Dscr & 203k loan for investment property!!

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Dscr & 203k loan for investment property!!

Anup Jung Karki
Rental Property Investor · Dallas, TX · Member since 2020 · 40 posts · 8 votes

Hello,

I am looking to purchase a investment property in DFW, Texas with my friend. She bought a house in March/April of 2023 with 20% down payment. So, what are the criteria to get qualified for DSCR loan as well as rehab loan. Our main focus is dscr loan to get it to purchase. Does the down payment have to come from our account or can our family/ friend send money for down payment?

Also, I have a friend looking for VA loan qualifications he's a reserved military. Sorry, I am a newbie if I confused you, will appreciate your guys input.

Thank you.

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Stephanie P.Pro Member
Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
3y
Quote from @Anup Jung Karki:

Hello,

I am looking to purchase a investment property in DFW, Texas with my friend. She bought a house in March/April of 2023 with 20% down payment. So, what are the criteria to get qualified for DSCR loan as well as rehab loan. Our main focus is dscr loan to get it to purchase. Does the down payment have to come from our account or can our family/ friend send money for down payment?

Also, I have a friend looking for VA loan qualifications he's a reserved military. Sorry, I am a newbie if I confused you, will appreciate your guys input.

Thank you.

Hey Anup
Welcome to BP!
You have a lot going on here, so I'll try to break it down for you.
If your friend purchased a house in March/April of 2023 with 20% down, I'm assuming that's her primary residence and has nothing (other than the debt she created when she bought it) with the purchase you want to do together.  Now her debt to income ratio is too high and she can't buy anything else; right? No worries, here is the path forward after a couple of clarifications.
DSCR is not a rehab loan.  Far from it.  The property needs to be rent ready to be able to qualify.  Having a vacant property DOES impact the deal, specifically the loan to value.  If the property is vacant, you may get approved, but at a lower loan to value which may not help you.
VA is typically for owner occupied properties.  There are VA investment loans, but it would have to be a multi family property and your friend would have to live there.
If your friend is willing to lend you money, take it and put it in the bank.  Then go and get a hard money loan at 80% for acquisition and 100% of the renovations.  It's the max you'll probably qualify for with your limited experience and that's okay.  If the value of the house is 150K or so, you should have enough cash to acquire the property and float the renovations until the lender gives you a draw.
Then, once the property is stabilized and at least 6 months have passed, refinance into a DSCR loan.  GET PREQUALIFIED FOR THE DSCR LOAN FIRST before you go under contract.  You have to buy the property under market and you have to know you can get away from the hard money BEFORE you sign.
Hope that helps and all the best
Stephanie
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  • Todd Rasmussen
    Rental Property Investor · Clarksville, TN · Member since 2016 · 1k+ posts · 1k+ votes
    3y

    @Anup Jung Karki

    Make the family friend a partner and the money can come from them, otherwise it will need to come to you.

    DSCR loans will typically require the debt service coverage ratio to be 1.15-1.25 with amortization of 20-25 years. In the south, I'm only finding 5-7 year fixed. Should be able to find a DSCR loan to do interest only during the construction draw period, but if you don't already have a relationship with the bank, it might be hard to get them interested for a SFH.

    Good luck!

    0Reply
  • Devin PetersonBusiness Member
    Lender · Sarasota, FL · Member since 2022 · 2k+ posts · 676 votes
    3y

    Hi Anup,

    Main criteria for DSCR is:

    Ltv, DSCR ratio, and credit. If you have at Least 80LTV, 1.25+ DSCR and strong credit you'll get some pretty good terms

    [email protected]860-538-3672
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    0Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    3y
    Quote from @Anup Jung Karki:

    Hello,

    I am looking to purchase a investment property in DFW, Texas with my friend. She bought a house in March/April of 2023 with 20% down payment. So, what are the criteria to get qualified for DSCR loan as well as rehab loan. Our main focus is dscr loan to get it to purchase. Does the down payment have to come from our account or can our family/ friend send money for down payment?

    Also, I have a friend looking for VA loan qualifications he's a reserved military. Sorry, I am a newbie if I confused you, will appreciate your guys input.

    Thank you.


     Hello Anup, 

    Lenders do not source deposits on DSCR Loans and will not require bank statement seasoning. As long as you can show the proof of funds on a transaction summary you will be fine.

    You may also close with gift funds, however you may be required to show 3-6 months reserves. 

    If the goal is to rehab the property, DSCR won't work if the property is severely distressed.

    You may want to consider a fix and rent loan. Lenders will finance up to 90% of the purchase price and 100% of the rehab cost, as long as the total loan amount does not exceed 70% of the ARV.

    [email protected]818-269-7983
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  • Anup Jung Karki
    OP
    Rental Property Investor · Dallas, TX · Member since 2020 · 40 posts · 8 votes
    3y

    @Todd Rasmussen

    I will have a partner so we are two people trying to start. I have cash saved up for myself but a family friend of our is willing to give/ loan money for certain period time for zero interest so we could start.

