If you are seeking financing in Pennsylvania, it is imperative to have a solid understanding of DSCR loans. These loans, also referred to as Debt Service Coverage Ratio loans, evaluate your capacity to generate sufficient income for debt payments.
Undoubtedly, DSCR loans are an indispensable resource for individuals and businesses aiming to obtain funding in Pennsylvania - and Visio Lending is one of the best lenders for DSCR loans throughout the nation. We provide highly attractive DSCR mortgage rates, convenient loan terms, and approval based on the property's ability to satisfy its debts - not income verification.
Here are some key eligibility criteria for DSCR loans in Pennsylvania that real estate investors should consider.
It is crucial to have a strong credit score in order to qualify for a DSCR loan in Pennsylvania. Your credit score serves as an indicator of your financial responsibility and reliability.
Lenders typically prefer a minimum credit score of 640, ensuring that you have displayed consistent capability in managing your finances and meeting debt obligations punctually.
When applying for a DSCR loan in Pennsylvania, it's important to note that lenders take into account not only your credit score but also the net operating income (NOI), which include mortgage payments as well as principal and interest payments.
NOI is the property's rental income minus its operating costs; in other words, it identifies whether your property is generating positive cash flow after it has satisfied its mortgage payment and other operating expenses.
Lenders typically set a minimum requirement for net operating income, which should at least meet or exceed the annual debt service payment on the loan. A strong NOI increases your chances of securing approval for your DSCR loan application.
As with traditional loans, a mortgage lender will approve a DSCR loan based partially on the average value of the property. Many lenders may request two appraisals of the rental property, though some may only need one.
You'll also need to prove the rental income through a rent schedule, which shows the average rent and the property's rental history. This will be used to calculate the DSCR, which is the primary component of a DSCR loan.
The debt service coverage ratio is closely tied to the NOI, as it shows that the subject property is making enough to satisfy the mortgage.
To calculate DSCR, you divide rental income by PITIA (principal, interest, taxes, insurance, and association dues); a number above 1 shows that you have positive cash flow, while below 1 means that you're losing money.
Most lenders prefer a minimum DSCR of 1.25 or more before they will approve your DSCR loan, but you should strive for as high of a ratio as you can achieve based on market rent.
When DSCR lenders in Pennsylvania review DSCR loan applications, they also take into account the loan-to-value ratio. This ratio compares the amount of the loan to the appraised value of the home or rental property. Lenders have a preference for lower loan-to-value ratios, as it signifies less risk for them as lenders.
Your LTV determines the size of your down payment, which will be between 20% and 30%. You should also expect to pay closing costs just as you would for a traditional loan.
If you're considering real estate investment in Pennsylvania, there are multiple cities that present promising opportunities for financial gain using DSCR loans. Here are a few options to explore.
Philadelphia's real estate market has been thriving in recent years, making it an appealing choice for investors. Neighborhoods such as Old Town, University City, and Fishtown have witnessed substantial growth in property values and rental demand.
The average home value in Philadelphia is $221,032, which is a slight drop year-over-year. However, high rental income more than makes up for this: the price of an apartment is up nearly 21%. The median cost of an apartment is $1,795.
Pittsburgh is another city in Pennsylvania that offers great potential for real estate investment. With its booming technology and healthcare sectors, Pittsburgh has experienced steady population growth and a strong rental market.
The average Pittsburgh home is worth $229,643, while the average rent across all residential properties is $1,417. Commercial real estate investors can rejoice at the rents of $24 per square foot for retail and office rental property.
Harrisburg, the capital of Pennsylvania, is a compelling choice for real estate investment. Even as the national market slows down, Harrisburg stands out with stable or even increasing rental prices.The recent data shows that the median rent in Harrisburg has increased by a significant 6% compared to last year, reaching $1,009.
Two-bedroom apartments have also seen a rise of 3%, with an average price now at $1,390. On the other hand, one-bedroom apartment rents have remained stable and did not change from their current level. This upward trend indicates strong demand and potential for investment opportunities in the rental market of Harrisburg.
West Chester is a hidden gem in Pennsylvania when it comes to real estate. With its charming downtown area, top-ranked schools, and proximity to Philadelphia, West Chester offers a desirable location for real estate. As of December 2022, the real estate market in PA is experiencing above-average home values ranging from $49,000 to as high as $4.2M.
In West Chester specifically, the median home value stands at an impressive $564,884, according to Zillow data. This indicates a strong investment opportunity with the potential for favorable returns on properties in this area for real estate investors.
Check out some of Visio Lending's recently closed DSCR loans in Pennsylvania.