DSCR expert lenders , 2 lease contracts in a SFH ?

Question

I'm buying a 2000 sqf SFH, corner lot with 2 entrances , 3 bed 3 bath, I was planning to make a 4th bedroom, and add a second kitchen and rent the 2 unites, my insurance will cover both tenants and the property even is used as a multi family even if it is a SFH. I'm planning to cash out refinance in 3 months with a DSCR LOAN. WOULD THE LENDER TAKE BOTH RENTAL AGREEMENTS in order to cover the debt service?

Stephanie P. · Answer

To answer your question, not likely.  If it's a single family, they'll take the rental amount that's on the appraisal.  If it's not zoned for 2 units, it would be considered a single unit.

Stephanie P. · Answer

There's confusion because you're missing the underlying issue; zoning.  Absolutely, lenders will take both leases If it's zoned for 2 units.  Before you purchase the property, check the zoning. If you buy it and try to get permits to do the work and make it into a 2 unit and then it's not zoned for it, you'll have to get a variance and they're not always given.  If you go ahead and do the work anyway without permits because you want the rents, when you go to get a loan, the appraisal will say "non-conforming" in the zoning section.  That's a dead loan whether it's conforming or DSCR.  If it's non-conforming to zoning, then you'll have to get a 100% rebuild letter and if you the variance wasn't given in the first place, they probably won't give you a rebuild letter.  On top of that, if you went ahead and did the work without a permit, a building inspector could come to your home and make you tear out all the renovations you did.  @Robin Simon is right.

Robin Simon · Answer

Yeah...No.  DSCR lenders are not "conforming" but they need to be eligible for non-QM securitizations and this is an underwriting requirement that is necessary for such securitization

Robin Simon · Answer

It all depends on if its permitted and the appraisal will value it as a duplex, then the DSCR lender will qualify with income from both units.  If not operating legally, they will probably still potentially lend, however it will be based on SFR market rent

David M. · Answer

@Robin Simon

I think we are saying the thing.   All I meant was there is more "wiggle room" or differences on how the loan product is "setup" out there.  For example, a conventional loan is pretty all the same qualification terms no matter what lender to talk to.  However, keep calling around DSCR lenders and I get slightly different terms and qualification requirements.

David M. · Answer

@Rosie Small

Just remember that DSCR loans, as with many other, are NOT conforming loans.  So, there is no one set of rules.  Keep calling around / look for referrals for more DSCR lenders.  There are a variety of terms and conditions out there...  Good luck.

Erik Estrada · Answer

Some lenders won't even consider the ratio and might be able to waive that seasoning period. Just Dm'd.

Nick Belsky · Answer

@Rosie Small

You can definitely provide both leases to the lender.  Is there a separate USPS address for the second tenant? or would both tenant's mail deliver to the same mailbox?

People rent out rooms in their SFR all the time and do this.  Lenders will take leases for a room provided you have a lease in place.

The addressing is the only thing I see in your post that may raise eyebrows, but even then, I've seen it go through both ways... really may come down to the lender.

Cheers!

Alex Bekeza · Answer

@Rosie Small In general, most DSCR lenders will only count rents from conforming (to it's zoning) units to calculate DSCR and they're actually going to use the LOWER of that or market rent.  However, there are some outlier programs/lenders that still have some tolerance towards slightly negative DSCR.  Some competitive long term IO products are also becoming popular to obtain higher leverage when DSCR constraints present themselves like this.

DSCR expert lenders , 2 lease contracts in a SFH ?

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