DSCR Loan New York

Last updated: April 16, 2024

If you're looking for the best DSCR loan New York has to offer, this guide is for you. Let's review DSCR loans, how to use them to grow your rental property portfolio in the Empire State, and how to select the best DSCR lender in New York. DSCR loan interest rates are currently volatile, making your choice of DSCR lender all the more important. Did you know that an option New York rental property investors have is a DSCR loan with no minimum DSCR?

Buffalo, NY is a prime rental market thanks to high rent relative to as is value which makes DSCR loans an ideal financing strategy for rental investors seeking to purchase or refinance rental properties.

What is a DSCR loan?

DSCR loans are mortgages for rental properties. DSCR stands for debt service coverage ratio, a simple cash flow metric that indicates whether a rental property's income can sufficiently cover its mortgage payment. A DSCR of 1.0 means the property is at cash flow breakeven which a DSCR above 1.0 means the property more than covers its mortgage payment. A DSCR below 1.0 means the property does not generate enough income to cover its mortgage payment and therefore the owner must contribute additional cash on a monthly basis or raise rent.

DSCR = Net Operating Income ÷ Mortgage Payment

As interest rates rise and remain elevated, rental properties in New York continue to be an attractive and viable financing method. All else equal, the higher the interest rate, the lower the DSCR. During periods of elevated interest rates, it's important to invest in rental properties that generate strong rents relative to as is value. This is similar to the 1% rule -- a popular concept among rental property investors that encourages screening for deals where rents will be 1% or more of the cost basis of the property (purchase price, closing costs and rehab). Properties too far below 1% may not generate enough income to cover the mortgage at your target LTV (DSCR is too low). When DSCR is too low at your target LTV, you will need to accept a lower LTV which means you'll need to have a higher down payment. Even if a higher down payment is feasible, it is certainly not ideal if you're focused on optimizing your cash on cash returns.

DSCR Loan Requirements

DSCR Loan Calculator

In order to calculate the loan amount that your rental property purchase or refinance will qualify for, we recommend using a DSCR calculator. It's important to understand the inputs that lenders use to calculate DSCR, this way you can screen investment opportunities and set proper expectations regarding loan-to-value, cash to close and cash on cash returns.

Purchase Price or As Is Value

For purchase transactions, the DSCR calculation uses the lower of the purchase price or As Is value from the appraisal report. For refis, the As Is value from the appraisal report is used. The higher the As Is value, the greater the chance that DSCR will not support maximum LTV. For example, let's say you used the BRRR method on a rental property in Shaker Heights, OH. After your rehab you get the property leased for $2,000 and then the property appraises for $290,000 with a market rent of $1,900. Ultimately, with interest rates elevated, the rental income is only enough to cover closer to 65% LTV than the 75% LTV maximum for cash out refi.

Rents

Most DSCR lenders take the lower of actual in place rent and market rent opinion in your appraisal report. This is why it is critically important keep your lease agreements as close to market rent as possible, and to work with a lender that orders appraisals with appraisers who are experts in rental properties in the local market. If the property is vacant, the market rent opinion from the appraisal will serve as the input for the DSCR calculation.

New York Property Tax Rate

The higher the property tax rate, as verified by the most recent tax bill for the subject property, the lower the DSCR. At an average of 1.6%, New York property tax rate is higher than the national average of 1%. We recommend using a DSCR calculator to understand how property taxes may limit your LTV. If you're a BRRR investor, you don't need to worry as much about property tax rate because the distressed property you rehabbed and are now refinancing likely still has a low property tax rate.

Property Management

While property management is a very real expense that eats into your Net Operating Income, the numerator of the DSCR formula, many lenders do not include property management in their DSCR calculation. If you are not sure if you will use a property management company, to ensure you get the highest possible loan amount, it's best to self manage initially and make that final decision after your DSCR loan is originated.

Utilities

If your tenants are not paying utilities, your DSCR calculation will include utilities as an expense that reduces Net Operating Income and therefore DSCR. We recommend always having your tenants pay all utilities.

Maintenance

Some DSCR lenders include a specific maintenance amount in your DSCR calculation. This may be a $500 or $1,000 annual expense that will reduce your DSCR slightly.

DSCR Loan Interest Rates

DSCR loan interest rates are historically highly competitive with conventional loans for investment properties, and bank loans. During times of economic uncertainty, the DSCR market can become volatile as credit investors including life insurance companies, pension funds, mortgage REITs pause purchases or demand higher interest rates to compensate for an increase in perceived risk. During these times, the firms that aggregate DSCR loans for securitization may demand a higher yield. Ultimately

DSCR Loan Down Payment

For purchases, the lowest down payment available among leading DSCR loan programs is 20% (80% LTV). Many rental property investors look for 85% LTV and we urge you to be cautious if a lender tells you they can provide 85% LTV.

DSCR lenders do a liquidity verification and request up to three months of bank statements. You can use brokerage accounts and retirements accounts as well to confirm you have enough funds to cover your down payment, closing costs and have a healthy buffer in case your tenant is vacant or an eviction is required.

DSCR Loan Credit Score

DSCR loans are highly sensitive to borrower credit score. The minimum credit score requirement to qualify for a DSCR loan is 660. The lower the credit score, the lower your LTV and higher your interest rate. Most lenders require a credit score of 720 and higher in order to qualify for the highest LTV that your DSCR supports.

Most DSCR loan program guidelines require a tri merge report which is a hard pull for all three credit bureaus (Experien, Transunion and Equifax). The highest and lowest scores are ignored and the middle score use used.

DSCR Loan Prepayment Penalty

DSCR loans in New York, just like the rest of the U.S., typically have a prepayment penalty. The 3 year, 3-2-1, and the 5 year, 5-4-3-2-1, are the most common options. Learn more about the concept of a prepayment penalty.

