How to get fixed rate loans on investment properties?!

[Karina Busch]

I have started purchasing a few investment properties and have an LLC. Everything has been cash so far but I have contacted several local banks and all of them have said about 1-2%+ above regular mortgage rates, 3-5y ARM with 15-25y term, and 20-30% down. This is before I mention having an LLC or anything. I have no debt, significant equity, good W-2, and excellent credit. I'm fine with the money down and shorter term but the higher rates and the ARM I am not a fan of in general. How are people buying multiple non owner occupied properties on fixed rate traditional 30y mortgages?

[Brandon Croucier]

I'd be looking to get into a DSCR loan.

These loans are qualified by the properties income rather than your income, can close in an LLC, and also do not report on your credit report!

[Patrick Roberts]

DSCR loans can be made to LLCs. Most will be 30yr fixed, but you're still going to need 20%+ down and will be 1-2% over what you see quoted as "today's 30yr fixed mortgage rate", which is usually the ballpark for someone buying a primary with 20% down and 780 credit.

If you have good credit and good W2 income, Conventional is an option as well. You'll still need 20%+ down and wont be able to fund in an LLC, but will likely get a slightly better rate/pricing. After a year, you can move the property to the LLC.

[Robin Simon]

Quote from @Brandon Croucier:

I'd be looking to get into a DSCR loan.

These loans are qualified by the properties income rather than your income, can close in an LLC, and also do not report on your credit report!

Like Brandon mentioned - you sound like the picture perfect classic "DSCR Loan" borrower - dscr loans are made for exactly this typically - LLC friendly and usually the best fit for when investors hit the 5 or so property mark and hit a roadblock with banks, cash etc like you desribed.

Check out this 12-part article series published here on BP on all about DSCR Loans, hope it helps!

BP-Published DSCR Guide!

DSCR Loans: What Are They And How To Get The Best Terms

https://www.biggerpockets.com/...

DSCR Loans: How To Use Pro Strategies To Save More And Make More

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Multifamily DSCR Loans: A New High-Impact Loan Option For Real Estate Investors?

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12 Frequently Asked Questions (And Answers) About DSCR Loans

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8 More Commonly Asked Questions and Answers to DSCR Loans

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What Documents Do You Need for a DSCR Loan?

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BRRRR Loans: What Are the Options, and How Do DSCR Loans Stack Up?

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Short-Term Rental Loans: What Are the Options and How Do DSCR Loans Stack Up?

https://www.biggerpockets.com/blog/short-term-rental-loans-a...

DSCR Loans: Terms to Know When Working With These Popular Rental Loan

https://www.biggerpockets.com/blog/dscr-loans-terms-to-know

What’s Next For DSCR Loans? Updates For 2024 and Beyond

https://www.biggerpockets.com/blog/what-is-coming-in-2024-fo...

What Are Current DSCR Loan Rates? Key Market Movers and How to Track Rates

https://www.biggerpockets.com/blog/2024-dscr-loan-rates-and-...

How Do DSCR Lenders Calculate Your Interest Rate?

[Karina Busch]

Thank you for the replies. To clarify, I'm not having trouble getting loans for my LLC, I just see posts and hear on the podcasts about people getting "up to 10" conventional mortgages for properties they buy as investments and don't live in. I am not seeing those options where I am looking. So the main advantage of a DSCR in this case is just the fixed rate?

[Jay Hurst]

Quote from @Karina Busch:

Thank you for the replies. To clarify, I'm not having trouble getting loans for my LLC, I just see posts and hear on the podcasts about people getting "up to 10" conventional mortgages for properties they buy as investments and don't live in. I am not seeing those options where I am looking. So the main advantage of a DSCR in this case is just the fixed rate?

 @Karina Busch  Any competent mortgage broker or mortgage banker can do this for you. You are speaking to the wrong folks. The banks you are speaking with either do not originate conventional loans or the LO simply does not know how to originate them.  

[Andrew Zamboroski]

Quote from @Karina Busch:

I have started purchasing a few investment properties and have an LLC. Everything has been cash so far but I have contacted several local banks and all of them have said about 1-2%+ above regular mortgage rates, 3-5y ARM with 15-25y term, and 20-30% down. This is before I mention having an LLC or anything. I have no debt, significant equity, good W-2, and excellent credit. I'm fine with the money down and shorter term but the higher rates and the ARM I am not a fan of in general. How are people buying multiple non owner occupied properties on fixed rate traditional 30y mortgages?

