In Delaware’s booming real estate market, the rental market is like a goldmine for real estate investors. With a prime 3.6% vacancy rate in 2023 – the 6th lowest in the U.S. – coupled with the 11th highest rent prices in the country in 2024, demand for housing in the First State has never been higher.
If those numbers didn’t impress you, what’s even more outstanding is that the average fair market rent for a 2-bedroom apartment skyrocketed by 17% between 2023 and 2024. It’s never been a better time to get started in real estate investing or expand your portfolio with a DSCR loan Delaware.
In this guide, we’ll cover what you need to know to capitalize on this opportunity and how a DSCR loan Delaware can be your ticket to securing high-performing investment properties. Use rental income to back your financing and help you grow in one of the country’s most competitive markets.
Introduction to DSCR Loans
First, let’s cover the fundamentals of DSCR loans to give you a better idea of what they are and how they work.
What Is a DSCR Loan?
A DSCR loan, or debt-service coverage ratio loan for short, is a type of financing designed for real estate investors that focuses on the property’s income instead of the borrower’s personal income. Lenders check to see if the property can essentially “pay for itself” by covering its loan payments with the rental income it generates.
DSCR loans are considered non-QM (non-qualified mortgage) loans, which means they don’t have to meet the strict lending requirements set by the Consumer Financial Protection Bureau (CFPB). Since DSCR loans focus on the property’s financial performance, it makes them much more accessible for real estate investors who might not qualify for traditional loans.
Calculating DSCR
To calculate DSCR, you’ll need to have your property’s annual income, operating expenses, and loan payments. First, subtract the operating expenses from the income to determine the property’s net operating income (NOI). Then, divide this number by the annual loan payments. The simplified formula is:
If the DSCR is 1 or higher, it means that the property is making enough to cover its loan payments. Most lenders consider a DSCR of 1.25 or higher to be a strong DSCR, but some lenders, like us at Defy, accept DSCRs as low as 0.75.
Improving Your DSCR
If your property’s DSCR isn’t as high as you’d like it to be there are a few ways you can try to improve it before applying for a DSCR loan Delaware:
- Increase rental income by raising rent or introducing extra charges
- Add value to the property to aise rent or attract higher-paying tenants
- Reduce operating expenses by negotiating better deals with contractors or service providers
- Refinance at a lower interest rate to reduce annual debt service amount
DSCR Loan Delaware Interest Rates
Interest rates for DSCR loans tend to be slightly higher than conventional rates, but this trade-off is worth it for many investors who aren’t able to qualify for traditional loans. The exact interest rate you may be offered for a DSCR loan depends on the lender, your credit score, and current market interest rates.
DSCR Loan Delaware Down Payment
DSCR loan down payments can vary from anywhere between 15-30% depending on the lender and their requirements. At Defy, we require a minimum down payment of 15% of the property’s value.
DSCR Loan Delaware Pros and Cons
Pros:
- No tax returns or other personal income documents required
- Use the property’s rental income to qualify
- Expand your real estate portfolio without having your personal income limit loan approvals
- Typically faster approval process
Cons:
- Limited availability
- Potential to be overleveraged
- Cash flow issues such as unexpected repairs or vacancies can make it difficult to make loan payments
Getting a DSCR Loan in Delaware
Securing financing for your Delaware rental property doesn’t have to be difficult. With the right lender, qualifying and applying for a DSCR loan can be relatively simple.
DSCR Loan Delaware Qualification Requirements
Since DSCR loans are considered non-QM loans, this means that each lender can set their own qualification requirements for borrowers. We recommend doing your research or contacting lenders directly to see if you qualify.
To give you an idea of what you might need, here are our DSCR loan requirements at Defy:
- Minimum FICO score of 620+
- Maximum LTV of 85%
- Minimum DSCR ratio of 0.75
- 3 months cash reserve
- No maximum loan amount
- No income documents or tax returns
- Interest-only options available
DSCR Loan Delaware Lenders
While DSCR loans aren’t as widely available as conventional loans, there are still plenty of DSCR lenders out there. Start off with a Google search to browse your options and narrow it down once you find lenders that you’d like to work with. Many lenders now have fully online application processes, making it easier than ever to apply for a DSCR loan from the comfort of your own home.
