New To Bigger Pockets/DSCR Loan question

[Ted Schirm Jr]

On the recommendation of a friend/client I recently joined the Bigger Pockets Community and am working on expanding my network. I have 20 years' experience in lending and love to chat with people about experiences they’ve had...good and bad (and yes Ugly) ...which helps me do a better job for my clients. One thing I have learned is to be ready for anything when working in real estate and the more you talk with people the more you understand!

Occasionally I may post a topic on here to strike up a conversation. I hope you don't mind.

Over the past 6 months I have been deep diving into the world of DSCR financing, utilizing either short- or long-term rental income. What is the biggest problem or concern you have (or had) with this type of financing?

Nice to meet all of you!

[Jason Wray]

Ted,

You need to make sure you work with a seasoned Banker/Loan officer because DSCR is not an easy product. There are certain parameters a good banker/loan officer needs to examine up front that can cost you money in the long run. You have to run the common rents for the area and compare it to which DSCR program you are approved under. DSCR also offers multiple terms so knowing up front which one is going to offer the best cash flow and overall cost is important.

Knowing if you can close in an LLC up front and if there is a rate bump, What DSCR ratio are you using for approval and do they offer a lower DSCR ratio option as a back up if the appraisal 1007 (Rent schedule) comes in short, Do they offer an I/O interest only option for higher cash flow and do they use the ITI or PITI to qualify for DSCR ratio payment approval, Does the bank/lender have overlays on PITI reserves 3/6/12 months reserves required, Do they require landlord seasoning or will they approve first time investor, Do they use lesser of the two on rent schedule or STR rents or use the VRBO previous owner tax year.

What are they offering in regards to rates and duration of prepayment penalty - what is the cost for No prepay. Biggest thing is discussing the properties current rents/common rents to ensure that the DSCR ratio will be in line. Again this is where the lesser of the two rents come into play appraisal 1007 rent schedule to show common rents or current lease in place. You can find yourself in a position where you paid for any appraisal ready to close and find out the DSCR is not equal to or greater than the new PITI or ITI if approved as I/O mortgage payment.

There are also certain Non/QM DSCR lenders to avoid because they have limited LTV's, High rates, and minimum loan amounts.