Best DSCR Loan options/companies for my situation

Rental Property Investor · Murfreesboro, TN · Member since 2018 · 85 posts · 45 votes

I'm moving away from conventional loans and into commercial loans. I think I would like to get a DSCR loan for a couple of BRRRR deals, and wanted some recommendations about who and who not to try.

One of the properties is a SFR with a DADU (making it a little hard to appraise via sales approach in my area). The second is a 5-unit multi-family. (5 separate electric and water meters) Depending on appraisal method (income vs sales), I should be able to pull almost all my cash out at 75% ARV on both properties. The DSCR ratios should also be between 1.25-1.50. Both are full with current leases between 8-14 months. My credit score is 740+. I have 4 other rentals within 2 miles.

Recommendations?

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Stephanie P.Pro Member

Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes

@Rhett Kelton

You've got a couple things going on here. If you have a single family property or a 2 unit in your case, the sales approach will be used. They'll get a form 216 for comparable rent schedules and have to make an adjustment if they can't find comps with a DADU.

The 5 unit limits the number of lenders you can use for DSCR. A few lenders don't care if it's up to 8 units or so as a regular residential property and others won't touch it if there are more than 4 units. That limits your flexibility and frankly, some of the lenders that will do it as a 5+ unit property are slow, limit your LTV to 75% (although all you need is 75%, so you should be good if the value comes in) and are pricey. The appraisal you use will be a commercial appraisal with emphasis on the income approach with comparable sales used as an information tool rather than a way to derive value that's useful. Those appraisals are certainly more costly than a standard appraisal with a 216.

You should be able to do both loans with the same lender.

Hope that gives you a little insight.

Stephanie

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Ned CareyPro Member
Moderator
Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
4y
@Rhett Kelton rates and terms are changing quickly. Who has the best deal at any given time may vary.
You'll have to call around here are some to consider. Maybe others can add to the list
Lending one
Lima One
Dominion financial - slow
BRRRR finance

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Stephanie P.Pro Member
Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
4y
@Rhett Kelton
You've got a couple things going on here. If you have a single family property or a 2 unit in your case, the sales approach will be used. They'll get a form 216 for comparable rent schedules and have to make an adjustment if they can't find comps with a DADU.
The 5 unit limits the number of lenders you can use for DSCR. A few lenders don't care if it's up to 8 units or so as a regular residential property and others won't touch it if there are more than 4 units. That limits your flexibility and frankly, some of the lenders that will do it as a 5+ unit property are slow, limit your LTV to 75% (although all you need is 75%, so you should be good if the value comes in) and are pricey. The appraisal you use will be a commercial appraisal with emphasis on the income approach with comparable sales used as an information tool rather than a way to derive value that's useful. Those appraisals are certainly more costly than a standard appraisal with a 216.
You should be able to do both loans with the same lender.
Hope that gives you a little insight.
Stephanie
3 Reply
Rhett KeltonPro Member
OP
Rental Property Investor · Murfreesboro, TN · Member since 2018 · 85 posts · 45 votes
4y
Quote from @Stephanie P.:

@Rhett Kelton
You've got a couple things going on here. If you have a single family property or a 2 unit in your case, the sales approach will be used. They'll get a form 216 for comparable rent schedules and have to make an adjustment if they can't find comps with a DADU.
The 5 unit limits the number of lenders you can use for DSCR. A few lenders don't care if it's up to 8 units or so as a regular residential property and others won't touch it if there are more than 4 units. That limits your flexibility and frankly, some of the lenders that will do it as a 5+ unit property are slow, limit your LTV to 75% (although all you need is 75%, so you should be good if the value comes in) and are pricey. The appraisal you use will be a commercial appraisal with emphasis on the income approach with comparable sales used as an information tool rather than a way to derive value that's useful. Those appraisals are certainly more costly than a standard appraisal with a 216.
You should be able to do both loans with the same lender.
Hope that gives you a little insight.
Stephanie

Thanks Stepanie. Makes a lot of sense.
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Caroline Gerardo
Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
4y
SFR with legal DADU will not have a myriad of comps. Sale with a loan are comps used, not cash sales, not income, or costs. Appraiser does a rent survey and that is the real number used to qualify, not your lease. DSCR generally means big equity/large down payment to cash flow.
5 units also uses comps as above. There are few lenders who do 5-25 if the value is small. Minimum loan at the low rate big guys is $1,000,000 so your location has to be in luxury market. There are a few who go down to $300000. Keep in mind a commercial appraisal will be at minimum $2000 plus rent survey $300.
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Robin SimonBusiness Member
Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
3y
With the change in seasoning requirements for conventional loans for BRRRR cash-out refinances, a lot has changed, sharing this article - maybe can help!
https://www.biggerpockets.com/blog/brrrr-loans-what-are-the-...
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Harpoon Capital514 Reviews
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