DCSR Loan and forms of Financing
Rental Property Investor · Orlando, FL · Member since 2015 · 131 posts · 62 votes
DCSR Loan and forms of Financing
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Nick BelskyBusiness Member
Residential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votesOne of the things I love about BP forums is that posters can get a variety of experiences from lenders, investors, etc... One thing to always keep in mind, is that we all have different experiences with different service providers. Even from the lending side, it would be a rare instance where two lenders/brokers are using the exact same lenders for their clients. There are many features and loan structures out there and once you get outside of conventional and agency backed loans, the rules are up to the backing investors and they can vary quite a bit. To say a feature or structure doesn't exist or is ONLY this way or that is a fallacy. There seems to be at least one scenario out there where those features or structure do in fact exist. The best way to find out is call the lender/broker and find out how. Your scenario may fit, it may not. Either way, you don't know unless you speak with someone about the specifics of your scenario.
As several have pointed out in this thread, terminology can change from person to person just like each person's respective experience. I speak with several well seasoned investors every week who don't believe me when I tell them that you can get 30 year fixed rate loans with no strings attached on investment and commercial properties. They've never heard of them. It happens all the time. It's not to say they are wrong, they simply haven't been exposed to a lender/broker who offers them yet. I am a teacher, a licensed Loan Officer, and a broker. We never stop learning. More importantly, each state has different definition of what is what. Some will lay out specifically what is considered commercial and what is residential, others are more vague. Each state may differ in the RE contracts and headings and such as well. I do not presume to know the ins and outs of each state's definitions off the top of my head.
Not necessarily. If you were to refinance the existing home out of your FHA and into conventional, you could purchase another FHA property. Fannie is clear on this, but sometime Underwriters get twitchy and won't approve loan. From my experience, provided you refi out of your current FHA loan, you should be fine to use FHA again then move into that property as you did before. With conventional, the guides are slightly different. You could absolutely buy another property with Conventional without moving into it. It would be designated at Non-Owner Occupied (NOO) and be priced as an investment property.
Fannie/Freddie will limit you to 10 loans, not including your primary residence. Many investors with purchase or refi into the DSCR loans to "free up slots" with Fannie/Freddie loans so they can continue to get the benefit of low down payment properties when house hacking. As others have pointed out above, many DSCR lenders DO NOT report to your personal credit bureaus. However, several Non-QM lenders I've worked with DO report to your personal credit even if you are closing a DSCR loan under an entity. Be sure to inquire with the lender/broker you are working with if this is important to you.
All depends on the property, the lender, and the guarantor's credit profile. In general, you are still looking at 20-25% down on 5+ unit at prime conditions. I've got a few who won't go over 70LTV though and 75LTV requires an exception with strong compensating factors. The Commercial world is a bit different from the 1-4 unit world. I closed on an 8-unit cash out refi last month at 80LTV and know of very few lenders who will do 80LTV on cash outs even for 1-4 units... but the loan does exist.
Cheers!
Belsky Mortgage, LLC527 Reviews
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- 4yAnthony KingPro MemberInvestor · Charlotte, NC · Member since 2020 · 236 posts · 247 votes
That does help. The input provided by everyone above provides a better understanding for sure. I guess the answer is that you really don't know which lender offers what product unless you ask. I was kind of hoping you could go to their website or google "DSCR Lenders in XX market" and narrow them down that way.
Originally posted by @David M.:I was rereading some of this post, including yours regarding distinguishing a DSCR lender from a commercial lender.
I think part of the confusion is terminology (of course). "Commercial" as it applies to lending to me is a "catch-all" phrase. Its basically NOT a 'conforming' residential loan. A "conforming" loan (which pretty much by definition is owner-occupied residential) is a loan that 'conforms' to the Fannie Mae / Freddie Mac (i.e. the gov't) requirements/guidelines. If a lender originates a loan according to these rules, they can resell the Note to the the various quasi-govt agencies to maintain their liquidity. This is one way the US Gov't supports homeownership.
If you've been around for bit, you might recall a "jumbo" loan product. This is just a loan that is nonconforming because the amount exceeds the limits imposed by the Gov't. Its not really a "commercial" product as I believe most "residential" lenders will originate it if somebody is buying an expensive property. Its "non conforming."
Once you are getting a "non conforming" loan, then there isn't a 'rulebook' set by Big Brother. The lenders/the markets set their own. Of course, there is some similarity to the rules for retail practicality and business practicality (I'm pretty sure some of these are still resold as their is still a secondary market for these notes).
Does that help?