If you’re ready to build or scale your rental property portfolio, Defy Mortgage is here to help. Not only do we offer DSCR loans but we have plenty of other non-QM loan options that cater to non-traditional borrowers. Book a call with us for a free consultation with one of our mortgage experts or give us a ring at (615) 622-1032.
DSCR Loan Alternatives
DSCR loans are a great way to build your real estate portfolio, but they may not be for everyone. Depending on your circumstances, another non-QM loan option might work best for you. At Defy, we’re proud to offer a selection of loans tailored to our unique borrowers:
- Fix-and-Flip Loans: Get financing to buy a home, renovate it, and sell it for a profit.
- Construction Loans: Get financing to build a new property from the ground-up or for a major renovation.
- Bank Statement Loans: Qualify using your bank statements rather than traditional income documents like W2s, pay stubs, or tax returns.
- Profit & Loss Statement (P&L) Loans: Qualify using your business’ CPA-prepared P&L statements.
DSCR Loan Delaware FAQs:
- What is a DSCR loan, and how does it work in Delaware?
A DSCR loan is a type of financing that allows borrowers to qualify based on whether a rental property’s income can cover its debt payments, rather than personal income. In Delaware, DSCR loans can help real estate investors secure funding by focusing on rental income and eliminating the limitations of their personal income and debt-to-income (DTI) ratio.
- How is DSCR calculated?
You can calculate your property’s DSCR by dividing its net operating income (NOI), which is gross rental income minus operating expenses, by its annual debt service. A DSCR that’s above 1 means that the property generates enough income to cover its debt payments.
- What DSCR ratio do I need to qualify for a DSCR loan in Delaware?
The minimum DSCR ratio you need to qualify will depend on the lender. Generally, a DSCR of 1.25 or higher is considered to be a strong DSCR, however, some lenders, like us at Defy, accept DSCRs as low as 0.75.
- Can I use a DSCR loan in Delaware to finance multiple investment properties?
Yes! You can use DSCR loans to finance multiple investment properties as long as each property meets the lender’s income requirements. Real estate investors can leverage DSCR loans to scale their portfolios in Delaware without their personal income limiting loan approval.
- What are the credit score requirements for a DSCR loan in Delaware?
Most lenders require a minimum credit score of 620 to 680 for a DSCR loan Delaware, but exact requirements vary by lender. At Defy, we require a minimum FICO score of 620 or higher.
- Do I need to provide personal income verification for a DSCR loan in Delaware?
Nope! Personal income verification isn’t required for a DSCR loan since the loan approval is based on the property’s rental income.
- What types of properties can I finance with a DSCR loan in Delaware?
You can finance a wide range of property types with a DSCR loan Delaware, including:
- Single-family homes
- Multifamily properties
- Short-term rentals
- Vacation homes
- Commercial real estate
- Are DSCR loan interest rates higher in Delaware than traditional loans?
DSCR loans generally come with slightly higher interest rates compared to traditional loans, but the trade-off is often worth it for real estate investors who want to expand their portfolios with ease.
- Can I refinance an existing investment property with a DSCR loan in Delaware?
Yes! You can refinance an existing investment property with a DSCR loan Delaware as long as the property meets the lender’s rental income and DSCR requirements.
- What documentation is required to apply for a DSCR loan in Delaware?
Usually, lenders will ask for documents that show the property’s financials like property tax returns, rental income statements, leases, and financial statements for the property.
- What are the down payment requirements for a DSCR loan in Delaware?
Depending on the lender, DSCR loan Delaware down payment requirements can range from 15-30%. At Defy, the minimum down payment required is 15% of the property’s value.
- Are DSCR loans in Delaware available for short-term rental properties like vacation homes?
Yes! Short-term rental properties are usually eligible for DSCR loans as long as the generated income meets the lender’s DSCR requirements.