Jay stated it well, find the right lender to chat with. It sounds like you’re being quoted on commercial loans.

[Karina Busch]

Quote from @Jay Hurst:

Quote from @Karina Busch:

Thank you for the replies. To clarify, I'm not having trouble getting loans for my LLC, I just see posts and hear on the podcasts about people getting "up to 10" conventional mortgages for properties they buy as investments and don't live in. I am not seeing those options where I am looking. So the main advantage of a DSCR in this case is just the fixed rate?

 @Karina Busch  Any competent mortgage broker or mortgage banker can do this for you. You are speaking to the wrong folks. The banks you are speaking with either do not originate conventional loans or the LO simply does not know how to originate them.  

 Thank you. 

[Karina Busch]

Quote from @Andrew Zamboroski:

Quote from @Karina Busch:

I have started purchasing a few investment properties and have an LLC. Everything has been cash so far but I have contacted several local banks and all of them have said about 1-2%+ above regular mortgage rates, 3-5y ARM with 15-25y term, and 20-30% down. This is before I mention having an LLC or anything. I have no debt, significant equity, good W-2, and excellent credit. I'm fine with the money down and shorter term but the higher rates and the ARM I am not a fan of in general. How are people buying multiple non owner occupied properties on fixed rate traditional 30y mortgages?

Jay stated it well, find the right lender to chat with. It sounds like you’re being quoted on commercial loans.

Yes I am being quoted commercial loans. They have all said if it’s a rental property it has to be a commercial loan. I have talked to 5 different lenders. 

[Patrick Roberts]

Quote from @Karina Busch:

Quote from @Andrew Zamboroski:

Quote from @Karina Busch:

I have started purchasing a few investment properties and have an LLC. Everything has been cash so far but I have contacted several local banks and all of them have said about 1-2%+ above regular mortgage rates, 3-5y ARM with 15-25y term, and 20-30% down. This is before I mention having an LLC or anything. I have no debt, significant equity, good W-2, and excellent credit. I'm fine with the money down and shorter term but the higher rates and the ARM I am not a fan of in general. How are people buying multiple non owner occupied properties on fixed rate traditional 30y mortgages?

Jay stated it well, find the right lender to chat with. It sounds like you’re being quoted on commercial loans.

Yes I am being quoted commercial loans. They have all said if it’s a rental property it has to be a commercial loan. I have talked to 5 different lenders. 

 This is not accurate. Conventional loans are available all day long for rental properties, so long as the property is residential (1-4 unit) and not commercial (5+ units, retail, industrial, etc). If you're wanting a Conventional loan, make sure the lenders you're talking to have an NMLS license. If they are not licensed, they cannot originate Conventional loans and are only able to offer commercial loans. 

Also, if you're working with a local bank, theyre likely choosing not to originate  Conventional loans for investment properties and to only offer commercial loans that they hold on their balance sheet, which are subject to their own internal credit policies. This is very common with local banks and credit unions - they dont have the infrastructure or volume to sell into the secondary market and simply choose not to offer those products in their business model. 

[Karina Busch]

Quote from @Patrick Roberts:

Quote from @Karina Busch:

Quote from @Andrew Zamboroski:

Quote from @Karina Busch:

I have started purchasing a few investment properties and have an LLC. Everything has been cash so far but I have contacted several local banks and all of them have said about 1-2%+ above regular mortgage rates, 3-5y ARM with 15-25y term, and 20-30% down. This is before I mention having an LLC or anything. I have no debt, significant equity, good W-2, and excellent credit. I'm fine with the money down and shorter term but the higher rates and the ARM I am not a fan of in general. How are people buying multiple non owner occupied properties on fixed rate traditional 30y mortgages?

Jay stated it well, find the right lender to chat with. It sounds like you’re being quoted on commercial loans.

Yes I am being quoted commercial loans. They have all said if it’s a rental property it has to be a commercial loan. I have talked to 5 different lenders. 

 This is not accurate. Conventional loans are available all day long for rental properties, so long as the property is residential (1-4 unit) and not commercial (5+ units, retail, industrial, etc). If you're wanting a Conventional loan, make sure the lenders you're talking to have an NMLS license. If they are not licensed, they cannot originate Conventional loans and are only able to offer commercial loans. 

