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**Last updated:** April 3, 2024

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![Wichita Kansas DSCR Loan](https://cms.offermarket.us/uploads/Wichita_Kansas_DSCR_Loan_c6dceba056.jpg)

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Kansas presents an appealing market for rental property investors, with DSCR loans emerging as a preferred financing option for both purchase and refinance transactions. Whether you're a seasoned investor or just entering the rental property market, securing your growing portfolio's financing is made simpler with DSCR loans.

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Given our experience funding DSCR loans in Kansas, these are the cities we are most impressed with:

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<div style="display: grid; grid-template-columns: repeat(1, minmax(0, 1fr)); overflow: auto; white-space: nowrap;">
<table>
  <thead>
    <tr>
      <th>City Name</th>
      <th>Median Home Price</th>
      <th>Median Rent Price</th>
      <th>Population</th>
      <th>Population Growth Rate</th>
    </tr>
  </thead>
  <tbody>
    <tr>
      <td>Wichita</td>
      <td>$182,500</td>
      <td>$$1,450</td>
      <td>397,000</td>
      <td>1.2%</td>
    </tr>
    <tr>
      <td>Overland Park</td>
      <td>$418,682</td>
      <td>$2,250</td>
      <td>198,000</td>
      <td>2.5%</td>
    </tr>
    <tr>
      <td>Kansas City</td>
      <td>$175,000</td>
      <td>$1,500</td>
      <td>155,000</td>
      <td>0.8%</td>
    </tr>
    <tr>
      <td>Olathe</td>
      <td>$385,000</td>
      <td>$2,000</td>
      <td>145,000</td>
      <td>3.0%</td>
    </tr>
    <tr>
      <td>Topeka</td>
      <td>$172,500</td>
      <td>$1,150</td>
      <td>126,000</td>
      <td>0.5%</td>
    </tr>
    <tr>
      <td>Lawrence</td>
      <td>$285,000</td>
      <td>$1,600</td>
      <td>98,000</td>
      <td>1.8%</td>
    </tr>
  </tbody>
</table>
</div>

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## What is a DSCR Loan?

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DSCR, or Debt Service Coverage Ratio, essentially measures cash flow. It represents the cash flow generated by your rental property above the monthly mortgage payment. A DSCR of 1.0 indicates a break-even scenario, while a DSCR below 1 signals a monthly loss before considering additional expenses. Conversely, a DSCR above 1.0 signifies positive cash flow.

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![DSCR Formula Interest Only](https://cms.offermarket.us/uploads/DSCR_Formula_Interest_Only_9bcd6c02ff.jpg)

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Competitive DSCR loan terms usually require a DSCR of 1.1 or higher, with a DSCR of 1.2 necessary for those with credit scores below 720.

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## Kansas DSCR Loan Rates

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Kansas DSCR loan interest rates align with the national average. OfferMarket's [DSCR Loan Interest Rates Index](https://www.offermarket.us/blog/dscr-loan-interest-rates) tracks prevailing rates. You can also [get an instant DSCR loan quote](https://www.offermarket.us/loans?ref=blog-dscr-loan-kansas) tailored to your property and borrower profile.

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<div style="position: relative;width: 100%;overflow: hidden; padding-top: 100%;">
<iframe style="position: absolute;top: 0;left: 0;bottom: 0;right: 0;width: 100%; height: 100%;border: none;" seamless frameborder="0" scrolling="yes" src="https://docs.google.com/spreadsheets/d/e/2PACX-1vRJPw1fYWqj_5mdlNBrD5MLne_ApqpOXlNmkmNE_sZfPgsbn9pU0mWUenEO1x6WE9237S7jzaQE2Hig/pubchart?oid=262687025&amp;format=interactive"></iframe>
</div>
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<br>

## DSCR Loan Pros and Cons

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![DSCR Loan Pros and Cons](https://cms.offermarket.us/uploads/DSCR_Loan_Pros_and_Cons_49f694af9d.jpg)

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### Pros

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1. **Low doc, no income verification:** DSCR lenders in Kansas typically do not require W2s, pay stubs, or tax returns, making them suitable for self-employed investors.
2. **Availability of capital:** while DSCR loan origination volume is growing, it struggles to meet demand from institutional investors. Competitive credit spreads make DSCR loans attractive.
3. **Competitive interest rates:** with the prime rate -- the rate at which leading banks are lending money to prime borrowers -- at 8.5%, DSCR loan rates are significantly more competitive.

