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Full Doc Loans vs. DSCR Loans: What’s the Difference?

August 30, 2023

When it comes to financing properties, your clients have a wide range of options to choose from for their mortgage loan.

But two main loan types you’ll likely come across are Full Doc loans and Rental Property Cash Flow loans. Full Doc loans are generally used for home purchases or refinancing. While they require extensive documentation, borrowers can often qualify for lower interest rates and take advantage of favorable loan terms. On the other hand, if you’re working with real estate investors, you’ll want to consider Rental Property Cash Flow loans, also known as Debt-Service-Coverage-Ratio (DSCR) loans. This type of mortgage loan is designed to give investors an alternative way to secure financing based on the property’s monthly cash flow, and not their personal income documentation.

Need a quick refresher? Here’s a breakdown of everything you need to know about these two mortgage solutions. What they are, who they’re for, and most importantly, which one makes the most sense for your customers.

Full Doc Loans Explained
As the name suggests, Full Doc loans require borrowers to submit a comprehensive list of documentation to qualify for financing.

Typically, a lender will ask for 1 or 2 years of W2s along with recent pay stubs. If you’re working with self-employed clients, they have the option to submit 1 or 2 years of 1040s plus 1 or 2 years of either business tax returns or 1099s. Keep in mind – you can secure a better rate when your borrower provides two years of documents rather than one.

While the process may be long and thorough, the payoff is worth it because borrowers can take advantage of lower rates. This type of mortgage is generally for creditworthy homebuyers with a strong financial history and high credit scores. Here’s a list of pros and cons for this type of financing:

Pros Cons
✔️ Lower down payments

✔️ Lower interest rates

 ✔️ Strict documentation requirements

✔️ Longer transaction process

DSCR Loans Explained:
DSCR loans are an alternative financing solution that allows investors to secure a mortgage loan for 1-8-unit properties without having to provide W2s or other income documentation. Instead, they can use the property’s cash flow as proof of income. With this option, lenders can determine whether your clients have the ability to make their mortgage payments.

The process is easy – with our Rental Property Cash Flow program, our team of loan experts will perform a DSCR-based commercial underwrite to determine the property’s cash flow. Here’s a look at the calculation that is used:

The property’s net operating income (NOI) is analyzed and compared to the debt service (loan payments). If the NOI is higher, your client can easily qualify for a loan. These loans are ideal for new or seasoned real estate investors who want to secure their next income-generating property without strict income requirements.

Here’s a quick video on how the process works at LendSure. Like with any loan solution, there are pros and cons. Below is a list of key benefits and drawbacks of this program:

Pros Cons
✔️No tax returns or income docs required

✔️Faster transaction process

 ✔️ Higher interest rates

✔️ Larger down payment

Which one makes sense for your mortgage business?

Both Rental Property Cash Flow loans and Full Doc loans are strong options for today’s borrowers. Depending on your clients’ specific mortgage needs, you can determine which makes the most sense.

One thing is for sure – if you want to get ahead of the competition, it’s crucial you offer clients a wide range of mortgage solutions for all their financing needs. That way you can become a go-to mortgage pro for investors and borrowers across the country.

The LendSure Way
It’s simple. We make loans that make sense. We’re not in-the-box lenders. Of course, there are numbers and ratios, and data to consider, but we know that behind every file, there’s an individual with unique circumstances seeking a loan. We work hard to offer our commonsense take on lending to borrowers seeking funding for the home of their dreams, another addition to their investment property portfolio, or refinancing of a currently owned property.

Are you ready to grow your business? Conforming loan approval guidelines can be restrictive, but we want to offer our mortgage broker partners the education, tools, support, and guidance they need in order to say “yes” to more of their clients. This ensures happy borrowers and opportunities for bottom-line growth. What are you waiting for? Let’s get started!

Are you ready to benefit from a commonsense approach to lending? Contact us today to learn more about non-QM loans and how partnering with LendSure Mortgage Corp. can help grow your bottom line.

Contact Us: (888) 707-7811