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DSCR Loan New Jersey
Last updated: May 2, 2024
If you're in the process of financing the purchase or refi of a rental property in New Jersey, this resource is for you. DSCR loans have quickly become the go-to financing option for rental property investors nationwide -- and for good reason. In this article we will share market-specific insights, best practices and guidelines to help you grow and optimize your New Jersey rental property portfolio.
DSCR Loan NJ Program Guidelines
- Minimum As Is value: $100,000 (single asset loan), $71,500 (portfolio loan)
- Minimum loan amount: $55,000 (single asset loan), $50,000 (portfolio loan)
- Minimum credit score: 660
- Minimum mortgage experience: 1 (24 months of history)
- Minimum credit lines: 3 (12+ months of history)
- Minimum guarantor experience: 0
- Minimum liquid reserves: 6 to 9 months depending on LTV
- Minimum DSCR: 1.1*
- Borrowing entity: LLC (preferred), Corporation, Trust (must be revocable), Limited Partnership
(*) OfferMarket has a no minimum DSCR option for scenarios where DSCR is below 1.0, LTV can be capped at 70% for purchase and refinance transactions.
DSCR Formula
When you see "DSCR" you can replace it with "cash flow". Ultimately, DSCR, or "debt service coverage ratio" is a cash flow measurement. A DSCR above 1 means your rental property generates cash flow above your mortgage payment while a DSCR below 1 means your property loses money.
Did you know that DSCR does not factor in maintenance, property management or vacancy? There's a lot to be said for a rental property with a high DSCR that can generate you free cash flow month-in, month-out in nearly every scenario. If you're comfortable with a low DSCR, you should be prepared to weather months of losses due to unplanned maintenance, vacancy and periods of soft market rent conditions.
DSCR Loan NJ Requirements
The core requirements for DSCR loans are consistent nationwide:
- Non-rural properties: based on USDA Rural Development and CFPB Rural and Underserved Areas designations, appraiser neighborhood characteristics, population
- Trimerge credit score: mid score of 660 or higher across Experian, Equifax and Transunion
- Liquidity verification: cash to close + up to 9 months of mortgage payments in reserves, generally your 2 most recent bank, brokerage and/or retirement accounts with letter of explanation for large deposits
- Purchase contract: $100,000+ net of seller credits
- Appraisal: $100,000+ As Is value, market rent opinion
- Background check: no derogatory housing events -- eviction, foreclosure -- in the last 36 months, no bankruptcy in the last 36 months, no concerning felonies or misdemeanors
- Borrowing entity documentation: vast majority of rental investors use LLC which entails Articles of Organization, Operating Agreement, Certificate of Good Standing, IRS EIN Letter, IRS W-9
- Title Work: Commitment, Closing Protection Letter, 24 Month Chain of Title, Settlement Statement (HUD-1 or ALTA)
DSCR Loan Interest Rates NJ
DSCR loan interest rates can be affected by the market in which the property is located. New Jersey is viewed by DSCR lenders as a favorable market so you can expect competitive a competitive quote from your DSCR lender.
New Jersey Rental Markets for DSCR Loans
There are many non-rural markets in New Jersey that are not in decline, which means there are many markets in New Jersey where a DSCR loan is an attractive financing tool for your rental property. Here are some of the larger markets where DSCR loans are most prevalent:
| City | County | Population | Annual Population Growth Rate | Median Home Price | Median Market Rent |
|---|---|---|---|---|---|
| Newark | Essex | 281,054 | 0.2% | $349,000 | $1,350 |
| Jersey City | Hudson | 262,600 | 0.7% | $560,000 | $1,800 |
| Paterson | Passaic | 147,070 | 0.1% | $350,000 | $1,250 |
| Elizabeth | Union | 129,480 | 0.4% | $380,000 | $1,450 |
| Edison | Middlesex | 103,310 | 0.6% | $425,000 | $1,700 |
| Woodbridge | Middlesex | 101,030 | 0.5% | $350,000 | $1,600 |
| Lakewood | Ocean | 99,930 | 1.2% | $400,000 | $1,450 |
| Toms River | Ocean | 92,170 | 0.3% | $325,000 | $1,350 |
| Hamilton | Mercer | 91,110 | 0.4% | $330,000 | $1,400 |
| Trenton | Mercer | 90,870 | 0.1% | $210,000 | $1,150 |
New Jersey Property Tax Rate
Property tax directly affects the DSCR or cash flow of your rental property. Unfortunately, the state of New Jersey has the highest property tax rate of all states at just above 2%, and slightly higher in more metropolitan sub markets. That doesn't mean New Jersey isn't a great place to invest in rental properties, it's just something to consider as you refine your investing strategy. Landlords are generally able to pass on increases in property tax to tenants with rent increases. High property tax in an environment of high interest rates, further reduces home affordability. While this scenario can benefit landlords as more people are forced to rent, it can also cause would-be homebuyers to migrate to other markets.
