DSCR Loan Length

Multi-Family and Apartment Investing
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DSCR Loan Length

Ronald Fontenot Jr
Contractor · Houston Texas · Member since 2023 · 43 posts · 37 votes

I've found a 4 plex that has piqued my interest. It's recently remodeled and vacant, but ready for renters. It has one 2/2, two 2/1s, and one 1/1. I've run analysis conservatively and it seems it will cash flow fairly well. 

I'm not interested in house hacking, my family is too large for the 2br units. I'm a 1099 and always have been, so leaning toward a DSCR loan.

How long are typical DSCR loans offered for? And do they require the units to have a track record of rent as they are vacant and seller has no rent roll or ledger.

Any advice appreciated!

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David Bilandzija
Lender · Venice, CA · Member since 2021 · 189 posts · 132 votes
3y

@Ronald Fontenot Jr Like Doug stated, DSCR loans come in several forms. The most common I see investors elect is a 30 year fixed payment option. To qualify for a DSCR loan you'll need to have those vacancies filled and thats where a few steps come into play(more on that below). Factors like your credit profile, experience and cash flow will effect the lending decision and terms offered.

The process is pretty straightforward when working with a property not yet stabilized.  As a mortgage broker I advise my clients to do the following:

1. Acquire the property with a short term bridge/hard money loan, i.e. 12 month interest only, no pre-payment penalty/no income verification/no appraisal

2. Fill the vacant units and get signed lease agreements.  This is referred to as stabilizing the property.  

3. While stabilizing the property you'll wait out a 3-4 month ownership seasoning period depending on the loan program you choose. Requirements differ from lender to lender.  These are current guidelines with two of the more competitive lenders in the space.  

4. Stabilized and seasoned. Ready for refinance - DSCR loan

Good luck, let me know if you have any questions.  

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  • Doug SmithPro Member
    Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
    3y

    Hi @Ronald Fontenot Jr DSCR deals amortize over 30 years typically with several payback options including 30-year fixed, 5/6 ARMs, some interest-only options for a period, and everything in between. They do not require a rent track record, but they will do an appraisal on the property that includes a Fannie Mae Form 1007, which is where the appraiser comes up with a market rental figure for the property. Fire away with the questions. We're happy to help.

    3Reply
  • Jill F.
    Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes
    3y

    We have DSCR loans that are fully amortized for 20 years from one lender and 10 year balloons with 25 yr amortization from another. With no income, if the property can't be comp'd it might be more difficult to get an appraisal if there is no rental income and the lender may be hesitant to loan on a vacant property if you don't have a history of successfully managing rental properties. The conditions for lending and types of loans offered are going to vary by lender.

    1Reply
  • Ronald Fontenot Jr
    OP
    Contractor · Houston Texas · Member since 2023 · 43 posts · 37 votes
    3y

    Doug Smith
    Jill F.
      Thanks for the information! Can you kind of walk me through the process? I make the offer, if it's accepted I submit my earnest money deposit and then start the loan process? If that's the case, what costs am I looking at for the appraisal, etc prior to closing?

    0Reply
  • David Bilandzija
    Lender · Venice, CA · Member since 2021 · 189 posts · 132 votes
    3y

    @Ronald Fontenot Jr Like Doug stated, DSCR loans come in several forms. The most common I see investors elect is a 30 year fixed payment option. To qualify for a DSCR loan you'll need to have those vacancies filled and thats where a few steps come into play(more on that below). Factors like your credit profile, experience and cash flow will effect the lending decision and terms offered.

    The process is pretty straightforward when working with a property not yet stabilized.  As a mortgage broker I advise my clients to do the following:

    1. Acquire the property with a short term bridge/hard money loan, i.e. 12 month interest only, no pre-payment penalty/no income verification/no appraisal

    2. Fill the vacant units and get signed lease agreements.  This is referred to as stabilizing the property.  

    3. While stabilizing the property you'll wait out a 3-4 month ownership seasoning period depending on the loan program you choose. Requirements differ from lender to lender.  These are current guidelines with two of the more competitive lenders in the space.  

    4. Stabilized and seasoned. Ready for refinance - DSCR loan

    Good luck, let me know if you have any questions.  

    3Reply
  • Ronald Fontenot Jr
    OP
    Contractor · Houston Texas · Member since 2023 · 43 posts · 37 votes
    3y

    Thanks David Bilandzija. That's the information I'm after!


    0Reply
  • Eliott Elias
    Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
    3y

    They are 30 year loans, some lenders offer 40 year interest only as well. 

    1Reply
  • Devin PetersonBusiness Member
    Lender · Sarasota, FL · Member since 2022 · 2k+ posts · 683 votes
    3y

    You should be able to customize your term of the loan anywhere from 15 - 40 years with a good DSCR lender. I have seen many companies in the past offer these services. Lmk if you would like to connect on finding the best deal!

