Advice on DSCR loan for cash out refinance

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8 Reply

Devin PetersonBusiness Member

Lender · Sarasota, FL · Member since 2022 · 2k+ posts · 667 votes

3y

Each DSCR lender has their own particular overlays on additional docs. Usually, mortgage statements are inquired on to make sure current liabilities are paid. Don't be too worried about other debts and personal liabilities. If you provided your broker with EIN, LLC formation docs and the operating agreement they should ensure this will be closed in the business name. Although you are the personal guarantor they may ask for a few other things only related to what they see on credit. Seems like you're dabbling with a broker who chose a lender that their particular guidelines require a few extra steps. Nothing to worry about if I were you granted you like the terms of the deal and are happy with that at the very least. GL!

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Daniel ChristopherBusiness Member

Lender · Miami, FL · Member since 2020 · 796 posts · 96 votes

3y

As Robin mentioned, since the FED hikes have shaken up the mortgage industry, a lot of conventional lenders have shifted to offering DSCR loans as investors are still doing deals while primary home buyers sit on the sidelines for rates to come down. Likely due to concern for compliance and a lack of understanding of thr DSCR process and requirement they're probably asking of this information "just in case" when in reality, personal information beyond SSN for credit and back ground check, bank statements for liquidity verification, and a schedule of REO for experience (when required) should be about as far into your personal life they get.

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OP

Member since 2023 · 7 posts · 5 votes

3y

I see. So it sounds like this is probably happening due to them not doing DSCR mostly. I do like the terms but formatting on the disclosures wasn't what I expected. I'm also remembering now under where it says type of mortgage they had it marked "conventional". I didn't see DSCR written anywhere.

1 Reply

Stephanie P.Pro Member

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

3y

Quote from @Grace Santos:

Hello, I'm doing my first DSCR cash out refinance on my short term rental in Indiana. It's currently owned under an LLC. I'm working with a broker right now and just received the initial disclosures. This is where I'm not sure if this is normal. On the initial disclosures it has only my personal name on as the borrower as well as my personal debt listed. They also asked for my personal home mortgage statement. Nowhere on it does it list my LLC as the borrower. It only has my name. I asked the broker about this and he said this is normal and they'll fix it at closing but I didn't feel comfortable signing the disclosures yet unless I knew we were closing in the LLC. I've only used hard money so far with my LLC's and they've never asked for my personal stuff other than to run my credit so I'm just unsure if this is normal or not. Any guidance is much appreciated!

-Grace

Lots of different lenders have different ways to do things, whether you're dealing with conventional lenders or DSCR lenders or some that do both. With DSCR, you're almost always going to be a personal guarantor. As a personal guarantor, they will access your personal credit. Some lenders ask for mortgage statements on all loans that show up on your credit report to check they are reporting correctly. This is not bad or a scam, it's just how they do things. As you go through the process, they will send you new disclosures that mention the LLC, but to get it going, this isn't anything to cause alarm.

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Simmy AhluwaliaPro Member

Lender · Atlanta, GA · Member since 2015 · 1k+ posts · 200 votes

3y

From what I'm hearing/reading, they might be underwriting this dscr loan as a conventional loan. Not sure who the lender is, but sounds like this loan will impact your personal DTI, is this correct? If so, for future reference, you should work with DSCR lenders whose loans don't report to the personal credit bureaus, and thus negatively impacting your DTI.

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Timothy Hero

Lender · United States · Member since 2020 · 1k+ posts · 499 votes

3y

Ehhh. As a DSCR broker with around 200 closings, none of my lenders ask for personal stuff like primary payment proof. This is common for conventional lenders who offer DSCR/non-qm products, but the true DSCR lenders don't require it.

2 Reply

Alex BekezaBusiness Member

Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes

3y

@Grace Santos What company are you using for this? What terms are you seeing on these initial disclosures?

It's possible that initial disclosures list your name on certain items since you'll be the personal guarantor of the loan EVEN IF the LLC is the borrower because DSCR loans are full recourse.

