Many real estate investors have been shut out of the red hot mortgage market over the past few years.  Traditional mortgage programs require multiple layers of documentation.  Mortgages for investment properties have also been more heavily scrutinized compared to a non investor standard mortgage.

Over the past few years, rental properties have been scooped up by large corporations and hedge funds.  The large scale investors understand that while real estate prices can be volatile in the short term – over the long term real estate is a safe investment over the past 100+ years.  Over that 100+ year timeframe, real estate has been one of the top wealth builders of any assest class.

Is Appreciation The Only Reason Large Funds Have Jumped Head First Into Real Estate?

Real Estate appreciation is a long term wealth builder but it is not the only reason hedge funds dove into the real estate game.  In conjunction with recent property value spikes, rents have increased at record rates.  There are no signs that rents will decrease in the foresable future.  The corporations that have been heavy into real estate understand that inevitably property values will fall from recent historic highs; however rents will still remain stable or continue to increase.

Have Mom & Pop Real Estate Investors Been Shut Out of the Market?

It has not only been hedge funds and large real estate corporations that have been able to take advantage of the real estate market over the past few years.  Small individuals investors have been able to buy rental properties; however generally on a much smaller scale.

As an individual investor, the competition for investment properties have been fierce. Not only did individual investors have to complete with big money hedge funds, but also smaller cash-only investors.  Mom and pop investors, who were unable to purchase an investment property with all cash were often shut out.

In some cases, these smaller ivestors had the ability to document their income to qualify for a mortgage.  The issue that many of these investors ran into is the lenght of time it took to complete the documentation and close on the mortgage.  Often a property seller would opt into the all cash offer to avoid any possibility of a long drawn out mortgage process.

New Mortgage Options for Seasoned Mortgage Investors

Over the last year, some lenders have come up with a product that is a great fit for seasoned real estate investors.  This mortgage product is know as a DSCR mortgage.  A DSCR mortgage is also known as a Non QM (Qualified Mortgage).  The DSCR is a great mortgage option for seasoned individual real estate investors.

What Is A Non QM Mortgage?

In the mortgage world there are two types of mortgages.  A Qualified Mortgage and a Non Qualified Mortgage.  A Qualified Mortgage is any mortgage that among other things considers documentable income for approval.  Generally a Qualified Mortgage meets guidelines set by Fannie Mae/Freddie Mac and/or the FHA, VA or USDA.

Can A Real Estate Investor  Get A Qualified Mortgage?

The simple answer is yes!  A real estate investor get approved for Qualified Mortgages.  These clients, however, are required to provide 2-3 tax returns.  In additon to complete tax returns with all schedules other required documentation includes:

• Current lease agreements for all properties owned
• Recent mortgage statement for any current owned properties with a mortgage
• Recent property tax bill for all properties currently owned
• Homeowners Insurance Declaration Page for all properties owned
• Letter from CPA stating lenght of time you have been a real estate investor

The above is just a small sample of the documentation that may be asked for in the process.  Providing the documenation is just one step in the process.  Once an underwriter reviews your documentation they will scrutinize every line of your schedule E.

The DSCR a Non Qualified Mortgage That is Ideal For Real Estate Investors.

A DSCR mortgage (Debt Service Coverage Ration) is a Non Qualified Mortgage.  In a nutshell, on a DSCR mortgage the anticipated rent from the subject property need to cover the full monthly housing payment.  The full monthly housing payments consists of mortgage principal and interest, property taxes and homeowners insurance.  Depending on the property type the full monthly housing payment may also include homeowners association dues and flood insurance among other items.

On a DSCR mortgage, the lender just needs to confirm that the monthly rent will cover the total monthly payment.  The client does not need to provide income documentation.  The lender will not look at paystubs or W’2’s.  They will not ask for endless tax return documentation, nor scrutinize every line of every page of federal tax returns.  The DSCR mortgage is a simple process that helps make you more competative in a very competative market.

What’s The Catch with DSCR?

Compared to qualification on standard investment property loans, there isn’t much of a catch.  Mortgage options do vary somewhat based on down payment, credit score, loan amount, and the state the property where the property is located.  The great news is that there are options available with a 20% down payment on a purchase or 20% equity for a refinance.

The 20% downpayment re