Can someone recommend a company that would lend a mortgage on a rental property based on what the property makes every month. I came across finance of america commercial but i want to see if there are more companies like them out there that would offer better rates. thanks
I believe that you are talking about a Debt Service Coverage Ratio Loan (DSCR Loan). These are becoming more popular, but be careful as they are perhaps not a great option for a brand new investor. If you can't qualify for the mortgage on an investment property and are forced to use this type of product, you might find yourself in trouble if things don't go as planned.
I believe that you are talking about a Debt Service Coverage Ratio Loan (DSCR Loan). These are becoming more popular, but be careful as they are perhaps not a great option for a brand new investor. If you can't qualify for the mortgage on an investment property and are forced to use this type of product, you might find yourself in trouble if things don't go as planned.
@Adriana Balley from the sounds of it, you have the capital to make the purchase, but you don't have the income to support the loan amount without the rental income. Is that correct?
Like @Scott Trench mentioned, DSCR loans can be used in this way, and there is a lot of fine print and nuances you should be aware of before taking on something like that.
If you have the capital and you want to avoid the risk associated with DSCR loans, I would recommend finding someone who you could partner with you for a small percentage equity or fee for being able to use their income to qualify. The financing could remain more traditional, while mitigating risk. You may increase your cash required to acquire the property/monthly expenses (if its a fee paid to the key principal), or sacrifice a small amount of equity in the deal. If you don't have the capital, bringing on a partner could solve a variety of problems you may run into without them.
Commercial lending products can offer this to you as long as you have an debt sustaining property with good reserves and down payment. They're underwriting the asset, not you.
DSCR products are great. I would skip on the one you mentioned. their are some great options out there. a great broker should be able to help navigate you to a lender that will be competitive and get your mortgage closed.
There are several lenders in this space. Finance of America Commericial being one of the stronger players. Non-qm lenders can also provide the kind of financing you are after with similar underwriting. Key thing to remember, is all DSCR program aren't created equal. Cash flow, credit profile, investing experience/current holdings, real estate market etc. are all factors in determining the best fit for your situation.
May I please ask why you are looking into mortgage program based on future rental, what type of property you are looking to purchase? There are two types of financing - Traditional & Non Traditional; it seems as you are looking to explore non traditional route; Are there any specific reasons traditional financing would not be an option? Rate comparison alone might not get you to the right destination.. Non traditional financing has higher risks for whomever is willing to lend, therefore lender would want to be compensated for higher risks (for example if someone cannot demonstrate the ability to repay, underreported self-employed income, too many properties, not enough income on paper to sustain multiple mortgage - to name a few). Rates for non traditional financing is typically higher by 2-3% on average than traditional financing due to multiple risk factors; If we take Nationwide Average 30 Year Fixed as a benchmark (example 5.5%) then non traditional rates would be in 7%-8.5% range depending on MANY factors like (we call these rate adjustments):
✅ Your credit profile: The better your credit score the better terms you would get, typically 760+ will get you the best pricing options
✅ LTV % - how much you are looking to put down & how much to borrow; higher down payment -> less risk -> better rate
✅ Purpose - Purchase/refinance/cash-out; rates on cash out are typically higher
✅ Type of Property (single, multi, condo, condotel, coop, mobile home, manufactured etc) anything other than single family represents higher risk -> rate gest adjusted for higher (every investor would have their own add on)
✅ Location of the property - some programs might not be available in specific states; rates can vary per state as well
✅ Fixed vs Adjustable vs Interest Only
✅ Prepayment penalty period - the shorter the period the higher the rate
✅ Vesting in the name of LLC or personal name
✅ Citizenship status ( US versus Non US such as ITIN/Foreign)
✅ DSCR: Debt Service Coverage Ratio means that future rents cover mortgage payment; If Ratio (Future rent/mortgage payment) is >1 - you are covered, you are good, but what if rents do not cover DSCR <1? Not all investors offer DSCR<1, when they do, typically your rate is going to be higher than when rents cover mortgage payment. Sometimes if DSCR <1 - this still can make sense, for example if you planning to do Airbnb (one of my clients is financing condotel in Miami using DSCR 30% down, property did appraise but market rents do not cover mortgage; for my client this deal still makes sense due to short term rental potential)
The bottom line is that there is more to it just "rates". If you were to make a soup think of rates as equivalent of water - the base.. if you want to make French onion soup - you would need to have the right ingredients to make that soup. Your particular rate is determined by your personal "ingredients". Hope this helps to understand the basics of mortgage pricing. 😅
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