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OP

Member since 2023 · 7 posts · 5 votes

3y

Quote from @Stephanie P.:

Quote from @Grace Santos:

Hello, I'm doing my first DSCR cash out refinance on my short term rental in Indiana. It's currently owned under an LLC. I'm working with a broker right now and just received the initial disclosures. This is where I'm not sure if this is normal. On the initial disclosures it has only my personal name on as the borrower as well as my personal debt listed. They also asked for my personal home mortgage statement. Nowhere on it does it list my LLC as the borrower. It only has my name. I asked the broker about this and he said this is normal and they'll fix it at closing but I didn't feel comfortable signing the disclosures yet unless I knew we were closing in the LLC. I've only used hard money so far with my LLC's and they've never asked for my personal stuff other than to run my credit so I'm just unsure if this is normal or not. Any guidance is much appreciated!

-Grace

Lots of different lenders have different ways to do things, whether you're dealing with conventional lenders or DSCR lenders or some that do both. With DSCR, you're almost always going to be a personal guarantor. As a personal guarantor, they will access your personal credit. Some lenders ask for mortgage statements on all loans that show up on your credit report to check they are reporting correctly. This is not bad or a scam, it's just how they do things. As you go through the process, they will send you new disclosures that mention the LLC, but to get it going, this isn't anything to cause alarm.

Thanks for the insight. I asked them further about it today and they said they would send new disclosures throughout the process.

1 Reply

OP

Member since 2023 · 7 posts · 5 votes

3y

Quote from @Timothy Hero:

Ehhh. As a DSCR broker with around 200 closings, none of my lenders ask for personal stuff like primary payment proof. This is common for conventional lenders who offer DSCR/non-qm products, but the true DSCR lenders don't require it.

Timothy, yes they seem to be conventional lenders that offer DSCR/non-qm rather than a true DSCR lender. I'm starting to notice that difference. Thank you for the insight on this!

OP

Member since 2023 · 7 posts · 5 votes

3y

Quote from @Alex Bekeza:

@Grace Santos What company are you using for this? What terms are you seeing on these initial disclosures?

It's possible that initial disclosures list your name on certain items since you'll be the personal guarantor of the loan EVEN IF the LLC is the borrower because DSCR loans are full recourse.

Alex, it is through Oaktree Funding but the broker is through Greenkey Financial. Yes, this seems to be the case.

Thank you all for the input. I asked them to clarify more on this today and it's due to wanting to see that I am timely on payments for all properties but that it'll be vested in my LLC at closing.

Jared RineBusiness Member

Lender · Sacramento, CA · Member since 2009 · 1k+ posts · 277 votes

3y

@Grace Santos... hopefully this adds more clarity I don't know everyone who posted, but @Stephanie P. and @Alex Bekeza know their stuff too.

It's lender dependent, but given that you're likely working with a licensed broker, who can bring you some completely wholesale DSCR lenders (basically lenders that CANNOT AND WILL NOT go borrower direct), they will usually disclose differently than say a lender who is marketing directly to borrowers. As a mortgage broker who also uses these sources in addition to other borrower-direct lenders such as Easy Street or Visio, my disclosures would likely look like the ones you received. We pull personal credit; get the mortgage statement for your primary, etc. and while we ask for entity docs and will vest in an LLC/corp/etc, that won't be on the loan disclosures. It sounds fine and I've used Oaktree to do DSCR in the past (my opinion and not to discourage - I don't know your situation, but I don't think they are best priced right now). Just my $0.02

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OP

Member since 2023 · 7 posts · 5 votes

3y

@Jared Rine Appreciate the insight! Also good to know you have used them before. I had a hard time finding lenders for my specific situation and they were one of two that could do what I was looking for. My STR's have only been up for 3 months so although I have owned them just about 6 months now, many lenders wanted to see 12 months of STR income, use market rents to underwrite, could only give 70% cash out, or quoted me really high rates and points.

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Erik EstradaBusiness Member

Lender · Member since 2022 · 6k+ posts · 1k+ votes

3y

Quote from @Grace Santos:

@Jared Rine Appreciate the insight! Also good to know you have used them before. I had a hard time finding lenders for my specific situation and they were one of two that could do what I was looking for. My STR's have only been up for 3 months so although I have owned them just about 6 months now, many lenders wanted to see 12 months of STR income, use market rents to underwrite, could only give 70% cash out, or quoted me really high rates and points.

There are a few options that do not require Short term rental history on DSCR loans. You can go 6 months and get 75% LTV Cash out without the short term rents requirement. If it is only 90 days, max is 70% LTV.

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