Interest only DSCR Loan for multifamily vs commercial balloon
Hi all,
I'm looking to do my first investment property soon and while I was looking for a SFH or small multifamily, an off market 5-plex was presented to me that could be a good deal if I can figure out financing.
Cost is tentatively 300K with current rent being $3000 a month, with potential to bring up to $3500-3750 a month. So decent cashflow even as it stands now. The two options I have identified are a more typical commercial loan at 15%-20% down, around 7.3% interest with a 5 year balloon. To be honest, the 5 year balloon kinda freaks me out as I believe there is a good chance interest rates continue to rise during that time.
The other interesting option I am considering is an interest only DSCR loan. The interest rate is actually lower with this loan at 6.5%, and with the interest only option, cash flow would be larger of course with the option for me to make lump sum payments towards the principal if I choose. These are the terms of the DSCR loan I am considering.
- 5, 7, or 10-year ARM program (30 year loan, interest only)
- 80% loan-to-value maximum on purchase
- 80% loan-to-value maximum on rate and term refinance
- 80% loan-to-value maximum on cash out refinance
- Rates starting at 5.5% at lowest LTV max LTV is 6.5%
I was contemplating the 7 or 10 yr ARMs and hopefully I would be able to sell or refinance in that timeframe. What are your thoughts and/or advice. Again, total newbie here and this would be my first property.
Thanks in advance!!