Can DSCR Loans Apply to Off-Market Homes?

[Davon Broadwater]

Hello,

I am thinking about using a DSCR loan for my first rental property, and I know a Conventional loan cannot be used on distressed properties. I have an investor- friendly agent that have homes (not distressed) that isn't on the MLS. Can I use a DSCR loan for these homes?

[Jay Hurst]

Quote from @Davon Broadwater:

Hello,

I am thinking about using a DSCR loan for my first rental property, and I know a Conventional loan cannot be used on distressed properties. I have an investor- friendly agent that have homes (not distressed) that isn't on the MLS. Can I use a DSCR loan for these homes?

 @Davon Broadwater Any kind of loan can be used on off or on market homes. MLS does not factor in at all. Now, as you mentioned, the property has to be in move in ready shape (but can need updating but has to be livable) for conventional or DSCR loans.

[Jacob Sherman]

Yes you can but it would be 70% max ltv 

[Brandon Croucier]

We can use off market homes for DSCR, no requirements besides that it is legally in livable condition.

[Corby Goade]

What makes you think a conventional loan can't be used on distressed properties?

There's a common belief that properties can "fail" inspections or appraisals or they certain loan products can't be used on distressed properties. Totally untrue. 

An appraiser might condition a property, but as a buyer, all that does is create leverage and opportunity for you. There's nothing better than getting an FHA or conventional offer accepted by an unsuspecting seller, knowing you will have plenty of opportunity to re negotiate once the appraisal comes back. It's my favorite.

To directly answer your question- yes, you can do a DSCR loan on an off market property. Lenders don't care if a property is on the MLS, doesn't factor in to their decision making at all.

[Ko Kashiwagi]

Hi Davon,

As others have mentioned, if would not matter whether it is on market or off market. You'd need to make sure the property is in rentable condition and that the rent will be high enough to debt to cover. Not all DSCR programs allow first time home buyers, so if you don't have a primary residence, make sure to you qualify for the specific program you are looking for.

[Robin Simon]

Quote from @Davon Broadwater:

Hello,

I am thinking about using a DSCR loan for my first rental property, and I know a Conventional loan cannot be used on distressed properties. I have an investor- friendly agent that have homes (not distressed) that isn't on the MLS. Can I use a DSCR loan for these homes?

Generally is going to be OK the only issue is that it can be challenging to confirm the transaction is truly arms-length on an off-market deal and I believe all DSCR Lenders do require Arms-Length transactions. If everything is above board and can be pretty well documented its likely workable for at least us (but I'd imagine same with a good amount of DSCR Lenders)

[Erik Estrada]

Quote from @Davon Broadwater:

Hello,

I am thinking about using a DSCR loan for my first rental property, and I know a Conventional loan cannot be used on distressed properties. I have an investor- friendly agent that have homes (not distressed) that isn't on the MLS. Can I use a DSCR loan for these homes?

It will depend on if the property can pass an AS IS appraisal and there is no significant deferred maintenance. If the property cannot pass as livable then you will not be able to use DSCR financing. The Underwriter may also have a final consideration depending on the circumstances.

I would advise to use a short term hard money loan, acquire it quickly, rehab it, and refinance into a long term DSCR loan.

[Erik Estrada]

Quote from @Corby Goade:

What makes you think a conventional loan can't be used on distressed properties?

There's a common belief that properties can "fail" inspections or appraisals or they certain loan products can't be used on distressed properties. Totally untrue. 

An appraiser might condition a property, but as a buyer, all that does is create leverage and opportunity for you. There's nothing better than getting an FHA or conventional offer accepted by an unsuspecting seller, knowing you will have plenty of opportunity to re negotiate once the appraisal comes back. It's my favorite.

To directly answer your question- yes, you can do a DSCR loan on an off market property. Lenders don't care if a property is on the MLS, doesn't factor in to their decision making at all.

I would be careful about this. Many Non-QM lenders approach collateral much differently than an FHA, Conventional or VA loan. If the property is not in livable condition, most lenders will not finance it on long term debt. I have seen it happen where the borrower does all the subject to repairs and the collateral underwriter still not approving the property for long term financing.

[Davon Broadwater]

Quote from @Robin Simon:

Quote from @Davon Broadwater:

Hello,

I am thinking about using a DSCR loan for my first rental property, and I know a Conventional loan cannot be used on distressed properties. I have an investor- friendly agent that have homes (not distressed) that isn't on the MLS. Can I use a DSCR loan for these homes?

Generally is going to be OK the only issue is that it can be challenging to confirm the transaction is truly arms-length on an off-market deal and I believe all DSCR Lenders do require Arms-Length transactions. If everything is above board and can be pretty well documented its likely workable for at least us (but I'd imagine same with a good amount of DSCR Lenders)

Can you explain more on Arms-length transactions?

[Robin Simon]

Quote from @Davon Broadwater:

Quote from @Robin Simon:

Quote from @Davon Broadwater:

Hello,

I am thinking about using a DSCR loan for my first rental property, and I know a Conventional loan cannot be used on distressed properties. I have an investor- friendly agent that have homes (not distressed) that isn't on the MLS. Can I use a DSCR loan for these homes?

Generally is going to be OK the only issue is that it can be challenging to confirm the transaction is truly arms-length on an off-market deal and I believe all DSCR Lenders do require Arms-Length transactions. If everything is above board and can be pretty well documented its likely workable for at least us (but I'd imagine same with a good amount of DSCR Lenders)

Can you explain more on Arms-length transactions?

 When there is no realtor involved, it could be fine, but it could be disguising the fact that there would be fraud going on or that the purchase price doesn't equal market value (i.e. two related people selling a property one to another at an inflated value, etc.)