DSCR Loan Kansas
DSCR Loan Kansas Example Deal
DSCR Loan Kansas calculation
What do you think you can rent the property for?
What is actual or estimated annual tax?
What is actual or estimated annual insurance?
What is actual or estimated annual HOA?
Is this a DSCR purchase or a DSCR refinance? Purpose affects the fields.
What is the purchase price of the property?
%
What loan to value (LTV)? Common values are between 50 and 80
What is the size of the loan?
%
What interest rate do you expect to pay on the loan?
Monthly payment that will cover loan's principal and interest (P & I)
The total amount of the loan
DSCR (Debt Service Coverage Ratio) is calculated as:Annual rental income:$32,400Annual mortage service:$14,474Annual taxes:$1,890Annual insurance:$780Annual HOA:$107Total annual debt service:$17,251DSCR$32,400 ÷ $17,251 = 1.88OfferMarket's minimum DSCR is 1.1. A DSCR above 1.1 indicates that the property generates enough income to cover its debt obligations.
$2,700 Monthly rent
- $1,206 Monthly loan payment
- $158 Prorated taxes
- $65 Prorated insurance
- $9 Monthly HOAs (if any)
= $1,263 Estimated monthly cashflow
$57,500 Downpayment
+ $2,000 Origination fee
+ $1,995 Loan fees
+ $1,725 Title fees
+ $667 Escrow
+ $319 Prepaid interest
+ $780 Prepaid insurance
= $0.00 Cash to close
This is the only fee that goes directly to OfferMarket and covers our operating costs to process and underwrite the Loan File. Our fee for this loan will be $2,000
This a fixed fee of $1,995 that includes several third party fees (it doesn't go to OfferMarket). It is necessary to verify documents for underwriting and reduce single party risk of the inputs that make up the Loan File. Specifically, it includes underwriting fee which is used to cover the costs of reserching and verifying the information in the loan file. Appraisal risk review, which employes a third party to certify the accuracy of the appraisal report. CoreLogic report, a third party report which is used to access the risks and trends that apply to the underlying collateral (the property) used to secure this loan.
Estimate of Title fees is usually around 1% of loan amount which comes out to 1,725
At closing an escrow is collected which will be used to pay for the first 3 months of taxes and insurance. The amount is equal to 3 months of taxes and insurance payments, which is $668
At closing, lenders collect prepayment of interest through the end of the month. If loan is closed today this amount would be $319
At closing, lenders often require that the 1st year of insurance is covered. A rough estimate of annual insurance is $780
DSCR Loan Requirements
DSCR Loan Kansas Common Questions
Last updated: Nov 24, 2024
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.
Given our experience funding DSCR loans in Kansas, these are the cities we are most impressed with:
| City Name | Median Home Price | Median Rent Price | Population | Population Growth Rate |
|---|---|---|---|---|
| Wichita | $182,500 | $$1,450 | 397,000 | 1.2% |
| Overland Park | $418,682 | $2,250 | 198,000 | 2.5% |
| Kansas City | $175,000 | $1,500 | 155,000 | 0.8% |
| Olathe | $385,000 | $2,000 | 145,000 | 3.0% |
| Topeka | $172,500 | $1,150 | 126,000 | 0.5% |
| Lawrence | $285,000 | $1,600 | 98,000 | 1.8% |
What is a DSCR Loan?
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.
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.
Kansas DSCR Loan Rates
Kansas DSCR loan interest rates align with the national average. OfferMarket's DSCR Loan Interest Rates Index tracks prevailing rates. You can also get an instant DSCR loan quote tailored to your property and borrower profile.
DSCR Loan Pros and Cons
Pros
- 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.
- 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.
- 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.
Cons
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.
Risk of poor borrower experience: limited experience among DSCR lenders may lead to challenges in structuring loans to meet unique goals and funding timelines.
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
Loan requirements in Kansas for DSCR loans
DSCR loan guidelines are straightforward which means it is easy to get funding as long property and borrower guidelines are met.
Loan application: a simple e-sign authorizing the lender to run a credit report and order an appraisal.
Borrowing entity: DSCR loans are business purpose loans, typically requiring an LLC, Corporation, or Trust as the holding entity.
| Document | Entity Type |
|---|---|
| Articles of Organization | LLC |
| Articles of Incorporation | Corporation |
| Operating Agreement | LLC |
| Bylaws | Corporation |
| Trust Agreement | Trust |
| Certificate of Good Standing | LLC, Corporation, Trust |
| Foreign Entity Registration | LLC, Corporation, Trust -- if entity and property are in different states |
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 determining maximum LTV and minimum DSCR.
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.
| Document | Max LTV, Purchase | Max LTV, Cash out refi | Minimum DSCR |
|---|---|---|---|
| 720+ | 80% | 75% | 1.1 |
| 700 - 719 | 80% | 75% | 1.2 |
| 680 - 699 | 75% | 70% | 1.2 |
| 660 - 679 | 65% | 60% | 1.2 |
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.
** 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.
| Document | Maximum Vacant Units |
|---|---|
| Single family | 1 |
| Duplex | 1 |
| Triplex | 1 |
| 660 - 679 | 2 |
Common Underwriting Issues for Kansas DSCR Loans
Landlord insurance: elevated risk of loss due to natural disasters may result in higher landlord insurance premiums which reduces DSCR. OfferMarket Insurance 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.
Flood insurance: required for properties in FEMA Special Hazard Flood Zones, it can increase processing time and reduce DSCR.
Rural property designation: DSCR loan guidelines are strict when it comes to properties that are considered rural -- 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.
Kansas DSCR Loan Summary
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.
| Loan Type | Rate | Points | Term |
|---|---|---|---|
DSCR ("Rental") |
6.5% - 8% | 0.5 - 2 | 30 year |
Fix and Flip ("Bridge", "Hard Money", "Fix and Rent", "RTL") |
10.75% - 12% | 1 - 2 | 6 - 18 months |