ISO Lenders: 30 Yr Fixed or......10/1 Interest only ARM?
Member since 2023 · 50 posts · 16 votes
ISO Lenders: 30 Yr Fixed or......10/1 Interest only ARM?
Most Popular Reply
Jay HurstBusiness Member
Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votesQuote from @Selina Giarla:
I have been striking out in underwriting with 30 yr fixed rates, the math just isn't working out for me to make any cash flow and the debt service monthly expense is wiping out any NOI and thus my yield. So... I am considering pivoting to interest only loans with a refi plan. Problem is... I used to use Bankrate to see a wide variety of rate options for quick underwriting and that website doesn't allow me to get rates for the I/O ARMs for multi family rentals. I really want to understand how those rates are comparing today against 30yr fixed. What are they and where can I easily find them so I don't need to fill out any forms? Credit exceeds 830. Are any lenders giving out I/O ARMS with no points and are the rates lower than 30yr fixed? Any other creative financing or options?
Rates for interest only on a 10 yr ARM are not going to be lower then a 30 year fixed. (for that matter they will not be lower then a 10 arm with amortizing payments) as interest only actually adds a layer of risk to the lender. But, your payment can still be lower on an IO even with a slightly higher rate due to the simple interest calculation. and sure, you can get them without any points/buy down but the rate will of course be higher then if you did pay points.
and details matter, so as for quotes the reality is to get a real quote, you are likely going to have to give someone the actual details or you are just getting a thumb in the air quote.
Hurst Real Estate, INC4.991 Reviews
35 Replies
- 2yJay HurstBusiness MemberLender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
Quote from @Selina Giarla:
I have been striking out in underwriting with 30 yr fixed rates, the math just isn't working out for me to make any cash flow and the debt service monthly expense is wiping out any NOI and thus my yield. So... I am considering pivoting to interest only loans with a refi plan. Problem is... I used to use Bankrate to see a wide variety of rate options for quick underwriting and that website doesn't allow me to get rates for the I/O ARMs for multi family rentals. I really want to understand how those rates are comparing today against 30yr fixed. What are they and where can I easily find them so I don't need to fill out any forms? Credit exceeds 830. Are any lenders giving out I/O ARMS with no points and are the rates lower than 30yr fixed? Any other creative financing or options?
Rates for interest only on a 10 yr ARM are not going to be lower then a 30 year fixed. (for that matter they will not be lower then a 10 arm with amortizing payments) as interest only actually adds a layer of risk to the lender. But, your payment can still be lower on an IO even with a slightly higher rate due to the simple interest calculation. and sure, you can get them without any points/buy down but the rate will of course be higher then if you did pay points.
and details matter, so as for quotes the reality is to get a real quote, you are likely going to have to give someone the actual details or you are just getting a thumb in the air quote.
Hurst Real Estate, INC4.991 Reviews - 2yStacy RaskinBusiness MemberLender · Member since 2022 · 1k+ posts · 508 votes
@Selina Giarla, what kind of loan are you trying to do and is it for an investment property? If so, what state and what are the details? There may be some additional loan programs depending on the situation.
Bright Skyline518 Reviews - Lender · Member since 2021 · 495 posts · 130 votes2yJay is spot on with this one! Compared to a non-interest only product, the rate will almost always be higher. However, you can still cashflow more in most instances, although, generally it’s not a ton of a difference.
Quote from @Selina Giarla:
I have been striking out in underwriting with 30 yr fixed rates, the math just isn't working out for me to make any cash flow and the debt service monthly expense is wiping out any NOI and thus my yield. So... I am considering pivoting to interest only loans with a refi plan. Problem is... I used to use Bankrate to see a wide variety of rate options for quick underwriting and that website doesn't allow me to get rates for the I/O ARMs for multi family rentals. I really want to understand how those rates are comparing today against 30yr fixed. What are they and where can I easily find them so I don't need to fill yout any forms? Credit exceeds 830. Are any lenders giving out I/O ARMS with no points and are the rates lower than 30yr fixed? Any other creative financing or options?
- 2yKo KashiwagiPro MemberLender · Los Angeles, CA · Member since 2022 · 967 posts · 445 votes
Hi Selina,
Interest only programs will have slightly higher rates than 30 year fixed. It is also note worthy that interest only will increase cash flow but usually not significantly as PI is mainly consisting interest for the first years.
