Nadlan Capital Group – Financing For Foreign Investors in the US Market
Residential & Commercial Multi-Family Loans
Debt Service Coverage Ratio (DSCR) loans can be used for both residential and multifamily properties, but there are some key differences between the two types of properties that may affect the loan terms and considerations.
Here's a Comparison
Residential Properties
DSCR Loan Use
DSCR loans for residential properties are often used by real estate investors or homeowners who want to leverage the property for rental income.
Income Source
The primary income source for a residential property is usually rental income from a single tenant (if rented out) or the occupant's mortgage payments.
Loan Considerations
DSCR loans for residential properties may have different qualification criteria compared to multifamily properties. Lenders may focus more on the borrower's personal income and creditworthiness.
Multifamily Properties
Property type
Multifamily properties consist of multiple housing units within a single building or complex. Examples include duplexes, triplexes, apartment buildings, and other structures that accommodate multiple families or tenants. 5 Units & Up.
DSCR Loan Use
DSCR loans for multifamily properties are designed to finance income-generating properties with rental income from multiple tenants.
Income Source
The income from multifamily properties comes from the rental payments of multiple tenants. The diversification of income from different units can contribute to a more stable cash flow.
Loan Considerations
DSCR loans for multifamily properties may consider the overall cash flow of the property, taking into account rental income from multiple units. Lenders often look at the property’s ability to generate enough income to cover debt service payments.
Key Considerations for DSCR Loans in Both Cases
DSCR Calculation
DSCR is calculated as Net Operating Income (NOI) divided by the total debt service (loan payments). Both residential and multifamily properties will undergo this calculation, but the components of NOI may differ.
Loan Terms
Loan terms for DSCR loans, such as interest rates, loan amounts, and amortization periods, can vary based on the property type and the lender’s policies.
Risk Assessment
Lenders assess the risk associated with the property and the borrower’s ability to meet debt service obligations. Multifamily properties may be perceived as having a more stable income stream due to multiple tenants.
When seeking a DSCR loan, it's crucial to work with lenders familiar with the specific property type and to carefully consider the property's income potential and associated expenses. Lenders will evaluate the property's financial performance and the borrower's qualifications to determine loan terms and eligibility.