All Forum Posts by: Tristan Pearrow

Hey BP Community, a lot of you have had questions since I posted about DSCR loans last week. So...

Here's a follow up on my last post. This time I'm going to highlight some of the features of a few DSCR options for various property types and investor experience levels.

(If you're not familiar with DSCR, refer to my last post about how DSCR could open a lot of doors and eliminate a lot of problems for you as an investor.)

A brief recap of what DSCR loans are: A DSCR, or debt service coverage ratio, is calculated by lenders when qualifying a borrower. When calculated, it is a measurement tool that lets the lender know if the investment at hand will generate enough cash flow to, at minimum, cover the proposed debt amount.

How does this benefit you, the investor?

One of the main benefits of a DSCR loan is that a personal income calculation is not required. The lender is instead focused on the cash flow that the real estate investment at hand is predicted to generate.

This eliminates the need to turn in those paystubs and the need for employment verification. If you're self-employed or have a gap in employment history, this loan product is the solution to either, or both.

Some Features, Parameters and Types of DSCR Loans:

1-4 UNITS RESIDENTIAL

First-Time Investors, Experienced Investors

Max 85% LTV

• Max $3.5M Loan

• Min $100K Loan

• Min 600 FICO

• Purchase, Rate and Term, Cash Out

• Max Cash Out 75% LTV

• Cash In Hand: LTV < 65% $1M, LTV > 65% $750K, LTV > 70% $500K

• Property Types: SFR, 2-4 Units, Condos, Condotel

• First-Time Investors Allowed (Must Own a Primary Residence)

• Interest-Only Options Available

• Stabilize DSCR with Interest-Only Feature

• 40-YR Term Available with Interest Only

• Housing History: Up to 1x30x12

• Housing Event Seasoning: 24+ Months

• Gift Funds Allowed (Min 10% Borrower Contribution)

• Close in LLC or Corporation

2-8 UNITS MIXED-USED

Experienced Investors

Max 75% LTV

• Max Loan $3.5M

• Min Loan $250K

• Min 660 FICO

• Min DSCR >=1.00

• Purchase, Rate and Term, Cash Out

• Max Cash in Hand: $1M

• Property Type: + 2-3 Units: Max 1 Commercial Unit + 4-5 Units: Max 2 Commercial Units + 6-8 Units: Max 3 Commercial Units

• Max 2 Acres

• Interest-Only Options Available

• Stabilize DSCR with Interest-Only Feature

• 40-YR Term Available with Interest Only

• Housing History: 0x30x24

• Gift Funds Allowed (Min 10% Borrower Contribution)

• Close in LLC or Corporation

5-10 UNITS RESIDENTIAL

Experienced Investors

Max 75% LTV

• Max Loan $3.5M

• Min Loan $250K

• Min 660 FICO

• Min DSCR >=1.00

• Purchase, Rate and Term, Cash Out

• Max Cash in Hand: $1M

• Property Type: Residential 5-10 Units

• Max 2 Acres

• Interest-Only Options Available

• Stabilize DSCR with Interest-Only Feature

• 40YR Term Available with Interest Only

• Housing History: 0x30x24

• Gift Funds Allowed (Min 10% Borrower Contribution)

• Close in LLC or Corporation

As a lender who works heavily with investors, DSCR is one of my favorite go-to loan types that I use to get investment loans closed quickly and easily.

Unfortuntely, many lenders never present this option to investors, either because they don't know about, because they don't know enough about it, or they just don't want to offer or are not able to offer the product.

Take away: Don't sweat if your project or income doesn't fit into the conventional guidlines. Find a lender who understand DSCR and other non-QM loans who can help you learn how to use these loans to your benefit.

DSCR would be the perfect option for this. You will not need a lease or anything like that if done correctly and you could refinance the property right away. Feel free to shoot me a message, I'm happy to get into specifics because what they're telling about having a lease for 2 years sounds like a bank overlay, not a real conventional guideline. I'm using a lease right now to qualify someone conventionally that closes next week and they have never been landlords or rented the property in the past.

Most definitely, and lately with Fannie/Freddie making investment purcahses less favorable in general, some of the DSCR rates are looking pretty competitive with conventional rates in this market.

Absolutely Mike I'm glad you found the post helpful! Exactly, that's why I like DSCR and non-QM products in general, they open a lot of new doors for investors.

Hey Jaclyn, I had to stop and say hey! I'm in a local lender here in Boca and it sounds like we all work in complimentary fields. I'll add you and shoot you a message so we can connect!

Hey Greg, there are a couple of options I can think of that would allow for less down but I would need a little more info. I'll shoot you a message

I have a pretty good network of realtors who work with investors. What areas are you looking in?

Hey BP Community, I noticed a good number of questions I answer on here are related to trying to purchase a property, but having issues with income, so I think many of you will find this post VERY helpful. I really hope this info adds another tool to your investment "toolbelt".

The Problem: Whether it be DTI that's too high, student loans being counted on conventional financing, being unable to use anticpated rents, showing losses on tax returns, not being in business or working for long enough - income causes issues with financing investment purchases.

The Solution: DSCR

What are DSCR loans?

A DSCR, or debt service coverage ratio, is calculated by lenders when qualifying a borrower. When calculated, it is a measurement tool that lets the lender know if the investment at hand will generate enough cash flow to, at minimum, cover the proposed debt amount.

And to put is simply, if it does cover the debt at a 1:1 ratio or greater, you qualify. 

How does this benefit you, the investor?

One of the main benefits of a DSCR loan is that a personal income calculation is not required. The lender is instead focused on the cash flow that the real estate investment at hand is predicted to generate. 

This eliminates the need to turn in those paystubs and the need for employment verification. If you're self-employed or have a gap in employment history, this loan product is the solution to either, or both.

You can also can come to the closing table and close each loan in your business entity or trusts name. Yes that's right, you can close in an LLC and save the attourney fees. 

What about Downpayment? 

Just like your traditional investment purchase, DSCR only requires 20% down, in some special cases like non-warrantable condos - 25%.

Other Features:

• Available for purchases and cash-out or rate-term refinance
• No limit on total number of properties
• Maximum loan amount $1.5 million
• No personal income used to qualify
• Qualifications based on property cash flow
• Non-warrantable condos OK
• 40 year fixed interest only available
• Properties can be in LLC's name

As a lender who works heavily with investors, DSCR is one of my favorite go-to loan types that I use to get investment loans closed quickly and easily. 

Unfortuntely, many lenders never present this option to investors, either because they don't know about, because they aren't confident doing them, or they just don't want to offer or are not able to offer the product.

Take away: Don't beat yourself up going conventional if you don't have to. Find a lender who understand DSCR and other non-QM loans who can help you learn how to use these loans to your benefit.

This lender you spoke to is referring to Fannie/Freddie giudlines. The loan you guys need is a DSCR loan. These do not look at income or DTI (debt to income ratio) and rather qualifies you based on the prospective rental income the property will generate. I do Non-QM and DSCR loans regularly and have several wholesalers I work with. Feel free to reach out if I can help.

Hey Matthew, with you and your wife showing losses on taxes you will not be able to go the traditional fianncing route with a conventional refinance or HELOC beacuse they will require net positive income. Good news though, that's why we have non traditional loan products. With those, you could do a cashout refinance using either a bank statement loan or a DSCR loan - I do both regaularly and with several competitive wholesalers to choose from that offer those products, I would be happy to provide more infomation.

@Matthew Seabolt