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### Cons

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**New industry with noise:** The growing DSCR loan industry in Kansas has attracted mortgage brokers and private lenders not specialized in DSCR loans, potentially setting wrong expectations.

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**Risk of poor borrower experience:** limited experience among DSCR lenders may lead to challenges in structuring loans to meet unique goals and funding timelines.

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**Uncompetitive terms:** Some mortgage brokers and lenders may charge uncompetitive interest rates and fees, emphasizing the importance of careful lender selection.
Kansas DSCR Loan Requirements

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## Loan requirements in Kansas for DSCR loans

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[DSCR loan guidelines](https://www.offermarket.us/dscr-loan) are straightforward which means it is easy to get funding as long property and borrower guidelines are met.

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**Loan application:** a simple e-sign authorizing the lender to run a credit report and order an appraisal.

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**Borrowing entity:** DSCR loans are business purpose loans, typically requiring an LLC, Corporation, or Trust as the holding entity.

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<div style="display: grid; grid-template-columns: repeat(1, minmax(0, 1fr)); overflow: auto; white-space: nowrap;">
<table>
<thead>
  <tr>
    <th>Document</th>
    <th>Entity Type</th>
  </tr>
</thead>
<tbody>
  <tr>
    <td>Articles of Organization</td>
    <td>LLC</td>
  </tr>
  <tr>
    <td>Articles of Incorporation</td>
    <td>Corporation</td>
  </tr>
  <tr>
    <td>Operating Agreement</td>
    <td>LLC</td>
  </tr>
  <tr>
    <td>Bylaws</td>
    <td>Corporation</td>
  </tr>
  <tr>
    <td>Trust Agreement</td>
    <td>Trust</td>
  </tr>
  <tr>
    <td>Certificate of Good Standing</td>
    <td>LLC, Corporation, Trust</td>
  </tr>
  <tr>
    <td>Foreign Entity Registration</td>
    <td>LLC, Corporation, Trust -- if entity and property are in different states</td>
  </tr>
</tbody>
</table>
</div>

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**Credit score:** a personal guarantee from members representing at least 51% ownership is needed, with the lowest guarantor's middle score on a [Tri Merge Credit Report](https://www.offermarket.us/blog/what-is-a-tri-merge-credit-report) determining maximum LTV and minimum DSCR.

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![Tri Merge Credit Score](https://cms.offermarket.us/uploads/Tri_Merge_Credit_Score_141ea5b38b.png)

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In the example above, the qualifying credit score of 732 is used to determine maximum LTV and minimum DSCR. It is hard to understate just how important credit score is if you want to qualify for the highest possible LTV.

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<div style="display: grid; grid-template-columns: repeat(1, minmax(0, 1fr)); overflow: auto; white-space: nowrap;">
<table>
<thead>
  <tr>
    <th>Document</th>
    <th>Max LTV, Purchase</th>
    <th>Max LTV, Cash out refi</th>
    <th>Minimum DSCR</th>
  </tr>
</thead>
<tbody>
  <tr>
    <td>720+</td>
    <td>80%</td>
    <td>75%</td>
    <td>1.1</td>
  </tr>
  <tr>
    <td>700 - 719</td>
    <td>80%</td>
    <td>75%</td>
    <td>1.2</td>
  </tr>
  <tr>
    <td>680 - 699</td>
    <td>75%</td>
    <td>70%</td>
    <td>1.2</td>
  </tr>
  <tr>
    <td>660 - 679</td>
    <td>65%</td>
    <td>60%</td>
    <td>1.2</td>
  </tr>
</tbody>
</table>
</div>

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**Bank account statements:** Liquidity verification involves reviewing your two most recent monthly statements to ensure sufficient reserves for down payment, closing costs, and mortgage payments. A common question is whether you need to use the borrowing entity's bank account for liquidity verification and the answer is no -- you can use personal bank account, brokerage account, retirement account, insurance policy cash value and 1031 exchange escrow account statements.

