Lending Options for First Time Rental Property Investor

[Christian Koepnick]

New to the Property Investment space but learning more every day. I am looking for any positive and negative experiences, or preferences regarding financing first property. Does DSCR Loan make sense or standard mortgage financing? Curious on everyone's thoughts and experiences. Thanks!

[Jason Wray]

Christian,

DSCR is a good program if you do not have enough W2 income or have less than 2 years 1099 self-employed. DSCR only uses the monthly rent(s) of a property to qualify not the persons income. DSCR requires 20% down and in most cases has prepayment penalties in order to get a reasonable rate. DSCR is geared for investors who want to use the rents to qualify and avoid using personal income to avoid DTI issues.

You also have a Portfolio program which is just a banks private capital where they service the loan. That only requires 15% even up to 4 units and covers all other property types including Condo, Townhome, and SFR's. What makes it unique is the down payment is only 15% on 2-4 Unit multifamily rentals. Most banks require 20-25% for 2-4 Units sometimes 30 for 4 units but with portfolio 15% across the board.

There are no prepayment penalties with portfolio and they have lower rates versus DSCR. Conventional programs are okay 15%-20% depending on number of units and offer a fixed 30 year but you will pay 2 points for a good rate in most cases. If you need to close in an LLC or have it switched down the road you can go with Portfolio, DSCR or Freddie Mac. Fannie Mae will not allow you to close in an LLC so make sure your check in advance.

In this rate market Portfolio is the best way to go to save on points, rates, and No prepays. If your putting 30% down or more DSCR does offer a 'DSCR Elite" program and the I/O interest only rates are attractive. But again you may have to take 2-3 year prepay for it to get you below the 7's on a 5/6 ARM.

Have the Banker/Loan Officer price up all options based on your down payment and property type to get the best idea of savings.