DSCR Refinance for "Subject to" loan

Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes

1y

it sounds like you need professional advisors here - only you have a copy of your contract. what does it say about refinancing and paying the balances off?

0 Reply

Drago Stanimirovic

New to Real Estate · Miami, FL · Member since 2024 · 1k+ posts · 457 votes

1y

Yes, you can use a DSCR refinance to pay off both the FHA and HELOC loans, even with a "subject to" purchase. You'd need to move out, as DSCR loans are for investment properties only, you can't rent to yourself. The good news is, you don't need a tenant in place; most lenders (like us at Phoenix Funded) can use market rent via a 1007 rent schedule for qualification.

Your numbers look solid with a $260K payoff on a $360K value and $2,100/month in rent, you’re likely to qualify. We’d just need to confirm the rent coverage and ensure clean title.

1 Reply

Austin Lowe
OP
Member since 2023 · 7 posts · 5 votes
1y
Quote from @Drago Stanimirovic:

Yes, you can use a DSCR refinance to pay off both the FHA and HELOC loans, even with a "subject to" purchase. You'd need to move out, as DSCR loans are for investment properties only, you can't rent to yourself. The good news is, you don't need a tenant in place; most lenders (like us at Phoenix Funded) can use market rent via a 1007 rent schedule for qualification.

Your numbers look solid with a $260K payoff on a $360K value and $2,100/month in rent, you’re likely to qualify. We’d just need to confirm the rent coverage and ensure clean title.

Ok awesome! Thanks for the response. For now things are alright, but it's great to know it's an option should something come up. Hopefully I don't need to but I will contact you if it becomes a necessity. Thanks Drago
1 Reply
Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
1y
Quote from @Drago Stanimirovic:

Yes, you can use a DSCR refinance to pay off both the FHA and HELOC loans, even with a "subject to" purchase. You'd need to move out, as DSCR loans are for investment properties only, you can't rent to yourself. The good news is, you don't need a tenant in place; most lenders (like us at Phoenix Funded) can use market rent via a 1007 rent schedule for qualification.

Your numbers look solid with a $260K payoff on a $360K value and $2,100/month in rent, you’re likely to qualify. We’d just need to confirm the rent coverage and ensure clean title.

Do you guys check where the borrower currently lives? From my experience working with several other DSCR lenders, they will need to verify where the borrower is currently living either through a VOM or ID, Utility Bill, ETC.. If all his documents are showing the subject property on the refinance, wouldn't that just kill the deal?
If the property is vacant, but still has his furnishings (showing that he hasn't moved out) wouldn't that also raise a concern?
Nothing against you or your firm, but just curious to know how you would treat that.
[email protected]818-269-7983
LuxePrivate Investments LLC 572 Reviews
Website View Page
0 Reply
Drago Stanimirovic
New to Real Estate · Miami, FL · Member since 2024 · 1k+ posts · 457 votes
1y
Quote from @Erik Estrada:

Quote from @Drago Stanimirovic:

Yes, you can use a DSCR refinance to pay off both the FHA and HELOC loans, even with a "subject to" purchase. You'd need to move out, as DSCR loans are for investment properties only, you can't rent to yourself. The good news is, you don't need a tenant in place; most lenders (like us at Phoenix Funded) can use market rent via a 1007 rent schedule for qualification.

Your numbers look solid with a $260K payoff on a $360K value and $2,100/month in rent, you’re likely to qualify. We’d just need to confirm the rent coverage and ensure clean title.

Do you guys check where the borrower currently lives? From my experience working with several other DSCR lenders, they will need to verify where the borrower is currently living either through a VOM or ID, Utility Bill, ETC.. If all his documents are showing the subject property on the refinance, wouldn't that just kill the deal?
If the property is vacant, but still has his furnishings (showing that he hasn't moved out) wouldn't that also raise a concern?
Nothing against you or your firm, but just curious to know how you would treat that.

I guess you missed this part:

"You'd need to move out, as DSCR loans are for investment properties only, you can't rent to yourself."

0 Reply

Austin Lowe

OP

Member since 2023 · 7 posts · 5 votes

1y

There are no penalties for early prepayment for loan 1 or 2. I am not necessarily interested in refinancing with the companies currently holding the loans. The lender for the FHA loan is a large multi state lender and the HELOC is a local credit union.

I should have been more clear about that. Would another lender be able to pay off those 2 loans and take the place of them is more or less my question.

0 Reply

Ko KashiwagiPro Member

Lender · Los Angeles, CA · Member since 2022 · 967 posts · 445 votes

1y

Hi Austin,

You would need a lease (cannot be yourself) and have it non-owner occupied. DSCR reliance is possible of subject to with proper documentation. Some lenders may have seasoning requirements so if you've only owned it for a few weeks, not everybody can do this.

When did you purchase this property and gain title?

