Do you want to buy an investment property in Ohio but can’t provide income verification? A debt service coverage ratio (DSCR) loan could be the right financing choice for your situation.
DSCR loans are an excellent way for real estate investors to get funding based on a property’s cash flow—not their personal income.
With DSCR loans in Ohio, borrowers aren’t required to provide W2s, paystubs, tax returns, or other income verification documents.Submit your DSCR loan scenario.
What’s in this article?
Ohio’s median home price is $212,539, less than half the national average of $440,300,
Ohio’s low real estate property prices, affordable cost of living, and strong economy make owning an investment property possible for investors of any experience and wealth tier.
Cleveland, Columbus, and Cincinnati contain the Buckeye State’s most robust markets for rental property investment. But as home prices continue to go up, the #9 choice for “Top States for Business” offers substantial investment opportunities statewide.
It can be challenging for some investors to get approved for traditional mortgages because of tax write-offs and business deductions. Too often, pay stubs don’t exist, and tax returns fail to accurately reflect an investor’s actual income.
With a DSCR loan, lenders compare an investment property’s net income against estimated mortgage payments instead of using an investor’s income documentation.Check your DSCR loan eligibility.
DSCR is always written as a decimal, like 1.25x or 1.5.
Lenders use a property’s DSCR to evaluate whether an investment property will have enough cash flow to cover its monthly payments.
- Properties with a DSCR ratio of 1.0 break even—their cash flow equals their monthly payments
- Properties with a DSCR ratio of 1.25 have 25% more income than needed to cover monthly payments
Most lenders in Ohio look for a DSCR of 1.25x. However, some lenders will consider investment properties with lower DSCR ratios.
To calculate DSCR, use the following equation:
DSCR = Income / Payment
To calculate DSCR for a residential investment property, mortgage lenders divide the monthly rental income by the anticipated monthly mortgage payment.
To calculate DSCR for a commercial investment property, mortgage lenders compare the net operating income (NOI) against potential mortgage payments. NOI is a commercial property’s gross income minus business operating expenses. These include expenditures such as utilities or management fees.
For residential and commercial investment properties, mortgage lenders use a property’s mortgage principal, interest, property taxes, insurance, and any association fees (i.e., HOA) to calculate the total DSCR payment
Example: How lower payment can improve DSCR
Example: How lower payment can improve DSCR
Pro Tip: You’ll increase the likelihood of being approved for a DSCR loan in Ohio with a higher DSCR. Look for ways to reduce your monthly payment amount and/ or increase your property’s income to improve your DSCR.
Most DSCR lenders in Ohio consider 1.25 the minimum requirement for a DSCR loan. A DSCR of 1.25—the property brings in 25% more than it needs—also helps you lessen the possibility of losing money.
Some Ohio lenders will work a minimum DSCR of 0.75; select lenders have no minimum DSCR requirement.
Pro Tip: The higher an investment property’s DSCR, the better the mortgage rate borrowers could receive.
Because qualifying for a DSCR loan depends on a property’s cash flow—not an investor’s income—borrowers can typically qualify easier for DSCR loans than conventional loans.
Most lenders follow general DSCR requirements, including
Loan-to-Value (LTV) Ratio: The maximum necessary for a DSCR loan-to-value (LTV) ratio is 80%—i.e., a down payment of 20-25%
Loan purpose: DSCR loans can be used to refinance an existing mortgage—cash out, standard—or purchase a home.
Minimum credit score: DSCR loans typically have a minimum requirement of 680. However, the credit score requirements can range between 620-680 depending on the lender.
Property types allowed: Investors can use a DSCR loan to purchase short-term and long-term rental properties of up to four units. Some lenders allow DSCR loans for properties with five or more units, apartment buildings, and condotels, among others.
Loan type: Depending on their financial goals, borrowers can choose different loan types for DSCR loans, including 40-year interest-only, 30-year fixed-rate, and adjustable-rate loans.
Income and employment, debt-to-income ratio: Unlike traditional home loans, DSCR loans look at an investment property’s cash flow. Therefore, pay stubs, employment verification, or debt-to-income (DTI) ratio are unnecessary.
Maximum loan amount: The maximum DSCR loan amount varies by lender but can be as much as $5 million.
Maximum properties owned: DSCR loans do not restrict how many properties a borrower can own.
Prepayment penalty: DSCR loans often include prepayment penalties for borrowers who repay, sell, or refinance their loans early.
Closing in the name of an LLC: Most lenders allow investors to close on DSCR loans in the name of an LLC
Seller-paid closing costs: Depending on your lender, the seller may be allowed to pay a portion of the closing costs.See if you qualify for a DSCR loan.
DSCR loan mortgage rates in Ohio can be 1-2% higher than traditional Fannie Mae and Freddie Mac home loans because lenders carry more risk. However, many investors consider the slight rate increase a worthwhile expense for not having to verify their income.
