Answers to the Most FAQ's I Get for Private Financing

[Timothy Hero]

Hey all,

Some of you know me on here as a private mortgage broker that helps investors get the best financing option in 45 states. However, I constantly see the same questions asked here on BP, so I figured I'd make an attempt to help.

• Requirements -- if you're going with a non-qm/DSCR lender, tax returns, employment, and DTI are irrelevant. The focus is based on credit and the cash flow of the subject property.

• Why are requirements different? -- Conventional lenders get their money from the FED, whereas non-qm/DSCR lenders get it from "capital partners" or "capital markets". Since DSCR lenders aren't reliant on the FED, their capital partner (the supplier of the money) makes the rules.

• How are the loans not reported on credit? -- This is related to the above question and answer. Since the mortgages are provided by private institutions, they can title them as "business loans" while using the subject property as collateral.

• Max number of loans? -- Infinity... since these loans aren't reported on credit and DTI isn't a factor, DSCR lenders don't care about the number of mortgages you have outstanding.

• Credit needed? -- This is dependent on the lender. Right now, most lenders have a minimum as low as 620, but you'll be dramatically reduced on LTV (around 50-55%). If you want a reasonable LTV (70-75%), lenders typically require a 700 or higher.

• Close in an entity? -- Yes. In fact, 90% of lenders require it.

• How quick to close? -- Depends on the lender, but single assets are typically 4 weeks. I've closed some recently in 3 weeks, but not something I'd like to advertise or promise. For portfolio, expect 4-6 weeks, depending on the size of the portfolio.

• Minimum loan size and value? -- Depends on the lender, but amongst my long list, minimum property value of $100k with a minimum loan size of $75k. However, this can very for 2-4 unit properties.

• Seasoning? -- Another situation dependent on the lender. Many in the sector require 3-6 months, whereas many conventional lenders are 6 months+.

• Recourse or non-recourse? -- One of the most common questions... 95% of loans in the DSCR sector are recourse. However, lenders can only legally take back what they owed. These fears of losing all your assets over one loan are silly. If your house appraised for $200k and you do a $150k loan on it and default, the lender takes your $200k home, sells it, pays themselves the $150k and has you cover legal fees and they legally have to pay you the left over from the sale. In order for you to lose more than the subject property, the market would need to take a minimum 25% dip in value, which is an extreme recession.

• Are there shorter than 30-year options? -- They may exist, but I haven't found any. There's some lenders that offer 30-year AM with and 5 and 10-year balloon's, but I haven't seen any 15 or 20-year fixed DSCR loans. Most of these lenders get their capital from the same suppliers, so the terms are very similar).

• Max LTV? -- Typically 80% for purchase and 75% for cash-out. 80% LTV cash-out left during COVID, then came back, then left again when inflation started getting ugly. There may be some lenders out there offering it, but it'll be a diamond in the rough.

• Rates? -- They vary widely. Anywhere from 5.8 - 7.5%.

• What docs are needed? -- I can only speak for my list of lenders, but here's a list:

1.) ID

2.) Lease(s) if leased

3.) Entity docs

4.) Voided check

5.) 2 Months bank statements to verify for reserves

6.) Management agreement (if being managed by a company)

If I missed any questions, feel free to ask away!