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Updated about 3 years ago on . Most recent reply

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Shane Zilinskas
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Purchase then refinance to DCRS to pull out down?

Shane Zilinskas
Posted

My understanding is you can get a DCRS loan at 1.2 - 1.25 debt service coverage.

Assuming the property is currently being used for short term rentals:

What is stopping me from acquiring a property having less than this debt service coverage (1.2-1.25), and then immediately refinancing up to 1.2-1.25 and getting principle back out?

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Chris Mason
  • Lender
  • California
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Chris Mason
  • Lender
  • California
ModeratorReplied

TLDR: You're unicorn hunting

Longer version: 

DSCR or conventional, and assuming we're not talking about HML or loan sharks charging 10%+ and 3+ points, there's always multiple criteria in place.

DSCR (for the aptly named "DSCR" type loans) or DTI (Fannie type loans) is one common criteria, LTV is another. The most restrictive of all the various criteria is what applies. Not the most liberal (millionaires don't get to take out $2m mortgages on $300k homes, for example). 

In the case of residential real estate, especially single unit (condo or SFR), the appraisal is still a residential appraisal. Comparable sales determine value for residential appraisals, not cashflow.

So, for these STR cashflow monsters, it winds up being LTV that is the constraint. Just like that millionaire can't take out a $2m mortgage on a $300k home, the person killing it with a STR can't finance more than the LTV restriction would allow for the loan program in question, and it's not 2007 any more so no one is doing 100% or 120% LTV cash out refis (yup, >100% LTV cash out refis was a thing towards the end of the 2004 to 2008 era, and we saw what that did to the global economy...).

  • Chris Mason
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