If you have a cash-flowing rental property, there may be no point in verifying personal income if you want to refinance. A Debt Service Coverage Ratio (DSCR) refinance loan approves a rate/term or cash-out refinance based on the property’s cash flow, not your employment income.
This refinance loan opens up opportunities for real estate investors, especially those who are self-employed, full-time investors, or have hard-to-document personal income.
Here’s how to put a DSCR refinance to work for you.
1. Replace short-term financing
If you’re a BRRRR investor (buy, rehab, rent, refi, repeat), you already know you must get short-term financing for the rehab stage if you don’t have cash.
But short-term loans have high rates and short fuses. You need to replace them with a long-term fixed loan to truly stabilize the property.
Once you’ve owned the property 3-6 months, and found a renter, you may qualify for a refinance based on the new value. A 30-year fixed DSCR loan can pay off a hard-money loan and even let you tap into additional equity for the next deal.
There are even some lenders who will allow a DSCR refinance with no seasoning.
2. Get a better rate
No matter what kind of loan you have on your rental currently, a DSCR loan can replace it. In some cases, you can drop your rate and payment to increase cash flow.
For example, if you have a loan at 10%, and today’s DSCR rates are 8%-9% as an example, you could get a lower payment. You could even drop your rate and take additional cash out simultaneously.