    0Reply
  • Anup Jung Karki
    OP
    Rental Property Investor · Dallas, TX · Member since 2020 · 40 posts · 8 votes
    3y

    @Devin Peterson

    My partner has credit 780 and have about together 30/40k on bank together, so we are worried if we have to put 20% down we don’t have funds in bank but have cash as well as family friend willing to loan us so.

    0Reply
  • Anup Jung Karki
    OP
    Rental Property Investor · Dallas, TX · Member since 2020 · 40 posts · 8 votes
    3y

    @Erik Estrada

    Property needs TLC and some foundation work, will check that loan too. As i am rookie ans new to all this, trying to get into the game it’s kinda tough. Hopefully, we can figure it out. For rehab we have managed cash it’s not a problem, as we have access to fund we are worried about down payment only.

    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    3y
    Quote from @Anup Jung Karki:

    Hello,

    I am looking to purchase a investment property in DFW, Texas with my friend. She bought a house in March/April of 2023 with 20% down payment. So, what are the criteria to get qualified for DSCR loan as well as rehab loan. Our main focus is dscr loan to get it to purchase. Does the down payment have to come from our account or can our family/ friend send money for down payment?

    Also, I have a friend looking for VA loan qualifications he's a reserved military. Sorry, I am a newbie if I confused you, will appreciate your guys input.

    Thank you.

    Hey Anup
    Welcome to BP!
    You have a lot going on here, so I'll try to break it down for you.
    If your friend purchased a house in March/April of 2023 with 20% down, I'm assuming that's her primary residence and has nothing (other than the debt she created when she bought it) with the purchase you want to do together.  Now her debt to income ratio is too high and she can't buy anything else; right? No worries, here is the path forward after a couple of clarifications.
    DSCR is not a rehab loan.  Far from it.  The property needs to be rent ready to be able to qualify.  Having a vacant property DOES impact the deal, specifically the loan to value.  If the property is vacant, you may get approved, but at a lower loan to value which may not help you.
    VA is typically for owner occupied properties.  There are VA investment loans, but it would have to be a multi family property and your friend would have to live there.
    If your friend is willing to lend you money, take it and put it in the bank.  Then go and get a hard money loan at 80% for acquisition and 100% of the renovations.  It's the max you'll probably qualify for with your limited experience and that's okay.  If the value of the house is 150K or so, you should have enough cash to acquire the property and float the renovations until the lender gives you a draw.
    Then, once the property is stabilized and at least 6 months have passed, refinance into a DSCR loan.  GET PREQUALIFIED FOR THE DSCR LOAN FIRST before you go under contract.  You have to buy the property under market and you have to know you can get away from the hard money BEFORE you sign.
    Hope that helps and all the best
    Stephanie
    1Reply
  • Anup Jung Karki
    OP
    Rental Property Investor · Dallas, TX · Member since 2020 · 40 posts · 8 votes
    3y

    @Stephanie P.

    Thank you for the explanation. the cash we have access to is to be used to rehab to fix it to flip. Once we scale we will do HML too. I am very new so trying to do one at a time.

    As far as another friend who’s reserved army, i’ll let him know.

    Thank you.

    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    3y
    Quote from @Anup Jung Karki:

    @Stephanie P.

    Thank you for the explanation. the cash we have access to is to be used to rehab to fix it to flip. Once we scale we will do HML too. I am very new so trying to do one at a time.

    As far as another friend who’s reserved army, i’ll let him know.

    Thank you.

    You may not have enough (based on your original post) to make the renovations work and/or the HML may not lend to you for just acquisition. 
    Hard money lenders have their own parameters and lending for the rehab is part of it.  They want larger loans (because they make more money based on what they lend) and the renovation part is a way for them to increase the loan amount and control the deal at the same time.  They'll monitor the progress of the renovation and pay it out in draws to make sure you're doing the loan and improving the asset vs just buying it and then not doing the work.
    0Reply
  • Nicholas Ruscio
    Lender · Member since 2023 · 112 posts · 35 votes
    3y

    Hey Anup,
    Additionally with a fix and flip you can do a DCSR cash out refi which would give you additional funds. Lastly you should be able to get a competitive loan with 1.0 DSCR based on the programs I have seen. Please feel free to send me a DM with any question's.

    0Reply
  • Anup Jung Karki
    OP
    Rental Property Investor · Dallas, TX · Member since 2020 · 40 posts · 8 votes
    3y

    @Stephanie P.

    Is their a book i could read and get insights about these loan types and learn more about it?

    0Reply
  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    3y
    Quote from @Anup Jung Karki:

    @Stephanie P.

    Is their a book i could read and get insights about these loan types and learn more about it?


     There is plenty of information here on Biggerpockets.  I'd recommend you start listening to podcasts and reading the blogs.  

    0Reply
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