Last updated: November 1, 2023
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 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.
|OfferMarket||Other New York DSCR Lenders|
|Interest Rate||Get Instant Quote||Get Instant Quote|
|LTV Rate and Term Refi||80%||75%|
|LTV Cash Out Refi||75%||70%|
|Minimum Credit Score||660||680|
|Appraisal||Direct (save $250)||AMC (waste $250)|
|Origination Fee||0.5% to 1%||2% to 3%|
|Time To Close||15 - 25 Days||30 - 60 Days|
|Processing||Online, Fast||Manual, Slow|
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.
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.
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.
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.
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.
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.
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 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
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 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 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.
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.
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.
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:
|New York City||8,992,900||Bronx County (Bronx), Kings County (Brooklyn), New York County (Manhattan), Queens County (Queens), Richmond County (Staten Island)|
|New Rochelle||80,500||Westchester County|
|Mount Vernon||75,900||Westchester County|
|White Plains||60,400||Westchester County|
|Niagara Falls||48,200||Niagara County|
|West Seneca||45,700||Erie County|
|West Babylon||43,200||Suffolk County|
|Valley Stream||41,600||Nassau County|
|East Meadow||37,700||Nassau County|
|Central Islip||37,400||Suffolk County|
|Kiryas Joel||36,800||Orange County|
|Long Beach||35,600||Nassau County|
|Huntington Station||35,400||Suffolk County|
|New City||34,300||Rockland County|
|Spring Valley||33,600||Rockland County|
|Port Chester||32,500||Westchester County|
|Franklin Square||31,400||Nassau County|
|North Tonawanda||30,200||Niagara County|
|Bay Shore||30,100||Suffolk County|
|Deer Park||29,200||Suffolk County|
|Saratoga Springs||29,100||Saratoga County|
|Glen Cove||28,800||Nassau County|
|West Islip||26,700||Suffolk County|
|Rockville Centre||26,600||Nassau County|
|Dix Hills||26,000||Suffolk County|
|Garden City||23,500||Nassau County|
|East Patchogue||21,300||Suffolk County|
|North Bellmore||20,800||Nassau County|
|East Northport||20,000||Suffolk County|
|Stony Brook||13,400||Suffolk County|
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
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!