Investing with DSCR loans?

[Armando Carrera]

Hi all, 

Can you guys give me a better idea on these types of loans and how they work. Is it possible to get DSCR loans as a group? I want to try to invest with family members but want to get better informed before moving forward. Wifey and I have a rental property already but want to expand.

Thank you 

[Andrew Postell]

@Armando Carrera thanks for posting.  

Generally speaking there are 2 main types of loans for investors: “Conventional” and “Portfolio”

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money.

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But since there is a limit to how much money the bank has access to....their rate will be higher...and maybe some other feature that isn't as good as a "conventional" loan. This is where DSCR loans reside.

DSCR loans can be lent to a LLC (so as long as your "group" has created an entity), they are not based on your income at all but rather the income of the property, and they don't go on your personal credit (since it's lent to the entity). So more flexible, but the rate is usually higher and they usually come with a prepayment penalty of some type.

Hope all of that makes sense but feel free to ask anything additional.  Thanks!