- Rental Property Investor · Melbourne, FL · Member since 2022 · 22 posts · 29 votes4y
Originally posted by @Jay Hurst:
In terms of interest rates there is actually a sweet spot right now with conventional rates on the rise and most of my DSCR investors have not yet moved up their rates. While a month ago with non-owner conventional rates in the low 3's DCSR loans were at least full point higher. But, with the large move in conventional rates and DSCR rates not yet moving it is almost a dead heat in rates. Same reason jumbo financing is actually quite a bit cheaper right now then conventional rates. Of course that rate distortion will not last for ever but not a bad time to take advantage.
I completely agree Jay. I'm looking to close a DSCR loan in a couple weeks at 4.5 and I'm pretty happy with that.
- Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes4y
Nahh.. Finding good loan officers, not necessarily lenders, is going to be more so by trial and error or perhaps word of mouth. Lets face it; many/all of them in the same subset offer the same products. Their rates will ultimately be the same since they are selling to the same secondary markets, at least for conforming loans and pretty much the same for fixed loan product types for nonconfomring (in my mind). They can quote you whatever rate they want to start, but it only really matters latter on when you lock a rate.
I looked closer at your profile picture --- its Major King? Not to presume, but I keep running in military clients who think only certain lenders can originate a VA loan, for example. Then, they charge origination fees... blah blah. Its almost predatory from what I see on my end. I've never had to go off and use these non-conforming loans because I found good deals and a good loan officer that helped me get my loans.
Hope that helps a bit. Let me know if there anything I can do to help, or if you want to chat about lending or investing.
- 4yJoe S.Pro MemberInvestor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
Originally posted by @Nick Belsky:
@Josh Calcanis
I've done DSCR on up to 32-units. The cap depends on the lender but several I work with will go 50+ and one goes up to 128 units.
Non-QM lenders tend to do residential only, or 1-4 units. Commercial are going to do 5+, generally speaking.
Cheers!
What kind of down payment will the bar need 5+ Door properties on the DSCR products?
- Investor · NorCal · Member since 2015 · 281 posts · 240 votes4y
A lot of incorrect information here. I have purchased and refinanced about 8-10 properties over the last few years with DSCR loans. These were residential 2-4 units. The mortgages usually say "COMMERCIAL MORTGAGE" in the loan docs, even though the properties are 100% residential. The DSCR mortgages are commercial mortgages, even if the properties are residential. The units only need to be rentable (rent-ready aside from minor cosmetics). When vacant, the lenders use the comparable rents from the appraisal. For occupied units they go by the lower of appraised rents or actual rents, I.e. you have a (maybe fake?) lease for $2,000 but the appraiser says market rent for your unit is $1,000, then the lender calculates the DSCR based on the $1,000 market rent, and not based on your "lease" that shows (?) a sky high "$2,000".
My interest rates were just about the same as conventional mortgages, same closing costs, just with 5 year pre-payment penalties.
All properties are under LLCs and none of the DSCR mortgages show on my credit, which I love.
First I wasn't able to refinance my primary home with a conventional mortgage due to DTI issues, but right after I refinanced some rentals into DSCR I was able to get a 2.75% conventional mtg on my personal home. Always keep your business debt separate fron your personal debt, just like your assets.
- Investor · NorCal · Member since 2015 · 281 posts · 240 votes4y
Forgot to mention, I used 4 different DSCR lenders to see the differences, but I didn't really notice any difference between them. Just some are more on top of stuff (better organized) and close much quicker then others.
- Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes4y
@jim
@Jim Spatzenfeldundefined
Thanks for the real life info
Never meant to imply you can’t use a commercial/non-conforming loan on a residential property. You just can’t go the other way
- Member since 2022 · 1 post · 1 vote4y
Hi All - has anyone used a DSCR lender for short term rental properties (airbnb/vrbo)? I have heard some will use airdna for DSCR calc, but wondering if anyone has had any experience.
Thanks!
- 4yEric GoldmanBusiness MemberLender · PA · Member since 2019 · 357 posts · 190 votes
@Matthew Gallup I have used non qm or FUNDING Companies to do STRs, regular purchases, cash out refinances.. for STR'S very easy, they go off airdna... all the programs are easy if you know how to navigate/understand them.
G2loans- Investor and Commercial Mortgages531 Reviews - 4yNick BelskyBusiness MemberResidential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
One of the things I love about BP forums is that posters can get a variety of experiences from lenders, investors, etc... One thing to always keep in mind, is that we all have different experiences with different service providers. Even from the lending side, it would be a rare instance where two lenders/brokers are using the exact same lenders for their clients. There are many features and loan structures out there and once you get outside of conventional and agency backed loans, the rules are up to the backing investors and they can vary quite a bit. To say a feature or structure doesn't exist or is ONLY this way or that is a fallacy. There seems to be at least one scenario out there where those features or structure do in fact exist. The best way to find out is call the lender/broker and find out how. Your scenario may fit, it may not. Either way, you don't know unless you speak with someone about the specifics of your scenario.