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Selina Giarla:
I have been striking out in underwriting with 30 yr fixed rates, the math just isn't working out for me to make any cash flow and the debt service monthly expense is wiping out any NOI and thus my yield. So... I am considering pivoting to interest only loans with a refi plan. Problem is... I used to use Bankrate to see a wide variety of rate options for quick underwriting and that website doesn't allow me to get rates for the I/O ARMs for multi family rentals. I really want to understand how those rates are comparing today against 30yr fixed. What are they and where can I easily find them so I don't need to fill out any forms? Credit exceeds 830. Are any lenders giving out I/O ARMS with no points and are the rates lower than 30yr fixed? Any other creative financing or options?
I think you really have trouble understanding loan product.
With interest only product of course the rate would be higher. Why ? there's more risk to the lender !But is IO product good ? yes, this product is good if there're two aspect on top of it :
1. asset is appreciating faster than mortgage rate , and second
2. you plan to sell the asset quickly , like in year 2 or 3. Why ?
because with 30YFRM 7% rate, the aggregated principal payment is so low that it's almost meaningless anyway, so IO product can make verything great again.............. as long as you plan to sell it quick.But this product is terrible in two conditions :
1) when rate is low
And/or
2) if you plan to sell on year 15. - 2yRobin SimonBusiness MemberLender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
Quote from @Selina Giarla:
I have been striking out in underwriting with 30 yr fixed rates, the math just isn't working out for me to make any cash flow and the debt service monthly expense is wiping out any NOI and thus my yield. So... I am considering pivoting to interest only loans with a refi plan. Problem is... I used to use Bankrate to see a wide variety of rate options for quick underwriting and that website doesn't allow me to get rates for the I/O ARMs for multi family rentals. I really want to understand how those rates are comparing today against 30yr fixed. What are they and where can I easily find them so I don't need to fill out any forms? Credit exceeds 830. Are any lenders giving out I/O ARMS with no points and are the rates lower than 30yr fixed? Any other creative financing or options?
When you say multifamily - what type (# of units) are you looking at? This is going to determine the options -
Generally three buckets:
1) 2-4 Unit
2) 5-10 Unit
3) 11+
Harpoon Capital514 Reviews - Member since 2023 · 50 posts · 16 votes2yIt would be for a rental. I was aiming for texas but open to other landlord friendly states so long as the numbers work. I just need an idea of where to start. I have no idea... is the 10/1 int only ARM at 9%, 7%? Pts, no pts? Not sure.
Quote from @Stacy Raskin:
@Selina Giarla, what kind of loan are you trying to do and is it for an investment property? If so, what state and what are the details? There may be some additional loan programs depending on the situation.
- Member since 2023 · 50 posts · 16 votes2yHm, I understand your point in theory about selling in 2yrs v. 15 yrs.... but whats so bad about getting I/O arm and seeling in 15 or just refinancing it when the I/O period ends? Im effectively tying up 25% equity but getting cash flow YoY wothkut really ever needing to own the asset. And if real estate trends exactly how it has been over decades, Then it will eventually grow its on slow and steady equity.
Quote from @Carlos Ptriawan:
Quote from @Selina Giarla:
I have been striking out in underwriting with 30 yr fixed rates, the math just isn't working out for me to make any cash flow and the debt service monthly expense is wiping out any NOI and thus my yield. So... I am considering pivoting to interest only loans with a refi plan. Problem is... I used to use Bankrate to see a wide variety of rate options for quick underwriting and that website doesn't allow me to get rates for the I/O ARMs for multi family rentals. I really want to understand how those rates are comparing today against 30yr fixed. What are they and where can I easily find them so I don't need to fill out any forms? Credit exceeds 830. Are any lenders giving out I/O ARMS with no points and are the rates lower than 30yr fixed? Any other creative financing or options?
I think you really have trouble understanding loan product.
With interest only product of course the rate would be higher. Why ? there's more risk to the lender !But is IO product good ? yes, this product is good if there're two aspect on top of it :
1. asset is appreciating faster than mortgage rate , and second
2. you plan to sell the asset quickly , like in year 2 or 3. Why ?
because with 30YFRM 7% rate, the aggregated principal payment is so low that it's almost meaningless anyway, so IO product can make verything great again.............. as long as you plan to sell it quick.But this product is terrible in two conditions :
1) when rate is low
And/or
2) if you plan to sell on year 15. - Member since 2023 · 50 posts · 16 votes2y
Quote from @Robin Simon:
Quote from @Selina Giarla:
I have been striking out in underwriting with 30 yr fixed rates, the math just isn't working out for me to make any cash flow and the debt service monthly expense is wiping out any NOI and thus my yield. So... I am considering pivoting to interest only loans with a refi plan. Problem is... I used to use Bankrate to see a wide variety of rate options for quick underwriting and that website doesn't allow me to get rates for the I/O ARMs for multi family rentals. I really want to understand how those rates are comparing today against 30yr fixed. What are they and where can I easily find them so I don't need to fill out any forms? Credit exceeds 830. Are any lenders giving out I/O ARMS with no points and are the rates lower than 30yr fixed? Any other creative financing or options?
