Use DSCR Loans to Grow Your Rental Portfolio in North Carolina

Real estate investors are using debt service coverage ratio (DSCR) loans to expand their portfolios. DSCR is calculated by taking the monthly rental income and dividing it by the property's monthly expenses including principal, interest, taxes, insurance, and association dues (PITIA). The final debt service coverage ratio is essentially an indicator to the lender of a borrower's ability to repay their loan. Many lenders have a minimum DSCR of 1.2, which indicates positive cash flow. Visio Lending has a minimum DSCR of 1.o

DSCR loans, also known as non-QM or rental loans, are ideal for self-employed investors or investors with large portfolios. Their simplified approval process and loan terms are designed specifically for real estate investors. Let's take a closer look.

North Carolina DSCR Loans Look at Cash Flow Rather than Personal Income

Traditional loans focus heavily on debt-to-income ratio (DTI) and require substantial documentation including pay stubs, bank statements and tax returns. Meeting debt-to-income ratio requirements can be tricky for investors with multiple mortgaged rentals. On the other hand, DSCR loans have qualifications based on a minimum credit score and are underwritten using the property's income potential.

North Carolina DSCR Loans Offer Flexible Terms and Fees

With a DSCR loan, borrowers can take advantage of full 30-year terms with no balloons. Most DSCR lenders will also have the optionality for interest only loans, rate buy- downs, prepayment penalty buy downs, and rate structure choices. It is great for investors to be able to tailor their DSCR loan program to meet their investment needs. For instance, investors planning to hold onto their rental property long term can choose a fixed rate and pay higher fees, while investors who might sell in the near future can select an ARM rate structure and buy down their prepayment penalty.

North Carolina DSCR Loans Have More Flexible Common Sense Limitations on Number of Mortgaged Properties

For the professional investor looking to build a large real estate portfolio, a DSCR program is ideal. Most traditional lenders max out borrowers at ten loans. Instead, when evaluating qualifications for a DSCR loan, lenders will use common sense to evaluate an investor's maximum credit exposure.

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Calculating and Optimizing DSCR Ratio

To calculate DSCR ratio, use this simple formula:

DSCR = Rent / Principal, Interest, Taxes, Insurance, Association Dues (PITIA)

A DSCR ratio of 1 indicates that the monthly expenses of a subject property are equal to the monthly expenses. For instance, if your monthly expenses are $1,820 per month and your rental income is $1,820 per month, you are breaking even. A good DSCR ratio is a 1.2 or higher and indicates to a lender your ability to repay. If your DSCR is too low, there are some simple ways to optimize it:

1. Increase your down payment. Raising your down payment is the simplest way to improve debt-service coverage ratio. This will lower your rate, and therefore your monthly expenses and DSCR.

2. Buy down your interest rates. Some lenders will provide you with the opportunity to buy down your rate. This will increase your closing costs, yet decrease your monthly payments and debt-service coverage ratio.

3. Raise rents. Increasing the rent, will improve your property's cash flow, and therefore, DSCR.

4. Provide upsells to increase rental rates. If you are able to improve the property's cash flow by providing upsells, such as renting to pets or providing a furnished rental, this will help you optimize your debt-service coverage ratio.

North Carolina Rent Prices are Soaring

According to Roofstock, many rents in the state of North Carolina grew by double digits over the past year. Additionally, some of big cities including Raleigh, Winston-Salem and Fayetteville have large percentages of renters. The combination of growing rents and high renter demand makes North Carolina a great state for real estate investors.

The top investment property market in North Carolina for Visio borrowers is Asheville. Norada Investments found that the median home price in Asheville in 2022 was $375,000, which is an increase of over 17% year-over-year. Asheville's appreciation rates are some of the top in the country, and the rental market is thriving as well. The average rent of a 3-bedroom apartment in Asheville is $1,698, a 3% increase since last year.

Here are some other top real estate investment markets identified by Roofstock:

Charlotte, NC: This city has a 43% renter-occupied household rate. Not to mention, a median monthly rent of $1,800, and a median sale price of $382,000.

Raleigh, NC: The second most populous city in North Carolina is 49% renter occupied. Raleigh also boasts a high median household income, high median monthly rent, and affordable entry point.

Greensboro, NC: At just a $245,000 median sales price, Greensboro offers a tangible entry point. Plus, the median monthly rent is $1,620 and the renter-occupied household percentage is 41%.

Durham, NC: Home to Duke University, Durham has a median sale price of $400,000, and an average monthly rental income of $1,800

Wilmington, NC: This college town is 43% renter occupied. Other benefits include a median sales price of $366,000 and a median rent of $1,795.

Closed DSCR Loans North Carolina

Check out some of our recently closed DSCR loans in North Carolina.

Asheville, NC

$432,000 Loan Amount
Purchase Loan

Charlotte, NC

$240,000 Loan Amount
Cash-Out Refinance

Wilmington , NC

$379,920 Loan Amount
Rate & Term Refinance

We are proud to offer:

· The ability to qualify based on rental income; No tax returns or personal income qualifications
· Real estate investor-friendly loan options including prepayment penalty and rate buy-downs
· Finance in an LLC or corporate entity
· Full 30-year terms, no balloons

North Carolina DSCR Loans