DSCR Loans Massachusetts: Growing Your Portfolio Quickly Without Income Verification
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October 2, 2022

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New England’s most populous state offers countless investment property opportunities for almost every budget.

DSCR loans in Massachusetts allow investors the opportunity and flexibility to expand their portfolio without the need to provide income verification.

Submit your DSCR loan scenario.

What’s in this article?

Why get a DSCR loan in Massachusetts?
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How does a DSCR loan work?
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How is DSCR calculated?
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Minimum DSCR to qualify
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Massachusetts DSCR loan guidelines
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DSCR mortgage rates
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5 best areas to invest in Massachusetts
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5 tips for Massachusetts investors
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FAQ
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Submit your DSCR scenario
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Why get a DSCR loan in Massachusetts?

Massachusetts is growing and has experienced a 7.4% population growth reaching more than 7 million over the last decade.

During that same time, housing values almost doubled from $307K in 2012 to $591K today.

Massachusetts’s gross median rent ($1,336) is also above the average national rental price ($1,295), giving potential investors an opportunity for growth.

DSCR loans in Massachusetts use an investment property’s income and payments—not an investor’s personal income—to determine eligibility. It can be a game changer for full-time investors or other borrowers with tax returns that don’t accurately reflect their financial situation.

How does a DSCR loan work?

Most traditional loans require borrowers to provide income and employment verification, including tax returns, pay stubs, W2s, etc. That can be a challenge for investors or anyone with a complex tax return, i.e., many deductions or write-offs.

DSCR loans offer a financing solution that looks at an investment property’s cash flow—not a borrower’s income.

As a result, investment properties with sufficient income to cover mortgage repayment allow investors an opportunity to qualify for a DSCR loan.

See if you’re eligible for a DSCR loan.

How is DSCR calculated?

DSCR is always expressed as a decimal, e.g., 1.25 or 1.25x. Properties with a DSCR of 1.25x have 25% more cash flow than they need to cover the monthly payment.

DSCR = Income / Payment

The higher the DSCR ratio, the more excess funds the property generates. A DSCR of 1.30 has 30% excess income, whereas a DSCR of 1.50 has a 50% income surplus. The opposite is also true. For example, a DSCR of 1.0 breaks even, and a DSCR below 1.0 has negative cash flow.

How to determine DSCR income

DSCR loans use the monthly rental income of residential investment properties.

For commercial properties, DSCR loans use the net operating income (NOI). To calculate NOI subtract operating expenses from gross income.

How to determine DSCR payment

DSCR loans use principal, interest, property taxes, interest, and homeowner association (HOA) fees to calculate the monthly payment amount.

Example: How higher rent can improve DSCR

IncomePaymentDSCR
$5,000$4,5001.11
$6,000$4,5001.33

Example: How lower payment can improve DSCR

IncomePaymentDSCR
$5,000$4,0001.25
$5,000$3,5001.43

Pro Tip: Higher DSCRs have an increased potential for approval. To drive up the DSCR, see if you want to increase property income, reduce your monthly payment, or a combination of both.

What is the minimum DSCR to qualify in Massachusetts?

Most lenders look for a minimum of 1.25x for DSCR loans in Massachusetts.

Some lenders will accept lower DSCRs, and certain lenders do not set a minimum DSCR requirement.

→Related: DSCR Loan Pros and Cons

DSCR Loan guidelines and fast facts. All about Debt Service Coverage Ratio loans.

Massachusetts DSCR loan guidelines

To qualify for a DSCR loan in Massachusetts, borrowers need to meet several qualifications, including the following.

Loan-to-value (LTV) ratio: Most DSCR loans in Massachusetts require a maximum loan-to-value (LTV) of 75-80% or a down payment of at least 20-25%.

Credit score: A credit score of 640 and above is common for a DSCR loan in Massachusetts, although some lenders may require higher scores.

Verifying the property’s future rental income: An appraiser is required to complete a “Single-Family Comparable Rent Schedule” (Fannie Mae Form 1007 ) as part of the DSCR loan qualification process.

From 1007 looks at how much income the property generates and whether it will be enough to cover mortgage payments.

Loan purpose: Both loans to purchase new properties and standard or cash-out refinancing is allowed with DSCR loans.

Property types allowed : Single-family residences, multi-family residences with up to 4 units, condos, condotels, and apartment buildings with five or more units are all eligible for DSCR loans.

A number of other property types are also eligible. Speak with your DSCR lender to determine eligibility for your desired property type.

Property use: Short-term rentals like VRBO or Airbnb, long-term rentals, and other rental formats can qualify for DSCR loans. However, primary residences are not eligible for a DSCR loan.

Loan-type: DSCR loans come in various types, including interest-only ARMS, 30-year fixed rates, and 5-year adjustable rates, among others.

Income and employment, debt-to-income (DTI) ratio : There is no income or employment verification or debt-to-income ratio maximum with DSCR loans in Massachusetts. Instead, lenders look at a property’s cash flow and mortgage payment amount to determine eligibility.

Maximum loan amount: While some lenders allow DSCR loans up to $5 million, $2-3 million are more common loan limits.

Maximum properties owned: Borrowers are allowed unlimited properties or loans or DSCR loans.

Prepayment penalties: DSCR loans usually have prepayment penalties for early refinancing or repayment.

Cash reserves: Depending on DSCR, borrowers may need to show cash reserves equal to between six and twelve months of rental income.

Closing in the name of an LLC: Borrowers can close in the name of an LLC for DSCR loans in Massachusetts.