Also, if you're working with a local bank, theyre likely choosing not to originate  Conventional loans for investment properties and to only offer commercial loans that they hold on their balance sheet, which are subject to their own internal credit policies. This is very common with local banks and credit unions - they dont have the infrastructure or volume to sell into the secondary market and simply choose not to offer those products in their business model. 

 Thank you so much for the explanation. 

[Karina Busch]

Quote from @Patrick Roberts:

Quote from @Karina Busch:

Quote from @Andrew Zamboroski:

Quote from @Karina Busch:

I have started purchasing a few investment properties and have an LLC. Everything has been cash so far but I have contacted several local banks and all of them have said about 1-2%+ above regular mortgage rates, 3-5y ARM with 15-25y term, and 20-30% down. This is before I mention having an LLC or anything. I have no debt, significant equity, good W-2, and excellent credit. I'm fine with the money down and shorter term but the higher rates and the ARM I am not a fan of in general. How are people buying multiple non owner occupied properties on fixed rate traditional 30y mortgages?

Jay stated it well, find the right lender to chat with. It sounds like you’re being quoted on commercial loans.

Yes I am being quoted commercial loans. They have all said if it’s a rental property it has to be a commercial loan. I have talked to 5 different lenders. 

 This is not accurate. Conventional loans are available all day long for rental properties, so long as the property is residential (1-4 unit) and not commercial (5+ units, retail, industrial, etc). If you're wanting a Conventional loan, make sure the lenders you're talking to have an NMLS license. If they are not licensed, they cannot originate Conventional loans and are only able to offer commercial loans. 

Also, if you're working with a local bank, theyre likely choosing not to originate  Conventional loans for investment properties and to only offer commercial loans that they hold on their balance sheet, which are subject to their own internal credit policies. This is very common with local banks and credit unions - they dont have the infrastructure or volume to sell into the secondary market and simply choose not to offer those products in their business model. 

 Thank you so much for the explanation. 

[Andrew Zamboroski]

Quote from @Karina Busch:

Quote from @Andrew Zamboroski:

Quote from @Karina Busch:

I have started purchasing a few investment properties and have an LLC. Everything has been cash so far but I have contacted several local banks and all of them have said about 1-2%+ above regular mortgage rates, 3-5y ARM with 15-25y term, and 20-30% down. This is before I mention having an LLC or anything. I have no debt, significant equity, good W-2, and excellent credit. I'm fine with the money down and shorter term but the higher rates and the ARM I am not a fan of in general. How are people buying multiple non owner occupied properties on fixed rate traditional 30y mortgages?

Jay stated it well, find the right lender to chat with. It sounds like you’re being quoted on commercial loans.

Yes I am being quoted commercial loans. They have all said if it’s a rental property it has to be a commercial loan. I have talked to 5 different lenders. 

As others have said, conventional investment loans are an option, as well as DSCR loans. Both offer fixed rates and 30-year terms as a nice contrast to commercial financing. For a conventional loan, you can find a local broker using https://mortgagematchup.com/.

For DSCR loans (if you want or need to go that route) many of the lenders on here like myself can likely assist.

cheers and happy Friday!

[Erik Estrada]

Quote from @Karina Busch:

Quote from @Andrew Zamboroski:

Quote from @Karina Busch:

I have started purchasing a few investment properties and have an LLC. Everything has been cash so far but I have contacted several local banks and all of them have said about 1-2%+ above regular mortgage rates, 3-5y ARM with 15-25y term, and 20-30% down. This is before I mention having an LLC or anything. I have no debt, significant equity, good W-2, and excellent credit. I'm fine with the money down and shorter term but the higher rates and the ARM I am not a fan of in general. How are people buying multiple non owner occupied properties on fixed rate traditional 30y mortgages?

Jay stated it well, find the right lender to chat with. It sounds like you’re being quoted on commercial loans.

Yes I am being quoted commercial loans. They have all said if it’s a rental property it has to be a commercial loan. I have talked to 5 different lenders. 

