DSCR Loan for a first time home owner

[Anthony Jones]

Hello everyone,

Currently as a recent graduate I do not have the W2 history to use conventional loans so my main focus has been DSCR loans.

I have the bank statements and reserves part of the loan process secured. My question relates to how realistic this loan would be for me. I've heard that for a first time home owner, the lender may: wait until you've occupied the home for 6-12 months before giving you the loan, increase the interest rate dramatically which may render this loan useless entirely if it means I wont cash flow on my property, and also increase my down payment therefore decreasing my LTV, which would also render this loan useless for me if I cant refinance to pay off my original lender.

First, I guess I'm wonder if the above statements are accurate and if so, what that means in terms of if I should pursue a DSCR loan?

If these things did happen to work out, could I take out a DSCR for the purchase, then another DSCR for the refinance and use it to pay off the original purchase DSCR?

Thank you in advance!

Anthony

[Riaz Gillani]

Congrats on graduating! And cheers to wanting to jump into homeownership. But, before you take a deep dive ... let's unpack a few things.

(1) DSCR loans do not factor in income / employment - true. But, they are for creditworthy borrowers. So, think a middle score of 700+ and at least 3 total total and / or active trade-lines. Student loans, auto loans, credit cards are all your friends here.

(2) DSCR loans are for non-owner occupied properties. Hard stop here. If an underwriter gets a whiff of owner occupancy (aka, they think the borrower may in fact be buying this property to live in it) the deal is most likely dead. What would imply such? A borrower who does not currently own a home (claims to rent or live with their parents) or if the area in which the deal takes place isn't a typical rental market. This isn't to suggest you cannot buy a rental property with a DSCR loan when living at home or renting, it's just worth mentioning.

(3) Re: occupancy for 6-12mo and then an uptick on the interest rate? That seems like folklore. What this person may have been trying to imply is if you get a loan via a DSCR lender, and you live in it (effectively putting yourself in default) they may actually trigger the acceleration clause and you'd then have the default rate that was agreed to in the loan docs .... I almost have no comment here. It's called equity stripping. Is it possible, yes. But, DSCR loans are for non-owner occupied (see #2) so no such situation should ever come into play if you are responsible.