To calculate DSCR, use this simple formula:
DSCR = Rent / PITIA
A debt-service coverage ratio of 1 indicates that the monthly expenses of a subject property are equal to the monthly payment. For instance, if your monthly expenses are $1,800 per month and a tenant pays you $1,800 per month, you are breaking even. There are some simple ways to optimize the DSCR calculation:
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.
Negotiate your taxes and insurance. By fighting your property taxes and lowering your insurance payments, you can bring down your debt-service coverage ratio.
Buy down your rate. 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 DSCR.
According to Roofstock, the demand for rental properties in Texas is high, and in many Texas cities renters occupy over 50% of the households. The state offers a robust job market, lower cost of living, and hundreds of Fortune 500 companies.
Further, Texas is home to over 29 million people and is growing. Home prices have increased by 19.8% since last year, and median rent prices in some markets have grown 15% or more year over year. Let's take a look at some of Visio real estate investors' favorite markets in Texas and what makes them investable highlighted by Roofstock:
Houston, TX: With 52% of households renter-occupied, a median sale price of $315,000 and a median rental income of $1,775, it's no wonder Houston made the list of top cities to buy investment properties. Houston is also the number one Texas city where Visio originates rental loans.
Austin, TX: Home to the University of Texas, a famous live music scene, and Visio Lending, Austin has 61% of renter-occupied households and a median monthly rental income of $2,400. It's also the second most invested in Texas city for Visio borrowers.
San Antonio, TX: The home of the Alamo is 39% renter-occupied and has a median rental income of $1,723. Its proximity to Houston and Austin as well as its median home price of $283,245 make the city popular for Visio borrowers.
Dallas, TX: Dallas boasts a 44% renter occupancy rate and a median rental income of $2,400.
El Paso, TX: El Paso is 40% renter occupied and has a median rent of $1,450.
Fort Worth, TX: Originally the center for Texas cattle, Fort Worth is 41% renter-occupied and has a median rent of $1,995.
A DSCR mortgage typically can be used for the following property types:
DSCR loans typically cannot be used for the following property types:
Check out some of our recently closed DSCR loans in Texas.