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If you're considering a Debt-Service Coverage Ratio (DSCR) loan, you might be wondering how it will affect your credit report. In this post, we'll break down what DSCR loans are and whether they show up on your credit report.
What is a DSCR Loan?
First, let's clarify what a DSCR loan is. DSCR is a financial metric used by lenders to assess the ability of a borrower to cover their debt payments from their income. DSCR loans are typically used for commercial real estate investments, where the income generated from the property should be sufficient to cover the loan payments.
Patty's Question: Will DSCR Loans Impact Your Credit Report?
In the video transcript, Patty raises a crucial question: “If I get a DSCR loan, will it show up on my credit report?” Beau Eckstein, the host of the Investor Financing Podcast, provides some insights.
Beau begins by explaining that not all lenders report DSCR loans on personal credit reports. While he can't speak for every lender, the business lenders he works with typically do not report these loans on personal credit reports.
The Advantage of Non-Reporting
One significant advantage is that when you act as a guarantor for a DSCR loan made to an entity like XYZ LLC, it doesn't show up on your personal credit report. This can be beneficial, especially if you have concerns about how additional debt might impact your creditworthiness.
The Caveat: Loan Default
Beau, however, points out an important caveat. While these loans may not initially appear on your personal credit report, if you were to default on the loan, it could potentially be reported on your credit report at that point. This emphasizes the importance of thoroughly understanding the loan terms and conditions before entering into any agreement.
Reading the Docs and Understanding the Terms
To protect yourself and your credit, it's essential to read and understand all the loan documents. Being aware of the reporting policies of the lender and the potential consequences of defaulting on the loan is crucial.
Majority of Business Lenders Do Not Report
Beau concludes by reassuring that the majority of business purpose lenders in the DSCR space do not report these loans on personal credit reports. This is good news for individuals considering DSCR loans, as it means that as long as you meet your financial obligations, your personal credit report may remain unaffected.
Exploring Your Real Estate Investment Options
In the latter part of the video, Beau Eckstein offers real estate investors an opportunity to explore their financing options. Whether you have a substantial portfolio of properties or are just starting out, he offers free strategy calls to help you create a strategic financial plan.
Conclusion
In summary, whether a DSCR loan shows up on your credit report depends on the lender's reporting practices. Many business lenders in the DSCR space do not report these loans on personal credit reports initially. However, it's crucial to be aware of potential credit reporting in case of default. To make informed decisions, always read and understand your loan documents thoroughly.
If you're a real estate investor seeking financing solutions, Beau Eckstein's offer of a free strategy call might be just what you need to navigate your real estate investment journey. Remember, knowledge and understanding are key when it comes to financial decisions in the world of real estate investment.