All Forum Posts by: Nate Herndon

Hi Sandra, what type of financing are you looking for? 

o Commercial or residential property?

o Bridge (rehab) or long term (30-year fixed)?

o Full doc (pay stubs, taxes, personal DTI) or light doc (asset-based, DSCR)?

Good morning, @Bhargav Hirapara. There are a lot of options for DSCR programs, but only a few that do very well with short-term rentals. My favorite (and current go-to) program uses 80% of AirDNA figures for new STR properties without a rental history, but your current rents will provide a much more solid figure for underwriting.

With strong credit and at least a 1.00+ DSCR, you could have some very workable terms on a 30-year fixed. Would be happy to review the property with you and let you know what your loan summary would look like today.

Hi Matt, here are a couple of other options on a DSCR loan for a 30-year fixed. Lower monthly payment than the 15-year term. This is a program I utilize routinely for my clients.

There are lots of options outside of a HELOC, or shorter 15-20 year amortizations that many conventional banks offer. A DSCR loan, or Debt Service Coverage Ratio loan, is underwritten to the property income instead of your personal income/taxes/debts.

Hi Marcus - I am having this same conversation daily with clients. It is all about whether accessing the equity is important to you now or if you are ok with waiting out the interest rates.

Interest-only loans (30-year term, 10-year fixed interest only, adjustable rate thereafter) would help with cash-flow a little. I am more inclined to reduce your prepayment penalty to a 3-year (vs. the standard 5-year), which would allow you access equity now and look for a more exciting interest rate between years 3-5.

Hi Marty - this is a great question. It sounds like you would be purchasing as a "foreign national". The questions that I would ask as a private lending partner would be as follows:

o Are you a foreign national of the United States or do you have a green card (permanent resident alien)?
o Do you have a FICO credit score?
o Do you have a U.S.-based bank account?

If you have a credit score that qualifies, I do utilize one DSCR loan program that can lend up to 80% LTC to a foreign national. Otherwise, any foreign national without a FICO score will be limited to 65% LTC on a purchase of property on a 30-year fixed DSCR program. If you were in fact a permanent resident alien, there are many programs that I utilize that do not haircut your eligibility.

I believe a U.S. bank account is required as well - I haven't seen a client try to use a foreign bank account but once, but I do know that the particular lender we were utilizing took issue with that. I would not be surprised if all DSCR lenders felt the same.

 Good morning @Michael Caldwell - I think I know what you are asking.

Question: Are there lenders that will use the actual in-place rents (that are higher) for your underwriting of DSCR instead of using the lesser of market rents vs. in-place rents? The reason this is preferred is because your group-home rents will be much higher than the long-term market rent on a 1007 appraisal.

Answer: Nearly all residential 1-4 unit DSCR loan programs will utilize the lesser of 1007 market rents and in-place rents. However, there are multiple programs that I utilize for my clients that give a savvy investor extra credit if the market rents fall below in-place rents - that extra credit comes in the form of 110% of the market rent being used for underwriting.

Example would be $1,200 actual rents vs. $1,000 market rents: the useable income for underwriting would be 110% of market rent, or $1,100. Not quite the $1,200 you are pulling in actuality, but it's helpful. Pair that 110% with a 1.00 DSCR minimum and you will likely achieve the loan you are looking for.

Now, the group-home aspect is another story. Many residential DSCR programs would like the property to be leased to an individual using it for long-term rental purposes. Leasing to an entity or for the purposes of a group home or business or something other than a standard long-term rental is usually a no-go. The easiest route here would be to refinance as a vacant BRRRR at the shortest available seasoning of 90 days, before the property is leased out for your other purposes. The catch here is that the vacant refinance will utilize those market rents only, with no extra credit to be given since it vacant.

 Hi Tahsin, sounds like a tough scenario for some of the lenders you've spoken with so far. Here is an example loan summary of what I utilize for clients of mine who are looking for loan amounts between $50k-$75k. This program does not take issue with a mortgage late that is 12+ months old (or within the past 12 months either).

Happy to connect if desired.

You are very welcome! The Chicago-area 1-4 units that I have worked on recently for clients have done very well on their appraised values.

Hi Chris, DSCR loans are very common in the investing world. Qualifications typically center around whether the monthly rental income can at least break even (1.00 DSCR) with the monthly PITI.

We would simply need to know the following information to determine eligibility, interest rate, and loan terms for DSCR financing:

o Purchase or Refinance
o Property Address
o Monthly Rental income
o Annual Taxes
o Annual Insurance
o Estimated Credit Score

The documentation is relatively light as well, compared to a conventional loan underwritten to your personal income/taxes/debts.

▪ Entity documents
▪ 2 months of bank statements
▪ Photo ID
▪ Lease agreement (refinance)
▪ Sales contract (purchase)

Hi @Mariya Anabo, what a beautiful area to be buying!

We will be wrapping up a STR purchase for a client tomorrow in Kailua-Kona. Would be happy to go over the options available to you. 

The program that we utilize does not require prior STR experience, but instead will use 80% of AirDNA's projections for your market rent in underwriting.