All Forum Posts by: Caleb Marks

You are correct, it is common for DSCR lenders to require the borrower to be a business entity in Florida, and some other states sprinkled across the US. If you are set on closing under your personal name, you definitely want to check with your lender on that during the initial fact-finding stage.

This is something we run into quite often and can easily navigate. Feel free to reach out! 

Hey Wenyu - this sounds like the perfect opportunity to transition from conventional financing to using a DSCR Loan. Here are a few reasons why: 1) No DTI or personal finances considered outside of showing you have the cash to close, 2) Qualify with the rental income for the property you are acquiring (100% of it), 3) rates comparable to conventional mortgages, 4) close under an LLC and no credit reporting for the new loan.

Feel free to reach out for more information. 

Another important distinction you should inquire about before starting a cash-out refinance seasoned less than 12 months with a lender is whether there will be a cap on the loan amount or cash-out proceeds based on the seasoning. Levering off of the appraised value (using it to determine the loan amount and LTV) is one major component, but another is the loan amount the lender is willing to extend.

Many lenders advertise the ability to do a cash-out refinance after with no seasoning or 3-6 months of seasoning, but your loan amount might be capped at your cost-basis (purchase price + rehab cost). In this scenario, if the property appraises higher than anticipated, your upside is still limited to your cost basis. This might not be the end of the world for you if you have a lot of equity in the project, but it could limit cash-out proceeds and is a good thing to be aware of upfront.

The most common in the DSCR market from what I have seen is 3-6 months seasoning, using the appraised value but the loan amount is limited to the cost basis. 6+ months of seasoning, using the appraised value with no further restrictions. I am aware of a few programs that will also do less than 3 months, using the appraised value, but the loan amount is capped at the cost basis.

It is correct that there is no limit, but some of the aggregators and securitizers who purchase these loans post-close have exposure limits, such as $10 million in unpaid principal balance. If you are working with a lender who securitizes their own loans, they will likely have a similar requirement. That being said, there are enough lenders out there that this won't ever be a problem for you. We work with some sponsors who do 10+ transactions a year, and some even more. 

On the rent-by-room question: that is correct, about 18-24 months ago, rent-by-the-room was okay in the DSCR space, but those times are behind us. However, if it is a purchase transaction, the deal can still get done, the deal would just need to qualify as a standard rental (lender won't know you are renting by room post-close). Refinances, it is more obvious as there will be modifications to the property that are evident on the appraisal. Lenders stopped allowing rent by the room due to modifications done to the property resulting in functional obsolescence and significant cost to cure in the event there was a default and they needed to foreclose on the home and resell it, given that the main buyer pool for single-family homes are primary occupants.

I second what @Dave Hutson said here. Due to the more complex situation given the land contracts, term length desired, and smaller total loan size - this will likely be best with a local lender or credit union who will hold it as a portfolio loan because it falls outside of the desired parameters for many DSCR lenders that then sell and securitize their loans (hence the more strict requirements).

This will depend on what kind of loan you choose to proceed with. Speaking from my experience with DSCR loans, most lenders will look at this deal as a 2-unit and qualify the income from only the 2 legally zoned units. Additionally, they will likely ask that the appraiser not consider the third unit which is not legally zoned in the valuation. This way the lender is covered and only lending on the value that is legally zoned and compliant (in case the city took action against the non-conforming unit). There is also a distinction to make here as units can be legal non-conforming aka grandfathered in, in which case the above scenario would be ok to consider rental income and value on all three units.

Currently, the maximum LTV for a cash-out refinance on a 2-4 unit property is 75% LTV, some lenders can go up to 80% on a case-by-case basis but qualifications are much more strict (FICO, DSCR, Property Type, Market, etc.).. but it can be done.