Dscr loan to small?

Question

is there anyone that will give me a dscr loan under 100,000 I found a cashcow rent ready for $55,000 for sale by owner. it currently rents for $950.00 and its rented now! This will be my first rental property other than my house hack duplex please help, Thank You

Stacy Raskin · Answer

Some DSCR lenders will go down to a $75K appraised value and a $55K loan amount. It's the same work to do a $55K loan as a $500K loan so the fees will be higher due to the loan amount but will still be much lower than what a lender or broker gets paid on a higher loan amount. I haven't seen a program that goes lower than $75K appraised value but maybe the seller will carry?

Many DSCR programs require an investor to have a mortgage history- there are some DSCR mortgage programs that will work with investors who are renting- some refer to them as first time home buyers (FTHBs)- DSCR loans are only for investment properties where the owner isn't living there.

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+ generally gets best pricing for investment property loans with most lenders

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 < 1Principal + Interest = $1,700Taxes = $350, Insurance = $100, Association Dues = $50Total PITIA = $2200Rent = $2000DSCR = Rent/PITIA = 2000/2200 = 0.91Since the DSCR is 0.91, we know the expenses are greater than the income of the property.DSCR >1Principal + Interest = $1,500Taxes = $250, Insurance = $100, Association Dues = $25Total PITIA = $1875 Rent = $2300DSCR = 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.

Ko Kashiwagi · Answer

I think Credit Union is best bet for this purchase price. If it's above 75k, there's options out there and I've done plenty. There are portfolio loans options that allow 50k+ but they typically require 3+ properties and 300-500k+ minimum total loan.

Joe Impagliazzo · Answer

Dennis

CMG has a program that will do it as long as the loan meets high-cost guidelines, which you won't know until you apply.

Chris Seveney · Answer

DSCR very difficult to go below $75,000. I would as mentioned go to a local lender to see if they would finance that deal.

Patrick Roberts · Answer

You're going to have a very, very hard time financing that with a DSCR. I would check small local credit unions and banks that have only a handful of branches and are present in the market where the property is located. They may do this as a commercial loan.

Another option is seller financing if the seller is willing to entertain that. Just be careful with low value properties like this - they can be traps.