Have you used a DSCR loan?

[Gajendra Singh Rathore]

Researching on DSCR loans! If you've used DSCR loans, please share your experience.
Would you recommend it to investors?

[Nicholas L.]

Yes and Yes

[Joe Dillamore]

@Gajendra Singh Rathore DSCR is bread and butter for a huge number of real estate investors. Whether or not it's a good product for you to use really comes down to your investment strategy.

Where are you at in your real estate investing journey? What are you hoping to achieve.

[Gajendra Singh Rathore]

Quote from @Nicholas L.:

Yes and Yes

 Hey Nicholas, could you share more details about your investment or what makes it right for investors?

Thanks

[Nicholas L.]

@Gajendra Singh Rathore

sure, there are several upsides and several downsides to DSCR loans

upsides - qualified based on the income of your property, no limit on the number you can hold

downsides - higher interest rates, potentially high fees / closing costs to get into ($5-10K)

i have a mix of conventional and DSCR loans in my portfolio. when I BRRRR a property I typically refinance into a DSCR loan

[Brittany Minocchi]

Haven't used one personally, but I've helped a lot of people get them. If you need to close in an LLC, don't want to (or can't) provide income docs like tax returns, paystubs, W2s, etc., don't have a great employment history or are self-employed, DSCR is a great option. Income is based off of the property, not the borrower and DTI is not a factor. FICO of the borrower is important.

Downsides are rate is usually a bit higher than conventional (but it's worth mentioning that conventional investment loans typically require points which increases closing costs, not always the case with DSCR), closing costs can be higher and there are usually prepayment penalties. Conventional limits you to 10 properties, many lenders don't have a limit for DSCR.

People who use the BRRRR method usually refinance into a DSCR loan, but that's not the only scenario it works with. Happy to discuss further, feel free to connect!

[Rob Tennyson]

It is MUCH easier to qualify for a DSCR loan. You just need to prove the rents from that one property and you are good. If you own multiple properties, you wouldn't have to provide tax returns, mortgage statements, insurance, proof of rent, etc.

The trade-off is definitely cost. It will be a higher rate and possibly more expensive closing costs. 

If this is your only property and you don't mind going through all the documentation collection process of conventional financing then that might be the best route for you. But DSCR loans are much easier to get done.

[Tanner Strand]

Hi @Gajendra Singh Rathore!

While I have not personally used a DSCR loan, I have helped many many borrowers get them. The great thing about the DSCR product is that it is designed for investors as a business purpose loan. The loan will be primarily underwritten on the collateral or the property itself and not so much the individual. That said, your FICO score will have a big impact on the interest rate you qualify for. Shoot me a PM and I can connect you with somebody that would be more than happy to discuss the DSCR product with you!

[Matthew Kwan]

You can do DSCR loans or Hard money loans, where they only focus on how well the subject property performs in terms of the rental aspects or the ARV aka after repair value. Of course, the rate can be slightly steeper than the conventional loans where it is a full document loan, where they need to qualify you based on your income.

Alternative way, is to acquire the 2nd property as an investment property with conventional, while putting 15%-25% down payment. Down payment can be higher than primary, but the good thing is that you won't need that much income to qualify because lenders can you 75% of the market rents for the units of the property. Imagine the 2nd property is a 4plex, each unit can be rented $1500/unit of 75% =$1125 x 4 units =$4500 worth of income to offset your that 2nd property.

@Albert Bui @Carlos Valencia

[Jay Thomas]

DSCR loans offer real estate investors valuable advantages, allowing qualification without traditional income verification, accessing diverse investment opportunities, and accommodating various investment strategies. However, potential downsides include higher interest rates, stricter qualifications based on the property's projected income and expenses, and limited availability among lenders. In my experience, DSCR loans can be a game-changer for investors with strong cash flow properties or those who are self-employed, offering an alternative financing path. I recommend DSCR loans for investors with well-performing properties and caution for those with limited investment experience or considering high-risk properties. The key is to carefully evaluate your goals, risk tolerance, and the property's cash flow potential before choosing a DSCR loan.