DSCR Minimum Loan Amount

Most DSCR lenders have a minimum loan amount of $75,000. Our minimum loan amount is currently $65,000 for a single property loan and $50,000 for a portfolio loan of 2 or more properties.

DSCR Portfolio Loan New York

If you are buying or refinancing 2 or more rental properties in New York, you can use a DSCR portfolio loan. During periods of market volatility, DSCR portfolio loans may carry a slightly higher interest rate and a slightly lower LTV. If your total portfolio loan amount is high enough, you may be able to qualify for a lower minimum loan and As Is value for individual properties within the portfolio.

Best New York Markets For DSCR Loans

Due to DSCR loan program guidelines, because the majority of DSCR loans are pooled into securitizations, your rental property cannot be considered "rural" for long term rental DSCR loan programs -- this can be a deal breaker in many parts of New York.

While the definition of rural varies by lender, the appraisal report cannot be marked as "rural" -- it would need to be marked "suburban" instead. Even if the property is marked as "suburban" on the appraisal report, the lender may deem the property to be rural if it shows as rural on the CFPB Rural and Underserved Areas Tool, if the local population is below 20,000, or if a simple Google Maps view shows the property is in an area with limited infrastructure -- schools, hospitals, places of worship, grocery stores -- and far from other population centers (in other words, the middle of nowhere).

These are the best rental markets in New York if you want to use a DSCR loan:

City	Population	County
New York City	8,992,900	Bronx County (Bronx), Kings County (Brooklyn), New York County (Manhattan), Queens County (Queens), Richmond County (Staten Island)
Buffalo	283,500	Erie County
Yonkers	216,200	Westchester County
Rochester	211,600	Monroe County
Syracuse	149,700	Syracuse
Albany	99,600	Albany County
New Rochelle	80,500	Westchester County
Cheektowaga	77,300	Erie County
Mount Vernon	75,900	Westchester County
Schenectady	67,300	Schenectady County
Utica	66,200	Oneida County
Brentwood	62,900	Suffolk County
Hempstead	60,800	Nassau County
White Plains	60,400	Westchester County
Troy	51,800	Rensselaer County
Levittown	51,700	Nassau County
Irondequoit	50,800	Monroe County
Niagara Falls	48,200	Niagara County
Binghamton	48,100	Broome County
West Seneca	45,700	Erie County
Freeport	45,000	Nassau County
Hicksville	44,600	Nassau County
West Babylon	43,200	Suffolk County
Valley Stream	41,600	Nassau County
Coram	40,600	Suffolk County
East Meadow	37,700	Nassau County
Central Islip	37,400	Suffolk County
Brighton	37,300	Monroe County
Baldwin	36,900	Nassau County
Kiryas Joel	36,800	Orange County
Commack	36,700	Suffolk County
Elmont	35,900	Nassau County
Long Beach	35,600	Nassau County
Huntington Station	35,400	Suffolk County
Uniondale	34,800	Nassau County
New City	34,300	Rockland County
Spring Valley	33,600	Rockland County
Oceanside	32,800	Nassau County
Ithaca	32,700	Tompkins County
Port Chester	32,500	Westchester County
Rome	31,600	Oneida County
Franklin Square	31,400	Nassau County
Poughkeepsie	31,200	Dutchess County
Middletown	31,000	Orange County
Centereach	30,800	Suffolk County
North Tonawanda	30,200	Niagara County
Bay Shore	30,100	Suffolk County
Monsey	29,500	Rockland County
Deer Park	29,200	Suffolk County
Saratoga Springs	29,100	Saratoga County
Newburgh	28,900	Orange County
Glen Cove	28,800	Nassau County
Harrison	28,400	Westchester County
Ossining	28,300	Westchester County
Jamestown	28,000	Chautauqua County
Plainview	27,400	Nassau County
Lindenhurst	27,100	Suffolk County
West Islip	26,700	Suffolk County
Auburn	26,600	Cayuga County
Rockville Centre	26,600	Nassau County
Holbrook	26,300	Suffolk County
Peekskill	26,000	Westchester County
Dix Hills	26,000	Suffolk County
Shirley	25,900	Suffolk County
Elmira	25,700	Chemung County
Smithtown	25,400	Suffolk County
Garden City	23,500	Nassau County
Merrick	22,000	Nassau County
Mineola	21,400	Nassau County
East Patchogue	21,300	Suffolk County
Massapequa	21,300	Nassau County
North Bellmore	20,800	Nassau County
Huntington	20,100	Suffolk County
East Northport	20,000	Suffolk County
Hauppauge	19,800	Suffolk County
Syosset	19,400	Nassau County
Melville	19,400	Suffolk County
Ronkonkoma	18,900	Suffolk County
Bethpage	16,700	Nassau County
Westbury	16,100	Nassau County
Manorville	14,300	Suffolk County
Stony Brook	13,400	Suffolk County

DSCR Lenders New York

You have many choices when it comes to selecting a DSCR lender in New York. At OfferMarket, our mission is to help you build wealth through real estate. We accomplish this mission by providing you with the best possible terms and client service, every quote, every loan, every time.

📉 Lower interest rates
💸 Lower origination fee
💰 Higher LTV
🛎️ Better service
👨‍💻 Better technology
⚡ Faster time to close
📅 No seasoning

How to apply for a DSCR loan

Applying for a DSCR loan has never been easier. Submit our DSCR loan application for an instant quote and download your pre approval letter in minutes. We do not pull your credit when you submit your application, that is only done once you e-sign our credit release authorization, a later step in our processing once you confirm your intent to proceed with OfferMarket as your DSCR lender.

See how much you qualify for, get your instant DSCR loan quote today!