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** Rent and Security Deposit Receipt:** If the property is leased, the original lease and any renewal leases must be provided, along with verification of security deposits.

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<div style="display: grid; grid-template-columns: repeat(1, minmax(0, 1fr)); overflow: auto; white-space: nowrap;">
<table>
<thead>
  <tr>
    <th>Document</th>
    <th>Maximum Vacant Units</th>
  </tr>
</thead>
<tbody>
  <tr>
    <td>Single family</td>
    <td>1</td>
  </tr>
  <tr>
    <td>Duplex</td>
    <td>1</td>
  </tr>
  <tr>
    <td>Triplex</td>
    <td>1</td>
  </tr>
  <tr>
    <td>660 - 679</td>
    <td>2</td>
  </tr>
</tbody>
</table>
</div>

<br>

## Common Underwriting Issues for Kansas DSCR Loans

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**Landlord insurance:** elevated risk of loss due to natural disasters may result in higher landlord insurance premiums which reduces DSCR. [OfferMarket Insurance](https://www.offermarket.us/insurance?ref=blog-dscr-loan-kansas) is an insurance rate shopping platform build specifically for rental property investors that need landlord insurance policies that meet DSCR loan insurance guidelines cost effectively.

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**Flood insurance:** required for properties in FEMA Special Hazard Flood Zones, it can increase processing time and reduce DSCR.

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**Rural property designation:** DSCR loan guidelines are strict when it comes to properties that are [considered rural](https://www.offermarket.us/blog/rural-designation-search-tools) -- DSCR lenders will generally not allow rural properties to be funded, and those in gray areas will require a time consuming exception and and often a significant reduction in LTV.

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## Kansas DSCR Loan Summary

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In summary, Kansas offers a promising landscape for rental property investment, with DSCR loans providing an efficient financing option. However, understanding and navigating the specific challenges and requirements of the Kansas market is essential for success.

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DSCR loans are on the rise in Kansas and quickly becoming the preferred loan type for rental property investors. In this guide, we will share our market insights to help you grow your portfolio in the Sunflower State. 

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DSCR Loan Kansas

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**Last Updated:** October 23, 2022

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<div style="width:100%;"><iframe width="100%" height="315" src="https://www.youtube.com/embed/Bz8Z-D5q21I" title="YouTube video player" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe></div>
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## DSCR Loan Interest Rate Index

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In our effort to be the most competitive and transparent private lender, we publish our [DSCR Loan Interest Rate Index](https://www.offermarket.us/blog/dscr-loan-interest-rate-index) which tracks the prevailing interest rates for competitive DSCR loans.

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<div style="width:100%;">
<iframe width="100%" height="371" seamless frameborder="0" scrolling="yes" src="https://docs.google.com/spreadsheets/d/e/2PACX-1vRJPw1fYWqj_5mdlNBrD5MLne_ApqpOXlNmkmNE_sZfPgsbn9pU0mWUenEO1x6WE9237S7jzaQE2Hig/pubchart?oid=262687025&amp;format=interactive"></iframe>
</div>

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***Note:** based on 30 year fixed rate, 75% LTV, 1.2 DSCR, 720 credit score. Conventional 30 year fixed rate mortgage courtesy of CNBC. DSCR loan interest rates and spreads are based on best available nationwide private lender data for competitive rates. OfferMarket Capital LLC DSCR loan interest rates track DSCR Low and are typically more competitive than peers.*

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## Spread between DSCR Loans and Conventional 30 Year Fixed Rate Mortgage

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As you can see from the chart above, DSCR loan interest rates nearly doubled from 4% in Q4 2021 to 7.5% in Q2 2022 and again in Q3 2022. The spread between DSCR loans and the 30 year conventional fixed rate mortgage nearly doubled from 0.85% to 1.5%. This means that the fixed income investors that buy DSCR loans, primarily through securitizations, demand a higher premium (spread) during times of market uncertainty.

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Let's take a closer look at how the market works to understand why DSCR loan interest rates can be volatile.

