate investors who write everything off on their tax returns or own other real estate which affects their debt-to-income ratio (DTI). These “no-doc” loans focus on a borrower’s credit score and the property’s ability to generate a positive cash flow rather than relying on pay stubs, W-2s, or tax returns.
How is DSCR calculated?
DSCR is calculated by dividing the property’s net operating income (NOI) by the total debt service. Here’s the formula:
DSCR Calculation:
Net Operating Income / Total Debt Service
In simple terms, you divide the monthly mortgage payment by the subject property monthly expenses which includes principal and interest, property taxes, landlord insurance premiums and any HOA fees.
Example of a Florida DSCR Loan
The average home value in Florida is $393,698. Since the average effective property tax rate is 0.80% for Florida investment properties, we can expect property taxes to be around $3,149. Let’s assume a 7% interest rate and a 80% loan to value.
| Property Value | $393,698 |
| Loan to Value (LTV) | 80% |
| Down Payment | 20% |
| Interest Rate | 7% |
| Property’s Rental Income | $4,000 |
| Monthly Loan Payment | $2,095 |
| Annual Property Taxes | $3,149 |
| Annual Landlord Insurance | $2,000 |
| HOA Fees | $0 |
DSCR Formula:
Monthly Rental Income / (Loan Payments + Monthly Property Taxes + Monthly Landlord Insurance)
DSCR Calculation:
$4,000 / ($2095 + $262 + $166)
DSCR Ratio:
1.58
What DSCR ratio do lenders typically require?
Most Florida DSCR loan lenders require a 1-1.2 DSCR ratio. Some DSCR lenders will go as low as 0.75x, but typically that’s just a marketing tactic to run your credit score and lock you in.
Use our DSCR loan calculator to see if you would qualify. Made exclusively for Florida real estate investors.
Who qualifies for a Florida DSCR loan?
Florida investors can qualify for financing if they find that an investment property’s rental income exceeds its monthly debt obligations by at least 10-20%. Implying a 1.1x-1.2x DSCR ratio. Most lenders will also require a minimum credit score and minimum liquid cash reserves to get approved.
No previous experience is required to get approved, however it may help you slightly reduce your closing costs. Additionally, you’ll need an LLC or S Corporation to purchase or refinance a rental property.
What are current interest rates for DSCR loans?
The current interest rates for a DSCR loan in Florida start at 6.5%, but vary based on credit score, DSCR ratio and LTV leverage.
While every state and city carries its own risk, Florida tends to have favorable interest rates in Miami, Fort Lauderdale, Orlando, Tampa, St. Petersburg, Clearwater, Jacksonville, Fort Myers and Sarasota. This is because larger cities tend to be more competitive and generate higher monthly rental income, meaning a higher DSCR ratio and lower interest rates.
What are DSCR loan Florida requirements?
Capital Ton requires a minimum DSCR ratio of 1.1x to qualify for a DSCR loan of up to 80% LTV.
| Credit score | Minimum 680 |
| Loan amount | Min $100,000 |
| Purchase/refinance | Up to 80% LTV |
| Cash out refinance | Up to 75% LTV |
| Interest rate | Start at 6.5% |
| Minimum DSCR | 1.1 |
| Closing time | 21-30 days |
| Loan options | 30 year fixed, 5/1 ARM, 7/1 ARM, Interest only |
What is the minimum documentation?
- Driver’s license or state ID
- Articles of organization
- LLC operating agreement
- EIN letter
- 2 months of bank statements
Is an appraisal required?
Yes, an appraisal is required to calculate current market rental rates, estimated monthly cash flow, and property value based on local comparables. These figures will be used to calculate a DSCR ratio and finalize your loan to value (LTV).
What types of properties qualify for DSCR loans?
Single Family Homes:
Detached residential non-owner occupied rental properties.
2-4 Unit Residential Properties:
Duplexes, triplexes, and fourplexes.
Townhomes:
Attached residential rental properties.
Condominiums:
Individual condo units larger than 600 sq ft.
What are alternatives to DSCR loans for investors?
Florida investors have various alternatives to DSCR loans.
Conventional Loans
Conventional loans for investment properties offer competitive rates but require full income verification with tax returns, pay stubs, W-2’s and 24 months of bank statements. Since these loans are for investment purposes, traditional banks tend to have stricter guidelines and will make sure you can afford multiple mortgage payments.
Hard Money Loans
Hard money loans typically come with 6 to 24 month terms. They offer up to 90% financing with flexible loan terms but often come with higher interest rates. These are great if you’re competing with cash buyers and want to close as fast as 3 days. Also, if the investment property needs renovations, you can get up to 100% rehab financing, then refinance with a long-term DSCR loan.
HELOC
A HELOC (home equity line of credit), is a great alternative to DSCR loans if you have equity in your primary residence. These are interest only loans, but like conventional loans they require 2 years of personal income verification.
Frequently Asked Questions
Do Florida DSCR lenders require previous experience?
Every DSCR loan lender has their own qualifications, however Capital Ton does not require any previous experience to get approved for a Florida DSCR loan.
Can first-time investors get a DSCR loan?
Yes, Capital Ton works with first-time real estate investors in Florida.
Do short-term rentals qualify for Florida DSCR loans?
Yes, some DSCR loan Florida lenders do accept short-term rental properties. Meaning, they will use projected short-term cash flow to calculate DSCR ratios. This requires a lender with flexible loan terms that uses AirDNA (short-term rental data).
These type of DSCR loans for short-term rentals work great in Miami, Fort Lauderdale, Orlando, Tampa, St. Petersburg, Clearwater, Jacksonville, Fort Myers and Sarasota.
Do Florida DSCR loans have prepayment penalties?
Most lenders offer 3, 5 and 7 year prepayment penalty options. Choosing a longer term prepayment penalty can help lower interest rates and improve DSCR ratio.
How long do DSCR loans take to close?
Debt service coverage ratio loans take an average of 21-30 days to close.
Are there interest-only DSCR loans in Florida?
Yes, interest only payments are an excellent way to increase monthly cash flow, decrease monthly expenses and improve DSCR ratio.
Can these loans be used for owner-occupied properties?
No, DSCR loans for a Florida rental property cannot be used for owner-occupied real estate. Since these are business purpose loans, they are meant for landlords who intend to rent out to tenants.
What is the minimum credit score?
DSCR loans in Florida require a minimum credit score of 680 or higher. With a DSCR ratio of 1.5 or higher, it is possible to get approved with a 660 credit score.
What is the minimum loan amount?
The minimum loan amount is $100,000.
What is the maximum loan amount?
Purchase or Refinance:
Up to 80% LTV (Max $2 Million)
Cash Out Refinance:
Up to 75% LTV (Max $2 Million)
Portfolio DSCR Loan:
Up to 80% LTV (Max $50 Million)
What are the down payment requirements?
The minimum down payment for a Florida DSCR loan is 20%.