If you're looking to purchase a mixed-use property that has both residential and commercial space, you may be wondering if you can qualify for a debt service coverage ratio (DSCR) loan. In this blog post, we'll explore whether DSCR loans are an option for mixed-use properties and what you need to know to secure financing.
Understanding DSCR Loans
First, let's define what a DSCR loan is. A DSCR loan is a type of commercial real estate loan that looks at the property's cash flow to determine if the borrower can afford to repay the loan. The lender will calculate the property's debt service coverage ratio, which is the property's net operating income divided by its debt service. The net operating income is the property's income minus its expenses, excluding the mortgage payment.
Qualifying for DSCR Loans on Mixed-Use Properties
If you're looking to purchase a mixed-use property, the good news is that you may be able to qualify for a DSCR loan. However, there are a few factors to consider.
The most important factor is the percentage of residential space in the property. As long as the residential component makes up at least 51% of the property's total square footage, you should be able to find DSCR lenders who offer mixed-use loans. This is because lenders typically consider the residential component of a mixed-use property to be less risky than the commercial component.
If the residential component is less than 51%, there are still financing options available, but they may be less favorable. You may need to bring in more equity to secure the loan, and the loan-to-value (LTV) ratio may be lower than what you would get with a DSCR loan on a property with more residential space.
Working with a DSCR Lender
If you're interested in pursuing a DSCR loan for a mixed-use property, it's important to work with a lender who has experience with these types of loans. Look for lenders who specialize in commercial real estate loans and have a track record of financing mixed-use properties.
When you apply for a DSCR loan, you'll need to provide the lender with detailed information about the property's cash flow, including its income and expenses. You'll also need to demonstrate that you have the financial capacity to repay the loan.
In conclusion, if you're looking to purchase a mixed-use property with both residential and commercial space, you may be able to qualify for a DSCR loan. The key is to ensure that the residential component makes up at least 51% of the property's total square footage. If you're self-employed and can't go to a bank, there are DSCR lenders who may be able to help. Just be sure to work with a lender who has experience with mixed-use properties and can guide you through the financing process.