This is not accurate at all. You can secure a 30 year fixed on a 1-4 unit residential and a commercial building. Rate will be high on a 30 year fixed loan for a commercial building, however you can easily find a low 7% rate on a DSCR 1-4 Unit 30 year fixed residential mortgage

[Jaycee Greene]

Quote from @Karina Busch:

I have started purchasing a few investment properties and have an LLC. Everything has been cash so far but I have contacted several local banks and all of them have said about 1-2%+ above regular mortgage rates, 3-5y ARM with 15-25y term, and 20-30% down. This is before I mention having an LLC or anything. I have no debt, significant equity, good W-2, and excellent credit. I'm fine with the money down and shorter term but the higher rates and the ARM I am not a fan of in general. How are people buying multiple non owner occupied properties on fixed rate traditional 30y mortgages?

 Hi @Karina Busch. Would you mind sharing any details about any of your investment properties, including current value and rent? Like others have posted, you sound like an IDEAL borrower, including with your local banks...just as long as you (or your Fractional CFO) are talking to the "right" banks that understand investment properties.

[Devin Peterson]

Quote from @Karina Busch:

I have started purchasing a few investment properties and have an LLC. Everything has been cash so far but I have contacted several local banks and all of them have said about 1-2%+ above regular mortgage rates, 3-5y ARM with 15-25y term, and 20-30% down. This is before I mention having an LLC or anything. I have no debt, significant equity, good W-2, and excellent credit. I'm fine with the money down and shorter term but the higher rates and the ARM I am not a fan of in general. How are people buying multiple non owner occupied properties on fixed rate traditional 30y mortgages?

Karina, you need a DSCR loan here. There are lots of options available from the mix of investment lenders. I recommend taking a look at comparing a few quotes.

[Mark S.]

I have 30-year fixed rate loans on all rental properties. A few are conventional 30-year fixed loans. One is a DSCR loan that covers 5 properties (also a 30-year fixed...at 3.75%!).

[Alecia Loveless]

@Karina Busch I have fixed rate 30 year mortgages on 7 properties. Some are 1-4 unit and some are 5+.

I work with a small regional bank that maybe has 20 branch locations across 2 states. I started out with a few 1-4 units with their residential loan officers and now that I’ve grown some, my last 3 deals have been 5-10 units with their commercial loan officer.

I may not be their biggest client but they take me seriously and often when I’m at the branch the vice-president will come out of his office to say hello and see how I’m doing.

I would recommend DSCR for you, or to continue contacting some other banks.

My most recent look indicated that the DSCR rate was actually lower than the one at my bank but would have required a 35% down payment in my particular situation. I ended up with the slightly higher rate and 20% down plus a second loan for some renovations.

Not every lender is the same, continue shopping around until you find one that meets your needs. If it turns out well a good lender is worth their weight in gold. Treat the relationship with importance.

[Karina Busch]

Quote from @Alecia Loveless:

@Karina Busch I have fixed rate 30 year mortgages on 7 properties. Some are 1-4 unit and some are 5+.

I work with a small regional bank that maybe has 20 branch locations across 2 states. I started out with a few 1-4 units with their residential loan officers and now that I’ve grown some, my last 3 deals have been 5-10 units with their commercial loan officer.

I may not be their biggest client but they take me seriously and often when I’m at the branch the vice-president will come out of his office to say hello and see how I’m doing.

I would recommend DSCR for you, or to continue contacting some other banks.

My most recent look indicated that the DSCR rate was actually lower than the one at my bank but would have required a 35% down payment in my particular situation. I ended up with the slightly higher rate and 20% down plus a second loan for some renovations.

Not every lender is the same, continue shopping around until you find one that meets your needs. If it turns out well a good lender is worth their weight in gold. Treat the relationship with importance.

Thank you!

[Stephen Keighery]

It's really not that hard. I have 3 DCSR lenders that I have used for 30 year fixed loans in LLCs over the last year. It's a pretty standard product these days. They will normally have some pre-payment penalties in the first couple of years but if you are keeping long terms that's not an issue. 

[Brittany Minocchi]

Hey Karina!

30-year fixed investment loans are pretty widely available, there are even some 40-year terms out there where the first 10 years are interest only. ARMs must just be what your local banks are comfortable with. Happy to talk if you have questions or want more info, feel free to reach out :) 

[Stacy Raskin]

If you're using an LLC and it's for an investment property, a DSCR loan can be the way to go.

More on DSCR loans: 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. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.

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

If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.

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.