When you say multifamily - what type (# of units) are you looking at? This is going to determine the options -
Generally three buckets:
1) 2-4 Unit
2) 5-10 Unit
3) 11+
I am open to 2-10 units. If I am going cash i can only afford 2-4 max. If I can get creative with financing, maybe I can do between 5 and 10. Im not comfortable going more than that.
- 2yStacy RaskinBusiness MemberLender · Member since 2022 · 1k+ posts · 508 votes
Quote from @Selina Giarla:
It would be for a rental. I was aiming for texas but open to other landlord friendly states so long as the numbers work. I just need an idea of where to start. I have no idea... is the 10/1 int only ARM at 9%, 7%? Pts, no pts? Not sure.Quote from @Stacy Raskin:
@Selina Giarla, what kind of loan are you trying to do and is it for an investment property? If so, what state and what are the details? There may be some additional loan programs depending on the situation.
An option is to get a DSCR loan. 1-4 unit programs generally have better rates compared to 5+. These have 30 year fixed options.
More info here:
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 - Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Selina Giarla:
Hm, I understand your point in theory about selling in 2yrs v. 15 yrs.... but whats so bad about getting I/O arm and seeling in 15 or just refinancing it when the I/O period ends? Im effectively tying up 25% equity but getting cash flow YoY wothkut really ever needing to own the asset. And if real estate trends exactly how it has been over decades, Then it will eventually grow its on slow and steady equity.Quote from @Carlos Ptriawan:
Quote from @Selina Giarla:
I have been striking out in underwriting with 30 yr fixed rates, the math just isn't working out for me to make any cash flow and the debt service monthly expense is wiping out any NOI and thus my yield. So... I am considering pivoting to interest only loans with a refi plan. Problem is... I used to use Bankrate to see a wide variety of rate options for quick underwriting and that website doesn't allow me to get rates for the I/O ARMs for multi family rentals. I really want to understand how those rates are comparing today against 30yr fixed. What are they and where can I easily find them so I don't need to fill out any forms? Credit exceeds 830. Are any lenders giving out I/O ARMS with no points and are the rates lower than 30yr fixed? Any other creative financing or options?
I think you really have trouble understanding loan product.
With interest only product of course the rate would be higher. Why ? there's more risk to the lender !But is IO product good ? yes, this product is good if there're two aspect on top of it :
1. asset is appreciating faster than mortgage rate , and second
2. you plan to sell the asset quickly , like in year 2 or 3. Why ?
because with 30YFRM 7% rate, the aggregated principal payment is so low that it's almost meaningless anyway, so IO product can make verything great again.............. as long as you plan to sell it quick.But this product is terrible in two conditions :
1) when rate is low
And/or
2) if you plan to sell on year 15.Have you ever used mortgage calculator ?
- Member since 2019 · 7k+ posts · 4k+ votes2y
started using mortgage calculator, understand amortization ; understand principal and IO payment, understand appreciation calculation. Understand definition of DSCR. All your question is answered in basic calculator.
Your question is what's difference between 3 +5 and 2+7 ; they're all good product if used intelligently can be very profitable.
Fact is , 30Y above 6% rate would not have significant difference in term of balance payment compare to 10Y I/O if you sell the house in year 5.Please do note that 10Y IO and 10Y ARM is vastly different. Again use mortgage calculator for all of these.
- Member since 2023 · 50 posts · 16 votes2yThank you! Are DSCR usually fixed rates? Do they require annual DSCR tests? Do I need to refi to pull cash out? I see you referenced that so curious how that works. Does LLC as borrower have a higher rate than if it were personal? What if the LLC would be brand new with no financial history? Assuming DSCR is greater than 1, are the rates usually better than 30 yr fixed. Is there an I/O option?
Quote from @Stacy Raskin:
Quote from @Selina Giarla:
It would be for a rental. I was aiming for texas but open to other landlord friendly states so long as the numbers work. I just need an idea of where to start. I have no idea... is the 10/1 int only ARM at 9%, 7%? Pts, no pts? Not sure.Quote from @Stacy Raskin:
@Selina Giarla, what kind of loan are you trying to do and is it for an investment property? If so, what state and what are the details? There may be some additional loan programs depending on the situation.
An option is to get a DSCR loan. 1-4 unit programs generally have better rates compared to 5+. These have 30 year fixed options.
More info here:
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.