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## Market For Securitized DSCR Loans

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There is a multi-billion dollar market for securitized DSCR loans, also known as non-QM or non qualified mortgages -- mortgage backed securities composed of hundreds or thousands of DSCR loans for rental properties. This product is most commonly purchased by institutional asset managers such as insurance companies, mortgage REITs and pension funds that are looking for fixed income at an attractive yield compared to conventional mortgage backed securities and US Treasury bonds.

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## Positive Feedback Loop: DSCR Loan and Non-QM Securitization

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During times of interest rate volatility and economic uncertainty, the institutions that buy DSCR mortgage backed securities do two things:

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1. they pause or slow their purchasing of this asset class
2. they demand a higher premium compared to lower risk alternatives such as the 30 year conventional fixed rate mortgage 

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When interest rates rise, the value of loans at lower interest rates declines. This leaves private lenders and non-QM lenders that originate these loans in a difficult situation:

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- if the investment banks and firms that securitize these loans and sell them to institutions stop buying, they are forced to hold these loans on their books which means they have less capital to originate new loans
- if the securitization firms are buying loans, private lenders are forced to sell at a loss because their newly originated loans are at significantly lower interest rates than the current interest rate

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While this is happening, overall demand for loans from rental property investors is declining rapidly because of the spike in interest rates. This forces private lenders and non-QM originators to layoff staff and raise fees to avoid further losses. Everything we just covered explains why interest rates for DSCR loans spiked. While the conventional 30 year fixed rate mortgage was spiking, grabbing headlines, the DSCR loan was rising in a more pronounced manner.

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## Locking In Your DSCR Loan Interest Rate

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Now, you may be thinking, isn't my interest rate locked in? Unlike the conventional mortgage market (Fannie, Freddie), interest rate locks are not common for DSCR loans. In calm markets, minor movements are absorbed by the private lender and securitization firm. But in turbulent markets, interest rate spikes need to be revised and accepted by the borrower.

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Volatile markets such as this are extremely disruptive to what is normally an orderly, functioning marketplace between originators, securitization firms and institutional consumers of credit. At times the market has been definitively dysfunctional, with borrowers experiencing significant delays and frustrations. This is a major reason why we published this article, because we believe in transparency and educating our borrowers.

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## Refinancing Out of Cash or Bridge Loan

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There are many real estate investors who use the BRRR strategy and now find themselves in a situation where they are either in a high interest rate bridge loan ("fix and flip" or "hard money") or their cash is tied up in one or more deals. They need to refinance into lower interest rate or pull their cash out of their deals but DSCR rental loan interest rates are significantly higher than what they were expecting. 

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We can be talking a $250 - $750 per month hit to free cash flow depending on loan amount when you move from 4% to 7.5%. That takes the deal from positive free cash flow to breakeven or negative free cash flow. This is a difficult and painful situation to be in financially.

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## Solution for Private Lenders: Setting Better Expectations

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Setting clear expectations is absolutely critical. Being transparent with your borrowers regarding how you operate and is absolutely critical. Educate your borrowers -- borrowers deserve to be informed and to understand the inner-workings of the DSCR Loan market. Their real estate investing business relies on it.

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## OfferMarket Capital: Your Hard Money Private Lender

<br>

- [Get a quote in under a minute: DSCR Loans, Bridge Loans](https://www.offermarket.us/loans)
- [OfferMarket Capital: Private Lender Program Guidelines](https://www.offermarket.us/capital)
- [Private Lender Guide](https://www.offermarket.us/blog/real-estate-private-lenders)
- [Bridge Loan Index](https://www.offermarket.us/blog/bridge-loan-interest-rate-index)

<br>

The market for DSCR Loans is experiencing significant turbulence. Interest rates for DSCR loans have spiked 2% in the past 2 months. Here's what's happening, how this affects borrowers, and the DSCR Loan Index to provide more transparency.

What's going on with interest rates for  DSCR Loans?

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What's going on with interest rates for  DSCR Loans? | OfferMarket

What's going on with interest rates for DSCR Loans?

Grow your real estate investing business with the most competitive DSCR loan product. OfferMarket also provides DSCR rental loans, bridge loans, hard money, fix & flip, rehab, ground up construction loans.

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