5 best areas to invest in Ohio
Located in the American Midwest, Ohio is the seventh most populous state and rated one of the best in the country to do business in.
The Buckeye State is home to the US Air Force National Museum, the Rock and Roll Hall of Fame, and Cedar Point Amusement Park, among other attractions and activities.
Cleveland is one of the state’s most popular rental investment property locations.
Located along Lake Erie’s banks, Cleveland’s vibrant job market offers sought-after IT, manufacturing, and healthcare jobs, attracting new residents. Healthcare plays a vital role in Cleveland’s economy, with jobs in the sector continuing to grow in the post-pandemic landscape.
Home values in Cleveland have risen 15.9% since 2021, but the median home price in Cleveland of $110,556 remains less than the national average, making it an appealing choice for many investors.
Ohio’s state capital, Columbus, boasts more than 1,687,000, an increase of 1.26% over last year, and ranks second as the best city for college graduates. (Neighboring Cincinnati tops the list).
Columbus is home to Ohio State University and is one of the area’s largest employers. Other notable employers include JPMorgan Chase & Co., American Electric Power, and Honda of America.
The median cost of a home in Columbus is $244,738, an 15.7% increase over last year but still almost 50% below the national home price average.
Cincinnati is ranked as the number one city for new grads, and its substantial student population is a significant driver of its equally robust rental market.
Cincinnati has experienced steady population growth over the last decade, which is expected to continue well into the future.
The median home price in Cincinnati is $262,746, a 14.4% year-over-year increase.
Approximately 55% of Cincinnati’s 2.17 million residents rent, offering a unique opportunity for investors looking to limit their initial investment.
Located 45 minutes outside of Cleveland, Madison, Ohio, offers investors a higher rental rate than most other places in the state. The average rent for three-bedroom units in the family-friendly village is $1,750, a 13% increase year over year.
Madison’s lower-than-average home prices, hovering around $195,376, offer investors an excellent opportunity for high DSCR ratios. It’s also one of the best places to live in Ohio. The median listing price for Madison is slightly above the state average house price but less than what investors might pay in Baltimore or Columbus.
The little city with a big heart, Baltimore, Ohio, offers investors an opportunity to get into a skyrocketing real estate market. Home prices have more than doubled since 2018, and that growth is expected to continue.
Baltimore’s current median home price is $341,589, a 14.4% increase since last year.
Baltimore’s steady economy and low cost of living make it a popular choice for seniors and young families. The town has been named on multiple best-of lists, including Safest Cities for Families with Young Children (#2) and Best Cities for Thanksgiving.
5 tips for real estate investors in Ohio
Investing varies in difficulty, area by area. Let’s look at five tips for investing in Ohio.
Poor planning has caused more than a few headaches for investors. To avoid unnecessary hurdles, decide what you want from an investment property. Consider property location, rental income, mortgage principal, taxes, and association fees, and determine the potential DSCR before making a home offer.
It’s easy to get excited about buying an investment property in Ohio, but failing to thoroughly research potential properties could cost you money. Study any neighborhoods you’re considering; consider market values, demographics, and schools.
Taking time to carefully evaluate your choice before buying can help you build your portfolio quickly, without costly mistakes.
Too often, investors forget to factor in all potential expenses when considering buying a property in Ohio.
While your monthly DSCR payment will include additional fees such as taxes or HOA fees, remember to leave room in your budget for insurance, repairs, maintenance, and rental vacancies.
Working with a local real estate brokerage familiar with the requirements for investors can save you time and money. And local agents can often help you find properties before they appear on a multiple listing service (MLS).
Before making an offer, ensure you have secured your financing. If you start your property-buying journey by discussing DSCR loans in Ohio before you begin looking at homes, you’ll be ready to quickly make an offer if you find the right property for your portfolio.
DSCR loans in Ohio typically require an appraisal with a rental survey. The appraisal determines the property’s value, whereas the rental survey helps DSCR lenders determine the estimated rental income the property can generate.
Eligible borrowers can have multiple DSCR loans simultaneously. There is no limit to how many DSCR loans a borrower can have.
Applying for DSCR loans in Ohio is similar to applying for a home mortgage—complete an application and submit it. But unlike most home loans, you won’t be asked to provide personal financial documents such as your employment income, W2s, or personal tax return.
DSCR loans usually have a 30-year term. But borrowers do have other loan options, such as 40-year terms. Popular DSCR loan types include fixed and adjustable-rate loans and interest-only loans.
DSCR loans are popular financing options for investors because they look at the property’s ability to generate enough money to cover the mortgage payment. Because DSCR loans don’t require income verification, they can help investors access opportunities they might otherwise miss out on.
Get started on your DSCR loan
A DSCR loan is a great way to build your portfolio fast. The first step is to submit your scenario and see if your deal is eligible.Submit your DSCR loan scenario.