DSCR Loans in California: Requirements, Rates, & Benefits | Griffin Funding (2024)

What Is a California DSCR Loan?

Rental property loans in California can be difficult to secure loans for, especially if you don’t have W-2s and pay stubs that you can use to prove your income. For real estate investors who want to qualify based on rental income, non-QM loans like California DSCR loans are an excellent alternative. Non-QM loans are designed for borrowers who can’t meet the criteria to secure a traditional mortgage for one reason or another.

Debt service coverage ratio (DSCR) is a number used to compare your annual rental income with the annual debt obligations of the property you want to invest in. If you’re making enough or more than enough in rental income to pay for your mortgage, lenders know it’s safe to loan you money. DSCR is used to determine the risk of a mortgage loan without using W-2s, pay stubs, and tax returns. A minimum credit score is required.

Advantages of California DSCR Loans

If you can’t seem to secure a loan to invest in another rental property, a California DSCR loan may be your best bet. While DSCR loans in California aren’t right for everybody, they offer some distinct advantages over traditional California home loans. Flexibility is what really makes DSCR loans a great option for real estate investors, particularly those who want to invest in several properties. Here are some of the benefits of DSCR loans in CA:

• Closing times may be quicker
• You don’t have to verify your job or income history
• DSCR loans work for both new and experienced investors
• These loans can be used for long-term and short-term rentals
• No reserves for cashout loans, 6 months reserves required on other loans (unless DSCR ratio is below 1)
• Loan amounts up to $5,000,000
• Unlimited number of properties

Unsure whether a California debt service coverage ratio loan is the right fit for your needs? Our loan specialists can help—call us at (855) 394-8288.

How Is DSCR Calculated?

Like asset-based loans depend on your current assets, DSCR loans depend on your debt service coverage ratio. Your debt service coverage ratio basically describes how much rental income you’re bringing in versus your debt obligations for a property. Consider using our DSCR calculator to help you determine if you qualify for the loan. Here’s a further step-by-step explanation of how DSCR lenders calculate DSCR to determine who’s eligible for DSCR loans in California:

1. Firstly, a lender will determine your gross rental income by looking at your lease agreement and having an appraiser use a Single-Family Comparable Rent Schedule (Form 1007) to estimate your rental rate, then choosing the lower of the two numbers. You can also use 12 months of rental income history to qualify instead of using an appraiser. It depends on how much documentation you want the responsibility of providing.
2. The next step is finding your annual debt, which is the amount you must pay each year for a rental property. For loan qualification purposes, the annual debt includes principal, interest, taxes, insurance, and HOA fees (if applicable). This is the number you have to pay annually to maintain the rental property.
3. The last step is dividing your annual rental income by your annual debt to find your DSCR. If the two numbers are the same, you have a DSCR of 1, if your income is twice as much as your annual debt, you have a DSCR of 2, and so on.

What Is a Good DSCR Ratio?

To qualify for a DSCR loan, lenders will require that you meet a certain DSCR threshold. Generally, a DSCR ratio of 1 means you have enough rental income to repay your loan. A good DSCR ratio above 1 indicates a stronger ability for repayment and that the property is generating income.

At Griffin Funding, we offer DSCR loans to borrowers with a DSCR higher than 0.75. However, it’s important to keep in mind that 12 months of reserves are required for loans with a DSCR below 1, so you’ll need cash or other liquid assets that you can quickly access. In some cases, Griffin Funding will lend on no ratio DSCR loans with a larger down payment.

Even if you don’t qualify for a debt service coverage ratio loan in California, Griffin Funding offers other types of loans you may be interested in. Bank statement loans are a solid option for individuals who can’t qualify using tax returns and pay stubs but can qualify using bank statements that show a proven history of deposits.

What Are the Requirements for a DSCR Loan in California?

While rules and requirements for some types of loans vary quite a bit from state to state, California DSCR loans are more or less the same as DSCR loans in any other state. The key requirements for a DSCR loan in California include:

• Minimum DSCR of 0.75 (or less than 0.75 with a larger down payment)
• Minimum down payment of 20%
• Minimum credit score of 620
• Minimum loan amount of $100,000
• Property must undergo an appraisal
• Must be used to finance an income-generating investment property

Your DSCR ratio is the main requirement when it comes to securing a DSCR loan. You don’t have to worry about providing prior tax returns, pay stubs, or W-2s as long as you meet the minimum DSCR requirements for a loan in California. In addition to creating opportunities for investors, this also makes DSCR loans a simpler option for many borrowers.

What Down Payment is Required for a DSCR loan?

As with typical mortgages, you’ll have to make a down payment for a DSCR loan. Down payments reduce the risk that the lender is taking by providing a large sum of money to allow you to buy property. The lowest down payment accepted for a DSCR loan through Griffin Funding is 20%.

If you’re not planning on investing in multiple rental properties but you can’t secure a traditional mortgage, our other non-QM loans like our asset-based loans, jumbo loans, and recent credit event loans are other alternatives with flexible requirements.

Areas We Serve

If a DSCR loan seems like a good fit for you, we can help you get the process started. Whether you want to get a rental property in LA or invest in San Diego real estate, Griffin Funding has you covered. We serve the following areas and more:

Apply for a California DSCR Loan Today

Real estate investments are a great way to build wealth in California, but securing a loan for expensive California homes can be tough. With a DSCR loan from Griffin Funding, you can get the capital you need to invest in rental properties without having to worry about W-2s, pay stubs, and tax returns. Download the Griffin Gold app for personalized tools to help you achieve your real estate goals. You can call Griffin Funding at (855) 394-8288 to learn more about California DSCR loans, or apply for a DSCR loan today.

Frequently Asked Questions: DSCR Loans in California

Is it hard to get a DSCR loan in California?

Approval for a DSCR loan in California depends on various factors, such as creditworthiness, the property’s cash flow, your ability to make a down payment, and current market conditions. If you have a DSCR ratio of 1 or higher then you are more likely to be approved for a DSCR loan in California, as this demonstrates to the lender that you’re able to repay the loan. However, keep in mind that Griffin Funding will accept a DSCR ratio as low as 0.75 and in some cases a no ratio DSCR.

When applying for a DSCR loan in California, make sure to carefully review the qualification requirements and prepare any necessary documentation ahead of time. Consult with a Griffin Funding specialist to review all factors and determine your eligibility for a DSCR loan in California.

Can I live in a home that I buy with a DSCR loan?

No, DSCR loans can only be used to purchase income-generating properties. This type of financing is suited for real estate investors rather than those seeking out a primary residence.

If you are searching for a home to live in, consider other mortgage options, such as traditional home loans, which can be used to secure a primary residence. If you’re wondering whether a DSCR loan in California is right for you or you want to explore other mortgage options, reach out to Griffin Funding today. Our loan specialists can walk you through current DSCR loan requirements and rates in California or suggest other types of home loans for your situation.

How long does it take to get a DSCR loan in California?

The process for obtaining a DSCR loan in California is typically faster than other types of investment loans. Without having to submit personal financial information, the application and underwriting process is more streamlined and straightforward. Once approved, the loan amount is funded and quickly deposited into your account.

At Griffin Funding, we aim to close on California DSCR loans in 30 days or less, however the exact timeline will vary based on factors like the complexity of the loan, the loan amount, and whether the borrower and property being financed meet all qualifications.