DSCR Loan Nebraska

Last updated: April 10, 2024

DSCR loans are the fastest growing financing method for rental property investors in Nebraska, and for good reason. This article will share DSCR loan insights specific to Nebraska and will serve as your guide to evaluate this powerful financing strategy to grow your rental property portfolio.

Nebraska DSCR Loan Rates

DSCR loan interest rates for 1-4 unit rental properties in Nebraska are in line with the most competitive markets in the country.

What is a DSCR loan?

Debt Service Coverage Ratio (DSCR) loans, DSCR loans, are a type of non-qualified mortgage loan that is primarily used by real estate investors to finance the purchase or refinance of investment properties.

Unlike traditional mortgages, which focus on the borrower's income and credit score, DSCR loans are underwritten based on the property's ability to generate sufficient rental income to cover the mortgage payment and other associated expenses. The lender calculates the DSCR by dividing the property's expected gross rental income by the total monthly debt service, including the mortgage payment, taxes, insurance, and any other required expenses.

DSCR loans are particularly attractive for real estate investors because they allow for more flexible underwriting criteria, such as higher loan-to-value ratios, lower credit score requirements, and the ability to use the property's rental income rather than the borrower's personal income for qualification purposes.

Some key features of DSCR loans include:

1. Loan qualification based on property performance: the lender evaluates the property's rental income potential and expenses to determine the DSCR, which typically needs to be above a certain threshold (e.g., 1.1).

2. Higher loan-to-value ratios: DSCR loans allow higher LTV ratios than traditional banks, generally up to 80% LTV for a purchase and 75% for a cash out refinance.

3. Flexible credit score requirements: while a good credit score is still preferred, DSCR lenders may allow a credit score as low as 620.

4. Interest-only options: many DSCR loan programs include interest-only payment options, which boosts cash flow, DSCR and LTV.

5. No personal income documentation: DSCR lenders should never ask you for W-2 income, pay stubs, or tax returns. For this reason, DSCR loans are ideal for self-employed real estate investors.

Should I get a DSCR loan?

DSCR loans can be an excellent financing option for rental property investors in Nebraska. Here are a few key reasons why:

Strong rental market in Nebraska: many cities in Nebraska, including Omaha and Lincoln have robust rental markets with strong occupancy rates and rental income potential. This makes them well-suited for DSCR loans, which rely heavily on the property's ability to cash flow at DSCR loan program max LTV.

Competitive property prices: compared to some other parts of the country, property prices in Nebraska are generally more affordable. This can make it easier for investors to meet the DSCR requirements set by lenders, as the mortgage payments will be lower relative to the expected rental income.

Availability of DSCR lenders: many national and regional lenders offer DSCR loan programs for investment properties, and these loans are typically available in Nebraska. This gives investors a range of options to choose from when seeking DSCR financing.

Investor-friendly market: Nebraska is generally considered a landlord-friendly state, with relatively straightforward landlord-tenant laws and eviction processes. This can be attractive for investors who plan to use DSCR loans to build a portfolio of rental properties in the state.

Nebraska DSCR loan market overview

Housing Costs -- Nebraska has relatively affordable housing costs compared to many other states.

Strong Rental Markets -- The major metro areas like Omaha and Lincoln tend to have strong rental markets driven by factors like job opportunities, universities, and affordable living costs that attract renters.

Landlord-Tenant Laws -- Nebraska landlord-tenant laws are generally considered landlord-friendly. There are no statewide rent control policies and landlords can increase rent with proper notice.

Property Taxes -- Nebraska has relatively high property tax rates compared to national averages which does negatively impact DSCR and is something to consider when selecting a rental market to focus on.

Economic Drivers -- Nebraska's economy is strong with unemployment well below the national average. Core economic sectors include agriculture, manufacturing, finance, transportation and logistics.

Cash Flow Potential -- With affordable purchase prices and strong rental rates, cash flow returns on Nebraska rental properties can be attractive if managed properly.

Management Companies -- Reputable professional property management companies are available in the major markets to handle day-to-day operations.

Notes:

• Market rent is based on 3 bedroom single family homes
• Crime score noed above is based on data from the FBI (1 = lowest, 5 = highest)

Nebraska DSCR loan pros and cons

Using DSCR loans to grow your rental property portfolio in Nebraska can have both advantages and disadvantages. Here are some key pros and cons to consider:

Pros:

1. Easier qualification: DSCR loans are primarily based on the property's rental income potential rather than the borrower's personal income or employment history. This can make it easier for real estate investors to qualify for financing, especially if they have limited traditional income sources.

2. Higher leverage: DSCR lenders offer LTV up to 80% which can enable your to acquire properties with less upfront capital, potentially accelerating your portfolio growth.

3. Interest-only options: many DSCR loans offer interest-only payment options, which can improve cash flow and help investors reinvest more funds into additional properties.

4. Flexible underwriting: DSCR lenders may have more relaxed credit score requirements and accept alternative forms of income documentation, making the process more accessible for self-employed or non-traditional borrowers.

5. Portfolio segregation: Since DSCR loans are based on the property's performance, investors can potentially keep their personal and investment finances separate, which can be advantageous for tax and liability purposes.

Cons:

1. Higher interest rates: DSCR loans typically carry (slightly) higher interest rates compared to traditional mortgages, which can increase borrowing costs and reduce overall returns.

2. Cash reserve requirements: DSCR lenders verify borrower liquidity to make sure the borrower has enough funds to cover the down payment, closing costs, and up to 9 months of reserves (12 months for foreign nationals).

3. Loan purpose: DSCR loans are business purpose loans and the borrower will sign an affidavit of business purpose which is a written declaration under oath that the subject property will be operated as a residential investment property and that neither themselves not their family will use the property as a personal residence.

4. Shenanigans: The DSCR loan industry is fast growing and loosely regulated, attracting loan brokers, private lenders and salesmen who are not knowledgable about program guidelines, not expert in structuring your loan to meet your specific goals, not capable of closing your loan in a timely manner, and not truthful or transparent about loan terms.

At OfferMarket, you can expect the most competitive term sheet, expert loan structuring, streamlined processing and complete transparency from your instant quote to your settlement statement at the closing table.

Credit score for Nebraska DSCR loan

Credit score requirements for DSCR loans in Nebraska can vary depending on the specific lender and loan program. Here are some general guidelines for the credit scores typically required:

1. Competitive terms

To qualify for the most competitive DSCR loan terms -- interest rate, LTV -- you should have a credit score of 720 or higher. Many lenders reserve their best terms for borrowers with credit scores of 740 or higher.

The minimum credit score to qualify for the best DSCR loan programs is 680, with some institutional investors willing to buy DSCR loans for borrowers with credit scores at 660 or even as low as 620.

As a rule of thumb, the lower your credit score, the lower your LTV and the higher your interest rate.

To increase your chances of qualifying for a DSCR loan in Nebraska with a lower credit score, it's recommended to work with an experienced DSCR lender who specializes in non-QM and investor loans. They can help you identify the most suitable loan programs and lenders based on your specific credit profile and investment goals.