Seller-paid closing costs: Sellers are often permitted to pay a percentage of closing costs. Check with your DSCR lender to see if they allow seller-paid closing costs.

See if your deal meets DSCR requirements.

DSCR mortgage rates Massachusetts

DSCR loans in Massachusetts are usually 1%-2% above that of traditional mortgages.

Many investors view the slightly higher DSCR mortgage rates as a reasonable cost for not having to provide tax returns, W2s, or other income verification.

5 best areas to invest in Massachusetts

Massachusetts provides investors with a variety of property choices and locations. From single-family homes in the suburbs to urban apartments to short-term/ vacation rentals, The Bay State continually attracts new residents, students, and tourists.

Massachusetts is home to more than 100 private and public colleges and universities, including two Ivy League Schools (Harvard, M.I.T.), and many of the more than half a million student population live off campus. It’s estimated that roughly 30 percent of undergrads and 60 percent of graduate students live off campus.

Massachusetts also boasts a thriving tourism market that features historical, cultural, scientific, and natural sites that make it a year-round destination for visitors from every walk of life.

Boston

The greater Boston area remains one of the fastest-growing metropolises in the country today. In addition to being a year-round tourist destination (attracting almost 26 million visitors annually), Boston has numerous private and public colleges and universities, world-class hospitals, and more than a dozen Fortune 500 companies and other top-tier organizations contributing to its dynamic economy.

  • Median sale price: $743,093
  • Median rent (3-bedroom): $3,400
  • Renter-occupied households: 66%
  • Median household income: $76,296

Worcester

Worcester is the fastest-growing city in New England. The Heart of the Commonwealth attracts thousands of students and new residents annually thanks to affordable housing prices and cost of living. Worcester offers homes at prices below the national average while experiencing continually increasing home values.

  • Median sale price: $380,678
  • Median rent (3-bedroom): $1,850
  • Renter-occupied households: 55%
  • Median household income: $51,647

Cambridge

The city of Cambridge is home to two Ivy League universities: Harvard and M.I.T. (Massachusetts Institute of Technology), attracting permanent and temporary residents, students, researchers, and faculty every month.

Cambridge experiences continuing economic growth, expanding job markets, and increasing home values.

  • Median sale price: $1,036,026
  • Median rent (3-bedroom): $4,473
  • Renter-occupied households: 65%
  • Median household income: $107,490

Springfield

Springfield offers a large supply of single-family residences, most of which were constructed during the late 19th and early 20th centuries.

In addition to affordable housing, Springfield also has major entertainment venues, including Six Flags New England and MGM Springfield, that draw visitors daily, making it a popular choice for short-term rentals like VRBO and Airbnb.

  • Median sale price: $257,628
  • Median rent (3-bedroom): $1,879
  • Renter-occupied households: 53%
  • Median household income: $41,571

Quincy

Beautiful Quincy sits on nearly 30 miles of Massachusetts Bay coastline and is just a few minutes outside Boston. The City of Presidents is a desirable suburb for many Boston commuters.

  • Median sale price: $647,549
  • Median rent (3-bedroom): $2,997
  • Renter-occupied households: 52%
  • Median household income: $80,462

5 tips for real estate investors in Massachusetts

If you’re thinking about growing your portfolio with properties in Massachusetts, here are a few things to consider.

Connect with an investor-friendly real estate agent

An investor-friendly real estate agent can provide guidance on state laws along with local expertise about Massachusett’s real estate markets. Local realtors can often offer access to up-and-coming neighborhoods before home value jumps.

Don’t let fear of missing out (FOMO) make you overspend

FOMO can cause investors to overspend when submitting an offer—especially in a competitive market like Massachusetts.

Growing your portfolio with new investment properties in Massachusetts can offer a great return on your initial investment—provided you haven’t overpaid for the property.

Look for affordable properties in good locations

Much like undervalued stocks, buying low can help you reap the financial benefits when its value increases. An affordable rental property in a safe neighborhood with low vacancy rates can sometimes generate more long-term revenue than a high-ticket residence that sits vacant for an extended time.

Know your budget

It’s important to understand your investment budget before you buy. It’s not whether you have a large or small budget that matters; it’s knowing how much you can safely afford to invest that can help you make smart property decisions.

Find the right property—not the right-now property

Finding the right property—one that matches your investing plans—is crucial to your success. But that can take time. If you settle for a property because it’s the best available right now, although not what you really want, you may face challenges reaching your acquisition goals.

FAQ

How hard is it to get a DSCR loan in Massachusetts?

Borrowers could qualify for DSCR loans in Massachusetts if an investment property has a DSCR of at least 1.25x and a borrower has a minimum credit score of 640.

Do banks offer DSCR loans?

Most mortgage lenders, banks, credit unions, and private lenders offer DSCR loans in Massachusetts.

How long is a DSCR loan?

DSCR loans in Massachusetts can range anywhere from 15 to 40 years. However, most have 30-year terms.

How many DSCR loans can I have?

DSCR loans don’t require borrowers to repay one loan before getting another. Eligible investors can have multiple DSCR loans simultaneously.

Is a DSCR loan right for you?

DSCR loans in Massachusetts can be an excellent financing tool for investors who struggle to provide income verification, such as income pay stubs, W2s, or tax returns that accurately reflect their financial situation.

Submit your DSCR loan to start

DSCR loans in Massachusetts can be an excellent financing tool for investors who struggle to provide income verification, such as income pay stubs, W2s, or tax returns that accurately reflect their financial situation.

Submit your DSCR loan scenario.
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