Looking for DSCR Loan for 6-unit in Birmingham, AL

Birmingham, Alabama
Mortgage Brokers & Lenders
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Looking for DSCR Loan for 6-unit in Birmingham, AL

Jared Stone
Member since 2020 · 1 post · 2 votes

Hi BP! First time poster here. Just submitted an offer on a 6-unit property in Birmingham, AL. All units are 2 bed 1 bath. Current rents average $450/m with market rents at $800/m without any renovation. Offer price $295k (subject to final pricing) with projected NOI at $35,500. I know that typical DSCR products are up to 4-units, but are there any lenders out there wiling to do a 6-unit DSCR loan? If not, what are other creative financing types that do not require income verification (or limited verification)? My FICO is over 800. Thanks!

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Robin SimonBusiness Member
Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
2y
Quote from @Jared Stone:

Hi BP! First time poster here. Just submitted an offer on a 6-unit property in Birmingham, AL. All units are 2 bed 1 bath. Current rents average $450/m with market rents at $800/m without any renovation. Offer price $295k (subject to final pricing) with projected NOI at $35,500. I know that typical DSCR products are up to 4-units, but are there any lenders out there wiling to do a 6-unit DSCR loan? If not, what are other creative financing types that do not require income verification (or limited verification)? My FICO is over 800. Thanks!


Yes - Multifamily DSCR Loans can be a great option for this - check out this recent article posted last year on everything you need to know about Multifamily DSCR Loans (generally for properties with between 5 and 10 units) including comparison vs. traditional loan options!

https://www.biggerpockets.com/blog/multifamily-dscr-loans

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  • Stacy RaskinBusiness Member
    Lender · Member since 2022 · 1k+ posts · 500 votes
    2y

    There are lenders that have a 5-8 program and some that go up to 10 units. Usually the minimum loan amounts are higher compared to a 1-4 program with a loan minimum often of $400K. Often rates trend a bit higher compared to the 1-4 unit program. 

    More info on DSCR loans:

    DSCR loans won't use your income to underwrite the loan. DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.

    Here's a bit more in detail about how rates are calculated for DSCR loans:

    1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders

    2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.

    3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.

    4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.

    I've included an example below to help illustrate this.

    So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.

    See example below:

    DSCR < 1

    Principal + Interest = $1,700

    Taxes = $350, Insurance = $100, Association Dues = $50

    Total PITIA = $2200

    Rent = $2000

    DSCR = Rent/PITIA = 2000/2200 = 0.91

    Since the DSCR is 0.91, we know the expenses are greater than the income of the property.

    DSCR >1

    Principal + Interest = $1,500

    Taxes = $250, Insurance = $100, Association Dues = $25

    Total PITIA = $1875 Rent = $2300

    DSCR = Rent/PITIA = 2300/1875 = 1.23

    DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.

    Happy to connect to discuss further. 

    [email protected]818-770-0340
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  • Ko KashiwagiPro Member
    Lender · Los Angeles, CA · Member since 2022 · 967 posts · 445 votes
    2y

    Hi Jared,

    There are DSCR program for 5-8 unit properties. Rates tend to be higher than 1-4 units or 10+ units as these units fall in a range where not many lenders can do these deals. The qualifications are similar to the 1-4 unit DSCR programs.

    Happy to discuss further and answer any other questions!

    310-848-9776
    0Reply
  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    2y
    Quote from @Jared Stone:

    Hi BP! First time poster here. Just submitted an offer on a 6-unit property in Birmingham, AL. All units are 2 bed 1 bath. Current rents average $450/m with market rents at $800/m without any renovation. Offer price $295k (subject to final pricing) with projected NOI at $35,500. I know that typical DSCR products are up to 4-units, but are there any lenders out there wiling to do a 6-unit DSCR loan? If not, what are other creative financing types that do not require income verification (or limited verification)? My FICO is over 800. Thanks!


    Yes - Multifamily DSCR Loans can be a great option for this - check out this recent article posted last year on everything you need to know about Multifamily DSCR Loans (generally for properties with between 5 and 10 units) including comparison vs. traditional loan options!

    https://www.biggerpockets.com/blog/multifamily-dscr-loans

    [email protected]
    Harpoon Capital514 Reviews
    WebsiteView Page
    8Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    2y
    Quote from @Jared Stone:

    Hi BP! First time poster here. Just submitted an offer on a 6-unit property in Birmingham, AL. All units are 2 bed 1 bath. Current rents average $450/m with market rents at $800/m without any renovation. Offer price $295k (subject to final pricing) with projected NOI at $35,500. I know that typical DSCR products are up to 4-units, but are there any lenders out there wiling to do a 6-unit DSCR loan? If not, what are other creative financing types that do not require income verification (or limited verification)? My FICO is over 800. Thanks!


    There are plenty of DSCR lenders that go up to 6 Units. The issue you will come across is the lengthy PPP term on a DSCR loan. On a 5+ Unit, lenders will require a minimum DSCR of 1.15, LTV will be capped at 75%, and the property must be at least 70% occupied.

    You may want to consider a bridge loan instead if the property needs rehab. 

    [email protected]818-269-7983
    LuxePrivate Investments LLC 572 Reviews
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  • Ammabelle Canoy
    Member since 2024 · 33 posts · 3 votes
    2y

    @Jared Stone Hi! We do this all the time, Happy to connect!

    0Reply
  • Jared RineBusiness Member
    Lender · Sacramento, CA · Member since 2009 · 1k+ posts · 277 votes
    2y

    @Jared Stone..another Jared responding =) The main issue I see with your property with many DSCR lenders is the considered 'small' loan amount. $295k purchase @ 75% ltv = ~$222k loan amount. Many lenders will not touch under $400k, if not $250k, so you're probably going to need to get some type of exception or look to some other type of alternative lenders, who won't need to do income verification (They are out there). Or bridge type, shorter term money especially to get the rents up, if that's the plan. Too much to run over here. PM if needed. Thanks,

    Jared Rine United Lending Partners53 Reviews
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  • Bryan MartinezBusiness Member
    Lender · Austin, TX · Member since 2019 · 22 posts · 6 votes
    2y

    $400K is a pretty standard minimum for must lenders in the 5+ multifamily. There are some that will do a minimum $50K per door, so they may be able to get you an exception if they like the deal. Good luck.

    [email protected]737-217-1592
    IMS Funding57 Reviews
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