    [email protected]860-538-3672
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  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    3y
    Quote from @Ronald Fontenot Jr:

    I've found a 4 plex that has piqued my interest. It's recently remodeled and vacant, but ready for renters. It has one 2/2, two 2/1s, and one 1/1. I've run analysis conservatively and it seems it will cash flow fairly well. 

    I'm not interested in house hacking, my family is too large for the 2br units. I'm a 1099 and always have been, so leaning toward a DSCR loan.

    How long are typical DSCR loans offered for? And do they require the units to have a track record of rent as they are vacant and seller has no rent roll or ledger.

    Any advice appreciated!


    True "DSCR Loans" are pretty much uniformly 30 years in term. Standard is fully amortizing (equal payments for all 360 over the 30 years), with options for "Interest-Only" - (i.e. interest-only payments for the first 10 years of the term, then amortizing over a 20-year schedule on the final 20 years), or some hybrid ARMs where the interest rate is fixed for the first 5 or 7 years or so, then floats. What can be confusing is that people sometimes will call a 5/6 ARM for example a "5-year loan" in reference to the fixed rate period being five years, but they will all still be 30-year loans with no balloons

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  • Stephanie P.Pro Member
    Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
    3y
    Quote from @Ronald Fontenot Jr:

    I've found a 4 plex that has piqued my interest. It's recently remodeled and vacant, but ready for renters. It has one 2/2, two 2/1s, and one 1/1. I've run analysis conservatively and it seems it will cash flow fairly well. 

    I'm not interested in house hacking, my family is too large for the 2br units. I'm a 1099 and always have been, so leaning toward a DSCR loan.

    How long are typical DSCR loans offered for? And do they require the units to have a track record of rent as they are vacant and seller has no rent roll or ledger.

    Any advice appreciated!


     If you're looking for cash flow, a 40 year, fully amortized, fixed loan is available.  PM for details.

    Stephanie

    0Reply
  • Dena Zeman
    Member since 2023 · 22 posts · 11 votes
    3y
    Quote from @David Bilandzija:

    @Ronald Fontenot Jr Like Doug stated, DSCR loans come in several forms. The most common I see investors elect is a 30 year fixed payment option. To qualify for a DSCR loan you'll need to have those vacancies filled and thats where a few steps come into play(more on that below). Factors like your credit profile, experience and cash flow will effect the lending decision and terms offered.

    The process is pretty straightforward when working with a property not yet stabilized.  As a mortgage broker I advise my clients to do the following:

    1. Acquire the property with a short term bridge/hard money loan, i.e. 12 month interest only, no pre-payment penalty/no income verification/no appraisal

    2. Fill the vacant units and get signed lease agreements.  This is referred to as stabilizing the property.  

    3. While stabilizing the property you'll wait out a 3-4 month ownership seasoning period depending on the loan program you choose. Requirements differ from lender to lender.  These are current guidelines with two of the more competitive lenders in the space.  

    4. Stabilized and seasoned. Ready for refinance - DSCR loan

    Good luck, let me know if you have any questions.  


    Hi David, I am a first-time investor and I will be obtaining a loan from my parents to start. We are going to create a promissory note with terms, rate, etc... I am looking to purchase 2 properties. One that will be rented out Sept. 1. and the other already have tenants. The one that will be rented out at closing, we are in negotiations, but the other property (SFR) will be ready to go with renters on 9-1.

    I would like to do refinance with a DSCR loan on this one. I guess my question is, do you suggest the same things above if I am doing a loan with my parents and want to pay them back by doing a DSCR loan to give them the cash in the next 8-12 months? I would not be doing a bridge loan. Would the logistics be the same? I look forward to your response. Thank you!!

    1Reply
  • David Bilandzija
    Lender · Venice, CA · Member since 2021 · 189 posts · 132 votes
    3y

    @Dena Zeman Hello, happy to expand.  There are some key differences in your scenario.  

    1. Earlier example above was based on a 4 plex. Good news for you is SFRs get a different treatment and do not necessarily need to be leased at the time your apply for a DSCR loan. In terms of getting a permanent/long term loan the properties do need to be rent ready. Your lender of choice will use the 1007 (comparable rent schedule ordered with appraisal) to arrive at a ratio and determine DSCR.

    2. In your situation, a permanent loan i.e. long term financing would work right out the gate.  Plenty of options to choose from with varying rates and terms.

    3. You can start the process to payoff the loan from your parents as earlier 90 days after you close with up to 75% LTV on the new appraised value.

    Good luck, hope this helps.  Feel free to reach out with any additional questions.

    0Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    1mo

    DSCR Loans are usually 30 years fixed, fully amortizing loans. There are a few lenders that offer 5-10 year ARMs for a slightly lower rate, but generally, 30 year fixed is the preferred route.

    The property does not need any rental history. If it is vacant, most lenders will go based on the market rent on the appraisal.

    [email protected]818-269-7983
    LuxePrivate Investments LLC 572 Reviews
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