The Scenario
An experienced investor wanted to cash out equity from their current investment property to renovate a newly acquired distressed rental property. With a solid 728 FICO score and an attractive low-rate first mortgage already in place, they preferred not to refinance the entire loan. Instead, they pursued a second mortgage solution.
The challenge? Based on their tax returns, their debt-to-income (DTI) ratio was 56%, which would typically pose a significant obstacle to traditional lending options.
The Non-QM Solution: DSCR Second Mortgage
Enter the Debt Service Coverage Ratio (DSCR) Second Mortgage, an innovative alternative that doesn’t rely on personal income or employment verification. Instead, it uses the rental income from the subject property to determine eligibility.
In this case, we qualified the borrower based on the property’s cash flow, using the lesser of the lease agreement or market rent from the appraisal. The income from the property covered both the existing first mortgage and the new second mortgage, meeting the DSCR requirement with room to spare.
The result?
- The borrower kept their low-rate first mortgage intact
- Secured the cash out needed to renovate the second property
- And is now preparing to bring a refreshed rental to market
DSCR Second Mortgage Highlights
- Loan Amounts: $75,000 to $500,000
- Minimum DSCR: >1.00
- Minimum FICO: 680
- Maximum CLTV: 80%
Contact us for information about our DSCR second mortgage option.
