Getting approved for a Loan- Ideas

[Cody Cavenaugh]

Hey y'all, I am looking at purchasing my third home and would like advice on getting a loan. This will be my 3rd house and I just closed on my second back in March a few weeks ago. For the previous 2 homes I own, I had my parents cosign the loan and that's how I got approval for each of loans, 1st primary residence in 2021 and 2nd in 2024. I would like to get a house up in Dallas as investment home/secondary home for work. I own a business doing about 20K a month but that won't qualify me for a loan due to the timeframe of my business, and my parent's cosign won't help with their DTI ratio after I purchased this second property. I think my only option would be a private money lender, does anybody have any thoughts? I would be looking to put down about 20-25% for this new property as I have saved with my bank. Happy to hear any thoughts, and thank you!

[Stacy Raskin]

If it will be an investment property, you can use a DSCR loan where all you need is the money for the down payment and to close and credit score depending on the factors below.

DSCR loans won't use your income to underwrite the loan.

DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.

Here's a bit more in detail about how rates are calculated for DSCR loans:

1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders

2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.

3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.

4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.

I've included an example below to help illustrate this.

So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.

See example below:

DSCR < 1

Principal + Interest = $1,700

Taxes = $350, Insurance = $100, Association Dues = $50

Total PITIA = $2200

Rent = $2000

DSCR = Rent/PITIA = 2000/2200 = 0.91

Since the DSCR is 0.91, we know the expenses are greater than the income of the property.

DSCR >1

Principal + Interest = $1,500

Taxes = $250, Insurance = $100, Association Dues = $25

Total PITIA = $1875 Rent = $2300

DSCR = Rent/PITIA = 2300/1875 = 1.23

DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.

Happy to connect to discuss further.