310-848-9776

0 Reply

Austin Lowe
OP
Member since 2023 · 7 posts · 5 votes
1y
Quote from @Ko Kashiwagi:

Hi Austin,
You would need a lease (cannot be yourself) and have it non-owner occupied. DSCR reliance is possible of subject to with proper documentation. Some lenders may have seasoning requirements so if you've only owned it for a few weeks, not everybody can do this.
When did you purchase this property and gain title?

I see. I've had title for 7 months.
0 Reply
Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
1y
Quote from @Austin Lowe:

Quote from @Ko Kashiwagi:

Hi Austin,
You would need a lease (cannot be yourself) and have it non-owner occupied. DSCR reliance is possible of subject to with proper documentation. Some lenders may have seasoning requirements so if you've only owned it for a few weeks, not everybody can do this.
When did you purchase this property and gain title?

I see. I've had title for 7 months.

Are you currently the vested owner on title? DSCR lenders are going to base the seasoning requirement based on the date when the property was closed and recorded.
Another issue is getting the payoff from the lender. Are you currently making installment payments to the seller or are you also on the mortgage?
Based on other similar scenarios, most lenders will require verification that you currently do not occupy the property and don't plan on occupying it.
This is where they may want to see a valid lease in place along with documentation to support you live somewhere else, prior to applying for the loan.
[email protected]818-269-7983
LuxePrivate Investments LLC 572 Reviews
Website View Page
0 Reply
Drago Stanimirovic
New to Real Estate · Miami, FL · Member since 2024 · 1k+ posts · 457 votes
1y
Quote from @Erik Estrada:

Quote from @Austin Lowe:

Quote from @Ko Kashiwagi:

Hi Austin,
You would need a lease (cannot be yourself) and have it non-owner occupied. DSCR reliance is possible of subject to with proper documentation. Some lenders may have seasoning requirements so if you've only owned it for a few weeks, not everybody can do this.
When did you purchase this property and gain title?

I see. I've had title for 7 months.

Are you currently the vested owner on title? DSCR lenders are going to base the seasoning requirement based on the date when the property was closed and recorded.
Another issue is getting the payoff from the lender. Are you currently making installment payments to the seller or are you also on the mortgage?
Based on other similar scenarios, most lenders will require verification that you currently do not occupy the property and don't plan on occupying it.
This is where they may want to see a valid lease in place along with documentation to support you live somewhere else, prior to applying for the loan.

"You'd need to move out, as DSCR loans are for investment properties only, you can't rent to yourself."

0 Reply
Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
1y
Quote from @Drago Stanimirovic:

Quote from @Erik Estrada:

Quote from @Austin Lowe:

Quote from @Ko Kashiwagi:

Hi Austin,
You would need a lease (cannot be yourself) and have it non-owner occupied. DSCR reliance is possible of subject to with proper documentation. Some lenders may have seasoning requirements so if you've only owned it for a few weeks, not everybody can do this.
When did you purchase this property and gain title?

I see. I've had title for 7 months.

Are you currently the vested owner on title? DSCR lenders are going to base the seasoning requirement based on the date when the property was closed and recorded.
Another issue is getting the payoff from the lender. Are you currently making installment payments to the seller or are you also on the mortgage?
Based on other similar scenarios, most lenders will require verification that you currently do not occupy the property and don't plan on occupying it.
This is where they may want to see a valid lease in place along with documentation to support you live somewhere else, prior to applying for the loan.

"You'd need to move out, as DSCR loans are for investment properties only, you can't rent to yourself."

No I got that part.

But even if he does move out, he would also need to change his mailing address etc.. to match his new residence usually. Or is that not the case with you guys?

Also a lot of the lenders I have worked with will do a Lexus nexus or some sort of background report and the property might still show up as his primary residence. Usually they will want to see a lease in place to make sure he is not gonna live in the property...

They may also want to see his living arrangement. If he is living rent free with a family member and leaves the property vacant, is that still a thing you guys would be able to finance?
[email protected]818-269-7983
LuxePrivate Investments LLC 572 Reviews
Website View Page
1 Reply

Drago Stanimirovic

New to Real Estate · Miami, FL · Member since 2024 · 1k+ posts · 457 votes

1y

I guess you didn't, moving out means more than just saying it — it involves updating the borrower’s address across the board (license, bills, etc.). If the borrower is living elsewhere and not using the property as a residence, and there's proof it’s being rented or marketed, we can usually finance it, even if they're staying with family.

0 Reply

Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
1y
Quote from @Drago Stanimirovic:

I guess you didn't, moving out means more than just saying it — it involves updating the borrower’s address across the board (license, bills, etc.). If the borrower is living elsewhere and not using the property as a residence, and there's proof it’s being rented or marketed, we can usually finance it, even if they're staying with family.