- 2yStacy RaskinBusiness MemberLender · Member since 2022 · 1k+ posts · 508 votes
Quote from @Selina Giarla:
Thank you! Are DSCR usually fixed rates? Do they require annual DSCR tests? Do I need to refi to pull cash out? I see you referenced that so curious how that works. Does LLC as borrower have a higher rate than if it were personal? What if the LLC would be brand new with no financial history? Assuming DSCR is greater than 1, are the rates usually better than 30 yr fixed. Is there an I/O option?Quote from @Stacy Raskin:
Quote from @Selina Giarla:
It would be for a rental. I was aiming for texas but open to other landlord friendly states so long as the numbers work. I just need an idea of where to start. I have no idea... is the 10/1 int only ARM at 9%, 7%? Pts, no pts? Not sure.Quote from @Stacy Raskin:
@Selina Giarla, what kind of loan are you trying to do and is it for an investment property? If so, what state and what are the details? There may be some additional loan programs depending on the situation.
An option is to get a DSCR loan. 1-4 unit programs generally have better rates compared to 5+. These have 30 year fixed options.
More info here:
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.
DSCR can be fixed rate or adjustable. DSCR ratio is done once at purchase or refinance/ when the loan is worked on. Cash out is possible if there's equity depending on DSCR ratio if DSCR loan. LLC same rate as personal name but some lenders have LLC review fees. For most lenders, fine if new LLC. Rates depend on lender. There are 30 year fixed rates that are similar to interest only. There are 40 year fixed options with 10 year interest only and then 30 year fully amortizing.
Bright Skyline518 Reviews - Member since 2023 · 50 posts · 16 votes2yDo you lend in TX? What type of loan would the 40 yr fixed I/O be called?
Quote from @Stacy Raskin:
Quote from @Selina Giarla:
Thank you! Are DSCR usually fixed rates? Do they require annual DSCR tests? Do I need to refi to pull cash out? I see you referenced that so curious how that works. Does LLC as borrower have a higher rate than if it were personal? What if the LLC would be brand new with no financial history? Assuming DSCR is greater than 1, are the rates usually better than 30 yr fixed. Is there an I/O option?Quote from @Stacy Raskin:
Quote from @Selina Giarla:
It would be for a rental. I was aiming for texas but open to other landlord friendly states so long as the numbers work. I just need an idea of where to start. I have no idea... is the 10/1 int only ARM at 9%, 7%? Pts, no pts? Not sure.Quote from @Stacy Raskin:
@Selina Giarla, what kind of loan are you trying to do and is it for an investment property? If so, what state and what are the details? There may be some additional loan programs depending on the situation.
An option is to get a DSCR loan. 1-4 unit programs generally have better rates compared to 5+. These have 30 year fixed options.
More info here:
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.
DSCR can be fixed rate or adjustable. DSCR ratio is done once at purchase or refinance/ when the loan is worked on. Cash out is possible if there's equity depending on DSCR ratio if DSCR loan. LLC same rate as personal name but some lenders have LLC review fees. For most lenders, fine if new LLC. Rates depend on lender. There are 30 year fixed rates that are similar to interest only. There are 40 year fixed options with 10 year interest only and then 30 year fully amortizing.
- Lender · New York, NY · Member since 2022 · 1k+ posts · 1k+ votes2y
There are definetly DSCR lenders should be able to offer an IO and ARM mortgage.
- 2yStacy RaskinBusiness MemberLender · Member since 2022 · 1k+ posts · 508 votesYes, I work on DSCR loans and fix & flip loans in Texas. The 40 year option I mentioned is a DSCR loan. I'll send you a message.
Quote from @Selina Giarla:
Do you lend in TX? What type of loan would the 40 yr fixed I/O be called?Quote from @Stacy Raskin:
Quote from @Selina Giarla:
Thank you! Are DSCR usually fixed rates? Do they require annual DSCR tests? Do I need to refi to pull cash out? I see you referenced that so curious how that works. Does LLC as borrower have a higher rate than if it were personal? What if the LLC would be brand new with no financial history? Assuming DSCR is greater than 1, are the rates usually better than 30 yr fixed. Is there an I/O option?Quote from @Stacy Raskin:
Quote from @Selina Giarla:
It would be for a rental. I was aiming for texas but open to other landlord friendly states so long as the numbers work. I just need an idea of where to start. I have no idea... is the 10/1 int only ARM at 9%, 7%? Pts, no pts? Not sure.Quote from @Stacy Raskin:
@Selina Giarla, what kind of loan are you trying to do and is it for an investment property? If so, what state and what are the details? There may be some additional loan programs depending on the situation.
