Will lenders approve me for a loan

Question

I want to buy a property this year, but I have other debt. I make much more money monthly than than my monthly bills, but I’m not sure if things are different when buying an investment property. Any advice from lenders?

Thank you!

Devin Peterson · Answer

Use a DSCR loan - No DTI or the same red tape quasi govt loans have.

20% down for a purchase and would require roughly 2-3 months reveres roughly for each REO owned

Only target goal is make sure your market rent is 1:1 with your PITI. That is essentially the fundamental definition of Debt Service Coverage Ratio. Happy to connect if you have specific questions!

Nick Velez · Answer

@Troy Smith

To play devils advocate, always try for conventional first and use DSCR as a back up. While rates are somewhat close between Conventional and DSCR at the moment, you will have a pre-payment penalty with DSCR which is less than ideal. No pre pay DSCR options exist, but that rate will be quite a bit higher than conventional.

In most scenario's, you can use 75% of the projected long term rents to help offset the proposed mortgage payment. You will need to qualify for the remainder of the payment and your existing debts.

Carlos Valencia · Answer

Hello Troy,

Typically investment properties require 25-20% down payment. It will depend what kind of loan product your using in order to determine eligibility. When it comes to getting an investment loan you can qualify based on your income or the properties rental income. There's so many other programs too its not all black and white. Best way to know is to get in touch with a mortgage planner and discuss your scenario to see which loan product best meets your needs as an investor.

@Albert Bui @Matthew Kwan

Erik Estrada · Answer

Hi Troy,

You may attempt going conventional, however I find that DSCR and conventional rates can be nearly the same. I will note that there is a Prepayment penalty on a DSCR loan. This can be bought out or financed.

The advantage of going DSCR is being able to qualify with no DTI and close in an LLC. The disadvantage is the Prepay and the requirement to debt service at 1.00 for a competitive rate.

Glen Wiley · Answer

Call your local banks and credit unions and try to get pre-approved for a purchase. This will tell you whether you are in the ballpark. We always start buying season with a pre-approval letter in hand before we start looking at houses.

Nate Herndon · Answer

Yes, a DSCR loan would only require minimal documentation from you. Drivers license, entity documents (for the LLC you want to close in), two months of bank statements, and your purchase agreement. Closing in an entity will keep the loan from reporting on your credit, therefore it will not hurt your DTI when you do need to use conventional lending. I utilize a number of loan programs that accept a soft credit pull that our team pulls, so no hard inquiry there. Good luck out there this year! Let me know when you need to see some terms on a prospective purchase.

Sophia Buesing · Answer

Hey Troy! Their are some options you can do if the traditional route doesn't work out. I think it is great to explore all your options. You could do a DSCR loan which is based on the rental income. Or if your are looking to do a rehab you can utilize a hard money loan.

Jayson Cain · Answer

Hi @Troy Smith, I'm based in Southern California, but I have started my out-of-state real estate journey in Indianapolis. Now, I have a portfolio of Short Term Rentals and Long Term Rentals.

I've also helped other investors with their DSCR loans and flip projects. Happy to share my experiences and chat with you more if you're interested.

John Clark · Answer

You are not buying an investment property for the sake of buying land, you are buying to make money. So first things first: What alternative investments can you make? Since you make more than your bills, paying down debt is the equivalent of earning a return equal to your interest rates on your debts. Do you have other investments guaranteed to pay you a return equal to your debt interest rates? I doubt it. So pay down/off your debt and while you are doing so, look for investment properties and shop rates for purchase loans, etc. Make your personal balance sheet attractive to lenders, as you will probably be signing a personal guarantee in any event, even if you do purchase through a corporate entity.

So spend the time getting to know your market and the types of properties out there and what it takes to manage them. You may find that you don’t want to be a landlord after all. If that’s the case, you’ll find it’s a lot easier to get out when you’re not up to your gills in debt.

It’s important to start. It’s not important to get X doors in Y period of time.

Will lenders approve me for a loan

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