Like I said,
Nothing against you personally. Maybe your credit guidelines are different? It appears so that they are not.
[email protected]818-269-7983
LuxePrivate Investments LLC 572 Reviews
Website View Page
0 Reply

Chris SeveneyBusiness Member

Moderator

Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

1y

Quote from @Austin Lowe:

I purchased a property subject to two loans. The first one is a FHA mortgage, the second is a HELOC. I have grown a little uneasy with how things are going with the person with whom I am paying the loans for, and I am considering looking for alternatives. For my situation I will not qualify for any conventional financing. The following numbers have been rounded to make math a little easier hopefully:

Loan 1 (FHA) balance: $210,000

Loan 2 (HELOC) balance: $50,000

Property is conservatively worth $360,000

Rent would conservatively bring $2100/month

My question:

Would it be possible to get a DSCR refinance loan to pay off the two existing loans? It is my current primary residence, but I understand that would likely have to change as I cannot rent to myself to my knowledge, although if this is not the case I would like to know. Would I need to season the rent first or would it be possible to just use market data? I'm fine getting creative with things and it's certainly a property I want to have long term. If I can provide more non personal details to help with any answers just ask away. Thanks!

DSCR loans get sold and are typically securitized - the reason i mention this is if your address matches the property and its owner occupied - they will most likely not lend against it. You need to move and turn it into a rental first.

7e investments53 Reviews

Website View Page

0 Reply

Joyce Ann MagallanesBusiness Member

Lender · NY · Member since 2025 · 512 posts · 23 votes

1y

Hi Austin,

If the DSCR is low, around 75%, we offer non-DSCR financing options that can still work for you. These programs do not rely on the typical DSCR calculation, allowing us to accommodate clients with lower DSCR and still provide financing options.

[email protected]646-914-9393

Venture Estate Group LLC525 Reviews

Website View Page

0 Reply

Doug SmithPro Member

Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes

1y

I felt like I had to comment for no other reason that I was up in Blue Ridge recently. I financed three ground-up new construction deals off of Monument Rd in Jasper and we grabbed a STR outside of Blue Ridge while we were there. Very cute town. I just had a very similar conversation today with a client. We have done a ton of DSCRs for a long time and one thing that you didn't mention was when you transferred the deed. Most DSCRs are going to use the lesser of purchase price (or what you have into it if it's a flip/new build) or appraised value for the first six months. After that, you can just use the appraised value. That deed filing date is going to be key. I plan to visit your fair city again when we're up there for some new builds in Big Canoe. There are a couple of spots on Blue Ridge we always have to hit when passing through.

0 Reply

Zach Edelman

Lender · New York, NY · Member since 2022 · 1k+ posts · 1k+ votes

1y

What property is the HELOC on? Is it your primary or another investment property.

0 Reply

Don KonipolBusiness Member

Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes

1y

Quote from @Austin Lowe:

I purchased a property subject to two loans. The first one is a FHA mortgage, the second is a HELOC. I have grown a little uneasy with how things are going with the person with whom I am paying the loans for, and I am considering looking for alternatives. For my situation I will not qualify for any conventional financing. The following numbers have been rounded to make math a little easier hopefully:

Loan 1 (FHA) balance: $210,000

Loan 2 (HELOC) balance: $50,000

Property is conservatively worth $360,000

Rent would conservatively bring $2100/month

My question:

Would it be possible to get a DSCR refinance loan to pay off the two existing loans? It is my current primary residence, but I understand that would likely have to change as I cannot rent to myself to my knowledge, although if this is not the case I would like to know. Would I need to season the rent first or would it be possible to just use market data? I'm fine getting creative with things and it's certainly a property I want to have long term. If I can provide more non personal details to help with any answers just ask away. Thanks!

Did you have legal council concerning the TERMS of the subject to contract? Do you have the right to make payments directly to the lender and cc the seller? If not does the seller need to provide you with proof that he’s paid within a certain time frame? Is the loan handled by a third party servicer, by yourself, or by the seller? Is this a straight sub to or a wrap?

There are some really big advantages to having a sub to loan - like you’re not personally liable to the lender, you don’t need to qualify, the loans may not show up on your credit report, they may not affect your credit score, you may retain greater borrowing capacity as a result. All of which go away when you refinance.

Of course there are some disadvantages too - if the transaction wasn’t structured properly you may not control the payment of the loan - BUT there is a legal remedy for this. If the seller misses payments or is habitually late, (considering you made timely pay,Mets to the seller), then even if your contract does not state that you have the right to pay direct to the lender, you can partition the court to appoint a third party rd receiver to handle the administration of the loan payments. Of course the loan can be accelerated at any time by the lenders since the sale of the property is an event allowing the lender to accelerate the loan and declare the loan due in full.

Private Mortgage Financing Partners, LLC

Website View Page

0 Reply

DSCR Refinance for "Subject to" loan

DSCR Refinance for "Subject to" loan

Most Popular Reply

18 Replies