Updated about 22 hours ago on . Most recent reply
Conventional loan vs DSCR
My husband and I are both employed and own our personal home and we are looking to start out of state real estate investing. We started an LLC thinking we should purchase the investment property under an LLC. Would you recommend purchasing under our name, with a conventional loan and get an umbrella policy and save 1% interest? Or purchase under an LLC, use a dscr loan? Our agent said if it's our first property, he recommended saving on the interest and go with conventional. Thanks for any feedback!
Most Popular Reply
Cindy,
If you and your husband have income W2 or 1099 that you can show I would suggest "Not" using a DSCR loan. DSCR is really a tool for Self employed buyers who cannot show income or they do not work or unemployed. DSCR is basically a stated loan option where it does not look at income to qualify instead it uses the current or proposed rents to qualify.
DSCR also carries higher rates and in most cases in order to get a lower rate or cash flow the lender will try and give you a 3 or 5 year prepayment penalty which is a joke in most cases. Reason I say "Joke" is if you want to build an REI portfolio not being able to refinance when rates drop or refinance and pull cah out in 6, 12, or more months to use as a down payment or renovate the home is a tough pill to swallow.
You would be better off using a Portfolio loan program where it requires less down and (No prepayment penalty) this also allows you to close in an LLC or simply "Quit Claim" the title into an LLC days or months after you close. Umbrella policy is good for extra protection but in most cases the HOI covers most slip and falls or perils under the normal policy which can also be beefed up if needed.
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