All Forum Posts by: Riaz Gillani

A silver lining of increased rates, no matter the prevailing market conditions, trends, backdrop etc. is decreased demand. I used to be unable to even review an off market deal let alone underwrite it because someone else had already wired the EMD before I opened up excel. In most areas, this is less so the case. And I'm relieved.

But, it definitely is harder to justify a BRRRR versus a flip when you're using raised capital for acquisition or Reno (let alone acquisition and Reno). The capital isn't as cheap and the spreads just aren't wide enough. And, unlike in the past 2 years, you're far less likely to have the market / an appraiser bail you out for a project that went over budget or beyond the estimated timeline.

I'm approaching all my properties as flips with a more generally appealing design aspect so that if I do choose to BRRRR - I don't end up regretting granite countertops or french tiles etc.

 Agreed on both - a deposit can be reasonably used. For ex, appraisal, credit and then any overage refunded at closing. Pretty typical in the Hybrid / Commercial space. Especially to curtail borrowers who are shopping multiple lenders and locking their rates as though no one pays the price on the back end...

It's pretty unlikely to get a DSCR loan from a Credit Union. It's tough to keep these loans (given they're usually 30 year terms) on one's balance sheet (if not impossible). Luckily the 10-12 national players have a nationwide reach. Give whomever you see in the forums a quick message and schedule a phone call to chat and discuss what the process looks like.

Red Flags: Placing a Deposit, Extremely Low Rates (There's nothing in this space below 5.99% and even that's pushing it), very high LTV's (I've never seen anything higher than 85% and again, that is pushing it...). Like someone mentioned above, these loans are either boarded onto a warehouse line post-closing or included in a mortgage pool to underly a securitization. You can't really stray away from the pact ....

Congrats on graduating! And cheers to wanting to jump into homeownership. But, before you take a deep dive ... let's unpack a few things.

(1) DSCR loans do not factor in income / employment - true. But, they are for creditworthy borrowers. So, think a middle score of 700+ and at least 3 total total and / or active trade-lines. Student loans, auto loans, credit cards are all your friends here.

(2) DSCR loans are for non-owner occupied properties. Hard stop here. If an underwriter gets a whiff of owner occupancy (aka, they think the borrower may in fact be buying this property to live in it) the deal is most likely dead. What would imply such? A borrower who does not currently own a home (claims to rent or live with their parents) or if the area in which the deal takes place isn't a typical rental market. This isn't to suggest you cannot buy a rental property with a DSCR loan when living at home or renting, it's just worth mentioning.

(3) Re: occupancy for 6-12mo and then an uptick on the interest rate? That seems like folklore. What this person may have been trying to imply is if you get a loan via a DSCR lender, and you live in it (effectively putting yourself in default) they may actually trigger the acceleration clause and you'd then have the default rate that was agreed to in the loan docs .... I almost have no comment here. It's called equity stripping. Is it possible, yes. But, DSCR loans are for non-owner occupied (see #2) so no such situation should ever come into play if you are responsible.

- What do you require for your DSCR loans? (i.e. documentation, landlord experience, credit scores above x, net worth above $xxx)

No DTI Consideration, No Income Verification, No Employment Verification ... need good credit (700+ should earn you the best terms available). No specific net worth requirement, just need to show liquidity such as 6mo of PITIA reserves in the form of bank statements. For a purchase, you also have to show DP + Est Closing Costs.

- Do your loans have pre-payment penalties?

Yes, most DSCR loans will have some kind of PPP. Usually 5 years (step-down or lock-out). Can be 3. We offer 2 but for a hit onto the rate.

- What do your closing costs include? (i.e. points, appraisal, etc.)

You'll usually have to pay for appraisal up front. Some form of credit and background also. 

Closing costs from the lender would be some range of origination (1 to 3 points) and then legal / underwriting / admin fees. Other customary items you'll see on your settlement state would be: title, insurance, escrows. 

Private, DSCR Lenders (aka Non-QM) allow vesting in an entity for non-owner occupied properties. Must be leased + rented during appraisal inspection and / or closing. I'm sure you'll get a rush of those very lenders on this thread. So I'll just add that I've been seeing rates for a creditworthy borrower (700+) for a 30 Yr Fixed Rate, 75% LTV Cash-Out Refi at 6.500% to 7.500%.

Good luck!

If by contract you mean term sheet - the lender should provide that. But, a google search for a term sheet should get you a good template. 

If by contract you mean Loan Documents (Note, Loan Agreement, Security Instrument / Mortgage, etc.) I would ask a real estate attorney to draft these. Specifically an attorney who specializes in private lending. Geraci Law Firm, Andelsman Law and Private Lender Law are who we (institutionally backed lenders) use.

Why the absolute need for a portal / app? Security?

Most lenders will have some secure portal to upload documents. 

But, if you're keen on a rocket-like portal / interface - Kiavi would be the best way to go. 

Why is it almost all interest .... Mortgage interest is the interest you pay on your loan. We know this. It is based on the interest rate agreed to at the time you sign your contract. The interest compounds, which means the balance of your loan is based on the principal plus any accumulated interest. 

What not everyone know is that our mortgage payments primarily go toward interest in the initial stage, with a small amount of principal included. This is a process lenders call amortization. It helps them with ensuring a return on their money even if the borrower repays the loan early or makes additional payments. 

The point at which you begin paying more principal than interest is known as the tipping point. This period of your loan depends on your interest rate and your loan term. So someone with a 30-year loan at a fixed rate of 6% will hit their tipping point no more than 16 years or so into their loan. Having a lower rate will get them to this point faster.

Does the property cash flow at the fixed rate option? Are you content with the returns? Better the devil you know than the one you don't.

The interest is still tax deductible (though I'm not a CPA). 

ARMs are a valid option. Lower rate during the teaser period and an opportunity to see rates lower than what is available now. But, I wouldn't count on that second part ...

They're most suitable for investors who are receiving a windfall in the next few years and may want to pay off the property before the fixed period ends. Also for people who may retire soon and really want to take a mortgage out for the tax deduction. 

In the investor space, there's more favor towards IO ARMs - truly maximizing cash flows in the short term.