‘Wannabe real estate moguls’ bet big on this once-obscure loan type during the pandemic. Now many of them stand to lose

Core Insights - The mortgage approval process is described as intrusive and time-consuming, with some homebuyers likening it to a "financial colonoscopy" [1] - During the pandemic, many small-time investors entered the real estate market using debt service coverage ratio (DSCR) loans, which do not require personal income verification [2] - Current economic conditions, including stagnant rents and rising operating costs, are causing difficulties for small landlords, leading to potential foreclosures [3] Group 1: DSCR Loans - DSCR loans allow borrowers to bypass the conventional mortgage application process and can enable them to borrow more than traditional lenders would permit based on personal finances [5] - The DSCR is calculated by dividing the annual net operating income (NOI) of a property by the annual debt service required to cover loan payments [6] - NOI is determined by summing all revenue from a property and subtracting operating expenses, which include maintenance, property taxes, and insurance [6] Group 2: Market Dynamics - The surge in home prices and bidding wars during the pandemic led to a viral trend on TikTok encouraging individuals to become landlords [2] - The influx of small-time investors into the real estate market has created a situation where many are now struggling to meet their financial obligations due to high interest rates and increased costs [3]