[Jake Baker]

@Gajendra Singh Rathore

What type of investment are you looking to pursue? 

[Jacob Sherman]

It is hands down the best 30 year fixed loan you can get as an investor . No income no doc . Can have an unlimited amount of them . Can have them in your LLC . Most bank can't do it in LLC and they are full docs and max out at 10 loans .

[Sylvie Kuzminski]

Yes, I just started using DSCR loans this year. They are a game changer. DSCR lenders don't care about you income, how many other mortgages you have or any of that. They care about your credit score and how much money the subject property makes (you will need a DSCR of 1.5 with most lenders). There is no limit on how many loans you take out, you can close in an LLC (they actually prefer this.. I don't know if anyone using DSCR loans closes under their name).

The downside- there is a bit of a barrier to entry. When I was doing my first DSCR deal, they placed a great deal of emphasis on my experience. How many properties I have, how many I've sold, income produced from those properties, my property management experience and so on. Once you get your foot in the door, however, they mainly care about cash flow from the subject properties.

Down payments are around 20-25%, but I've seen as low as 15% for larger loans ($1m+). Closing (in theory) can be as quick as a few weeks. 

[Zach Edelman]

Quote from @Sylvie Kuzminski:

Yes, I just started using DSCR loans this year. They are a game changer. DSCR lenders don't care about you income, how many other mortgages you have or any of that. They care about your credit score and how much money the subject property makes (you will need a DSCR of 1.5 with most lenders). There is no limit on how many loans you take out, you can close in an LLC (they actually prefer this.. I don't know if anyone using DSCR loans closes under their name).

The downside- there is a bit of a barrier to entry. When I was doing my first DSCR deal, they placed a great deal of emphasis on my experience. How many properties I have, how many I've sold, income produced from those properties, my property management experience and so on. Once you get your foot in the door, however, they mainly care about cash flow from the subject properties.

Down payments are around 20-25%, but I've seen as low as 15% for larger loans ($1m+). Closing (in theory) can be as quick as a few weeks. 

 @Sylvie Kuzminski really? I have found that for DSCR lenders that for larger loans, they actually require more equity from the borrower, largely due to the fact that with larger loans, which inherently deal with higher value properties, the value of said higher value properties is not as concrete/easy to pin down. We just launched a product where we can do 20% down up to $1.5M in loan, but prior to that, were capped at 75% LTV (25% down) at loan amounts larger than $1M.

[Sylvie Kuzminski]

I generally do 25% down, even though I've been given 20% down as an option (but with a higher interest rate, and a 5 year pre-payment penalty). 

[Ross Francis]

Quote from @Sylvie Kuzminski:

Yes, I just started using DSCR loans this year. They are a game changer. DSCR lenders don't care about you income, how many other mortgages you have or any of that. They care about your credit score and how much money the subject property makes (you will need a DSCR of 1.5 with most lenders). There is no limit on how many loans you take out, you can close in an LLC (they actually prefer this.. I don't know if anyone using DSCR loans closes under their name).

The downside- there is a bit of a barrier to entry. When I was doing my first DSCR deal, they placed a great deal of emphasis on my experience. How many properties I have, how many I've sold, income produced from those properties, my property management experience and so on. Once you get your foot in the door, however, they mainly care about cash flow from the subject properties.

Down payments are around 20-25%, but I've seen as low as 15% for larger loans ($1m+). Closing (in theory) can be as quick as a few weeks. 

Interesting. 1.5 DSCR seems high, especially in this market. I'd be curious to know which lenders require a DSCR ratio of 1.5+. Is that an ITI calc or a PITI calc? Can you shed any light on that?

As to whether you can close in a personal name, I can only speak to CV3's approach and that is not an issue or a detriment to rate.