DSCR Lenders or HELOC on Investment
Member since 2020 · 18 posts · 5 votes
DSCR Lenders or HELOC on Investment
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Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes@Pierre Eade thanks for the post. Several layers to what you are asking so I'll try to tackle some of these one at a time if you don't mind.
HELOC when I already have a HELOC - this is somewhat difficult for lenders to do. Frankly, it's not so easy to find a lender that will do a HELOC on an investment property in the first place, but if you already have one, sometimes they will just take a pass. You might be able to find one (but more on that in a second).
10 Loan Limit and overlays - the "10 loan limit" is a Fannie/Freddie rule. So, if you are getting a DSCR style loan, those types of lenders won't have those types of restrictions. You can have as many DSCR loans as possible. So, why did that one lender say 7 was the limit? That's because Fannie/Freddie allow lenders to put rules OVER their own guidelines. They completely allow companies to be more strict with lending...but not less strict. If a lender has such a rule we call those "overlays". And we, as investors, want to work with lenders with NO overlays.
Good Fannie/Freddie and "other" Lenders - so how do we find lenders that are friendly to us investors? I wrote an entire post here on Bigger Pockets that you can read HERE. Check that out and see if that helps you with finding some.
Thanks for reading!
9 Replies
- 2yKo KashiwagiPro MemberLender · Los Angeles, CA · Member since 2022 · 967 posts · 445 votes
Hi Pierre,
To clarify, is this SFH a primary or an investment property?
Happy to take a look for both options!
- 2yJay HurstBusiness MemberLender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
Quote from @Pierre Eade:
Hey Community!
I have a SFH in my portfolio that has a good deal of equity and only a HELOC (TD BANK) on it for 10.24%. TD was not interested in doing a new HELOC because my portfolio is too big for their lending requirements (7 properties with primary, I thought the limit was 10, but evidently not).
In any case, I am looking to either do a DSCR loan or if possible find another company that would do a HELOC on an investment property.
I am wondering what lenders you are currently happy with on the DSCR side and if you know any that still give HELOCs on investments.
Thank you so much!
Pierre Eade
@Pierre Eade Are you looking to pay off the HELOC just for a lower rate? If so, you will not likely find another HELOC with a lower rate on an investment property. But, depending on loan to value and credit should be able to do much better then 10.24%.
And the 10 number you mention is only for conventional loans. A HELOC is not a conventional loan but rather a loan kept on the lenders balance sheet so they can make limit to the number of properties to whatever their rules say.
Hurst Real Estate, INC4.987 Reviews - Lender · Henderson, NV · Member since 2024 · 9 posts · 3 votes2y
i can do a conforming loan up to 10 financed properties, then DSCR after that. You can schedule a call with me and i can go over the specifics of how it works.
- 2yAndrew PostellPro MemberLender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
@Pierre Eade thanks for the post. Several layers to what you are asking so I'll try to tackle some of these one at a time if you don't mind.
HELOC when I already have a HELOC - this is somewhat difficult for lenders to do. Frankly, it's not so easy to find a lender that will do a HELOC on an investment property in the first place, but if you already have one, sometimes they will just take a pass. You might be able to find one (but more on that in a second).
10 Loan Limit and overlays - the "10 loan limit" is a Fannie/Freddie rule. So, if you are getting a DSCR style loan, those types of lenders won't have those types of restrictions. You can have as many DSCR loans as possible. So, why did that one lender say 7 was the limit? That's because Fannie/Freddie allow lenders to put rules OVER their own guidelines. They completely allow companies to be more strict with lending...but not less strict. If a lender has such a rule we call those "overlays". And we, as investors, want to work with lenders with NO overlays.
Good Fannie/Freddie and "other" Lenders - so how do we find lenders that are friendly to us investors? I wrote an entire post here on Bigger Pockets that you can read HERE. Check that out and see if that helps you with finding some.
Thanks for reading!
- 2yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Quote from @Pierre Eade:
Hey Community!
I have a SFH in my portfolio that has a good deal of equity and only a HELOC (TD BANK) on it for 10.24%. TD was not interested in doing a new HELOC because my portfolio is too big for their lending requirements (7 properties with primary, I thought the limit was 10, but evidently not).
In any case, I am looking to either do a DSCR loan or if possible find another company that would do a HELOC on an investment property.
I am wondering what lenders you are currently happy with on the DSCR side and if you know any that still give HELOCs on investments.
Thank you so much!
Pierre Eade
Hey Pierre,
There are DSCR 2nd Mortgages available if you are having trouble qualifying for a traditional HELOC. You may be able to go up to 70% CLTV and qualify based on the market, short term, or lease rents covering both the first mortgage and second mortgage payment.
LuxePrivate Investments LLC 572 Reviews - 12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes2y
Helocs are rare and have to go full doc . DSCR no income no doc is the best route to go and rates are competitive with full doc programs . There is no cap on how many DSCR you are able to have
- 2yStacy RaskinBusiness MemberLender · Member since 2022 · 1k+ posts · 495 votes
You will get a better rate on a DSCR loan compared to an investment property HELOC. Investment property HELOCs are hard to find but a closed end 2nd mortgage on an investment property is going to easily be in the 10s and up for an interest rate.
More about DSCR loans:
DSCR loans won't use your income to underwrite the loan.
DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.
Here's a bit more in detail about how rates are calculated for DSCR loans:
1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders
2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.
3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.
4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.
I've included an example below to help illustrate this.
So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.
See example below:
DSCR < 1
Principal + Interest = $1,700
Taxes = $350, Insurance = $100, Association Dues = $50
Total PITIA = $2200
Rent = $2000
DSCR = Rent/PITIA = 2000/2200 = 0.91
Since the DSCR is 0.91, we know the expenses are greater than the income of the property.
DSCR >1
Principal + Interest = $1,500
Taxes = $250, Insurance = $100, Association Dues = $25
Total PITIA = $1875 Rent = $2300
DSCR = Rent/PITIA = 2300/1875 = 1.23
DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.Happy to connect to discuss further.
Bright Skyline518 Reviews - 2yKerry BairdPro MemberRental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
@Pierre Eade, I also use TD Bank and part of the reason I selected that bank was the fact they do offer HELOCs on investment properties. I have also discovered that Quorum FCU and Figure both do HELOCs on investment properties. My profile has a long list of lenders that do HELOCs on investment properties in different parts of the country…and I’m not selling anything.
You obviously hit a ceiling, which is why I went over to DSCR lenders. That enabled me to continue growing my portfolio. I have used 4 different DSCR lenders, one of which I would not recommend. These are Visio, LendingOne, @Timothy Hero as broker for a portfolio loan on 8 properties (if I remember the number of houses correctly) followed by a STR purchase, and I used Sortis for short term bridge financing on a property that was hit by hail while under the contract period so we had to switch to a different product until we fixed it up. I started the process with Mofin, but my situation changed and I did not complete.
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