Lending options on a STR we have under contract?

[Chad Acerboni]

Hi All - My business partner and I have an STR property under contract in Orlando, FL that is set to close mid-Janurary. Our goal is to put as little money down, ideally, 10% if possible. Happy to share details (location, beds/baths, etc.) if we decide to connect further.

We have had multiple conversations with lenders and I'm pretty sure I know my answer but wanted to check with the community because you never know if someone can get more creative.  

From what we have gathered we, most likely not going to be able to get to 10% down, and will be your standard 80/20 LTV due to the purchase price of $925K.

A couple of options that have been proposed are: 

1) Conventional loan (QM) with an 80/20 LTV. Normal underwriting and standard procedures. This goes against your debt-to-income ratio. Will be in the 7-7.5% interest range. No pre-payment penalties.

2) DSCR loan (Non-QM) is also most likely an 80/20 LTV because it exceeds the threshold of $726,200 and is a jumbo loan. Easier to qualify as this really takes into account your credit score and the potential rental income of the property. Does not hit your debt-to-income ratio. However, interest is generally 1-1.5% higher than a conventional loan right now. Has pre-payment penalties. Does have options for IO.

From our underwriting purposes and exit strategy on the property, we are leaning towards just doing the conventional loan. 

Was curious if there was anything I'm missing or if there is something else I should explore that might allow us to get to a 90/10 LTV to help our cash flow.

TIA! 

Chad

[Tyler Gibson]

Quote from @Chad Acerboni:

Hi All - My business partner and I have an STR property under contract in Orlando, FL that is set to close mid-Janurary. Our goal is to put as little money down, ideally, 10% if possible. Happy to share details (location, beds/baths, etc.) if we decide to connect further.

We have had multiple conversations with lenders and I'm pretty sure I know my answer but wanted to check with the community because you never know if someone can get more creative.  

From what we have gathered we, most likely not going to be able to get to 10% down, and will be your standard 80/20 LTV due to the purchase price of $925K.

A couple of options that have been proposed are: 

1) Conventional loan (QM) with an 80/20 LTV. Normal underwriting and standard procedures. This goes against your debt-to-income ratio. Will be in the 7-7.5% interest range. No pre-payment penalties.

2) DSCR loan (Non-QM) is also most likely an 80/20 LTV because it exceeds the threshold of $726,200 and is a jumbo loan. Easier to qualify as this really takes into account your credit score and the potential rental income of the property. Does not hit your debt-to-income ratio. However, interest is generally 1-1.5% higher than a conventional loan right now. Has pre-payment penalties. Does have options for IO.

From our underwriting purposes and exit strategy on the property, we are leaning towards just doing the conventional loan. 

Was curious if there was anything I'm missing or if there is something else I should explore that might allow us to get to a 90/10 LTV to help our cash flow.

TIA! 

Chad

I have helped many people acquire Disney short-term rentals with a variety of loan types. The only loan type in the past that allowed for 10% down was second home loans. These loans require that you occupy the property a certain number of days a year and you're not allowed to have a property manager and the property must be located a minimum distance of 50 mi from your primary residence. Outside of that you'd be hard-pressed to find a loan product less than 20% down. I know some great DSCR lenders that can factor in AirDNA data to qualify the home.