As several have pointed out in this thread, terminology can change from person to person just like each person's respective experience. I speak with several well seasoned investors every week who don't believe me when I tell them that you can get 30 year fixed rate loans with no strings attached on investment and commercial properties. They've never heard of them. It happens all the time. It's not to say they are wrong, they simply haven't been exposed to a lender/broker who offers them yet. I am a teacher, a licensed Loan Officer, and a broker. We never stop learning. More importantly, each state has different definition of what is what. Some will lay out specifically what is considered commercial and what is residential, others are more vague. Each state may differ in the RE contracts and headings and such as well. I do not presume to know the ins and outs of each state's definitions off the top of my head.
Not necessarily. If you were to refinance the existing home out of your FHA and into conventional, you could purchase another FHA property. Fannie is clear on this, but sometime Underwriters get twitchy and won't approve loan. From my experience, provided you refi out of your current FHA loan, you should be fine to use FHA again then move into that property as you did before. With conventional, the guides are slightly different. You could absolutely buy another property with Conventional without moving into it. It would be designated at Non-Owner Occupied (NOO) and be priced as an investment property.
Fannie/Freddie will limit you to 10 loans, not including your primary residence. Many investors with purchase or refi into the DSCR loans to "free up slots" with Fannie/Freddie loans so they can continue to get the benefit of low down payment properties when house hacking. As others have pointed out above, many DSCR lenders DO NOT report to your personal credit bureaus. However, several Non-QM lenders I've worked with DO report to your personal credit even if you are closing a DSCR loan under an entity. Be sure to inquire with the lender/broker you are working with if this is important to you.
All depends on the property, the lender, and the guarantor's credit profile. In general, you are still looking at 20-25% down on 5+ unit at prime conditions. I've got a few who won't go over 70LTV though and 75LTV requires an exception with strong compensating factors. The Commercial world is a bit different from the 1-4 unit world. I closed on an 8-unit cash out refi last month at 80LTV and know of very few lenders who will do 80LTV on cash outs even for 1-4 units... but the loan does exist.
Cheers!
Belsky Mortgage, LLC527 Reviews - Rental Property Investor · Orlando, FL · Member since 2015 · 131 posts · 62 votes4y
@Jim Spatzenfeld great information! That helps with a unit that isn't rented yet and/or remodeling. Technically once you get a tenant in there and refinance the value could go up if it's based on income correct?
@Nick Belsky Thanks again for the detailed breakdown and spitting the truth. Only 5 doors in and I swear everytime I get on here or talk with someone in this game I learn something new. - Dallas Tx · Member since 2021 · 112 posts · 31 votes4y
@Nick Belsky
Thank you so much for taking the time to answer my question, let's see if I understood correctly, I can use fha to bridge into my first property, refinance into Conventional, and use another fha on my second property?
With that being said what if my first property is being rented out and this second home will be the home I live in for a year before leasing it out as well?
Could I get a 3% conv. Loan as my primary residence ? Or would I have to use an fha and refi out of it again to go onto my third property ?
- Dallas Tx · Member since 2021 · 112 posts · 31 votes4y
@David M. Ok now I understand thank you for taking the time to answer clearly, but just to be clear, my question wasn't whether I could keep the fha loan in place or not, I was just wondering how I would get a proved for a second home with little money down 3.5% or 3% didn't know I could have another fha or a conventional loan and I didn't know my first rented unit would be used as income as well as my regular w2.
But allow me to make sure I'm understanding you correctly
I can have a n fha loan on my first , and a conventional on my second?
Meaning I can have multiple loans at the same time and get approved for up to 10 loans (properties) at a time ?
- Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes4y
Yes, you can FHA and then conventional loan. I don't know or forget the details, but you could even do FHA then FHA I think in certain circumstances. But, if you qualify a conventional loan is generally cheaper anyway.
Yes, you can have multiple conforming loans as long as you can qualify for the loans. I understand that 10 is the conforming limit. I'm not sure if they count both conforming and non-conforming loans (since this thread is about dscr).
- 4yNick BelskyBusiness MemberResidential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
3% down for Conventional is for First Time Home Buyers. You would not qualify for 3% on Conventional again and 5% is usually the minimum for established buyers. The FHA is 3.5% for any loan provided your FICO is not too low. If you drop below 580, you may be forced to put 10%. This can vary as many lenders have overlays where they minimum score may be higher where they will require the 10% down on FHA.
Yes, you can use FHA on your first, then Conventional on your second purchase. You can go up to 10 provided you don't go over 50% DTI for conventional.
Cheers!
Belsky Mortgage, LLC527 Reviews - Dallas Tx · Member since 2021 · 112 posts · 31 votes4y
@Nick Belsky
Thank you for your clarification, I really appreciate it now I understand 👍
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