An option is to get a DSCR loan. 1-4 unit programs generally have better rates compared to 5+. These have 30 year fixed options.
More info here:
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.
DSCR can be fixed rate or adjustable. DSCR ratio is done once at purchase or refinance/ when the loan is worked on. Cash out is possible if there's equity depending on DSCR ratio if DSCR loan. LLC same rate as personal name but some lenders have LLC review fees. For most lenders, fine if new LLC. Rates depend on lender. There are 30 year fixed rates that are similar to interest only. There are 40 year fixed options with 10 year interest only and then 30 year fully amortizing.
Bright Skyline518 Reviews - 2yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Selina Giarla:
Thank you! Are DSCR usually fixed rates? Do they require annual DSCR tests? Do I need to refi to pull cash out? I see you referenced that so curious how that works. Does LLC as borrower have a higher rate than if it were personal? What if the LLC would be brand new with no financial history? Assuming DSCR is greater than 1, are the rates usually better than 30 yr fixed. Is there an I/O option?Quote from @Stacy Raskin:
Quote from @Selina Giarla:
It would be for a rental. I was aiming for texas but open to other landlord friendly states so long as the numbers work. I just need an idea of where to start. I have no idea... is the 10/1 int only ARM at 9%, 7%? Pts, no pts? Not sure.Quote from @Stacy Raskin:
@Selina Giarla, what kind of loan are you trying to do and is it for an investment property? If so, what state and what are the details? There may be some additional loan programs depending on the situation.
An option is to get a DSCR loan. 1-4 unit programs generally have better rates compared to 5+. These have 30 year fixed options.
More info here:
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.
I don't know why a DSCR loan would make sense, if you're unable to make it cash flow originally with the DP. That's the underlying problem and the advice is to use a loan product that literally is the opposite of that? Makes little sense. It needs to be intrinsic for a DSCR loan to qualify, or they penalize you with an excess add on fee and/or rate. .
Secondly, an IO really only make sense if you're investing in a short-term duration. If you capturing true equity gain, you gotta wait for a longer period than say 3-5 years. So yes, you can IO then sell. But IO then re-fi, you just paid interest and captured very little equity. What's the point? You might even run the risk of being underwater.
If you want to cash flow more "on paper", invest in the hood. Or if you want to do it, learn to buy distressed, fix up and pull money out but not as much as people think like 80% probably closer to 75%. Or don't bother with that and put 30-35% down on MLS deals that are still primed for upside(i.e good locations that well below citys median price point). And before someone says that's speculation, no **** sherlock so is all forms of investing.
- Lender · Member since 2024 · 121 posts · 14 votes2y
Quote from @Selina Giarla:
I have been striking out in underwriting with 30 yr fixed rates, the math just isn't working out for me to make any cash flow and the debt service monthly expense is wiping out any NOI and thus my yield. So... I am considering pivoting to interest only loans with a refi plan. Problem is... I used to use Bankrate to see a wide variety of rate options for quick underwriting and that website doesn't allow me to get rates for the I/O ARMs for multi family rentals. I really want to understand how those rates are comparing today against 30yr fixed. What are they and where can I easily find them so I don't need to fill out any forms? Credit exceeds 830. Are any lenders giving out I/O ARMS with no points and are the rates lower than 30yr fixed? Any other creative financing or options?
Going the interest only route can be a good option. I do these on some of my own investments as well
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @V.G Jason:
Quote from @Selina Giarla:
Thank you! Are DSCR usually fixed rates? Do they require annual DSCR tests? Do I need to refi to pull cash out? I see you referenced that so curious how that works. Does LLC as borrower have a higher rate than if it were personal? What if the LLC would be brand new with no financial history? Assuming DSCR is greater than 1, are the rates usually better than 30 yr fixed. Is there an I/O option?Quote from @Stacy Raskin:
Quote from @Selina Giarla:
It would be for a rental. I was aiming for texas but open to other landlord friendly states so long as the numbers work. I just need an idea of where to start. I have no idea... is the 10/1 int only ARM at 9%, 7%? Pts, no pts? Not sure.Quote from @Stacy Raskin:
@Selina Giarla, what kind of loan are you trying to do and is it for an investment property? If so, what state and what are the details? There may be some additional loan programs depending on the situation.
An option is to get a DSCR loan. 1-4 unit programs generally have better rates compared to 5+. These have 30 year fixed options.
More info here:
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.
I don't know why a DSCR loan would make sense, if you're unable to make it cash flow originally with the DP. That's the underlying problem and the advice is to use a loan product that literally is the opposite of that? Makes little sense. It needs to be intrinsic for a DSCR loan to qualify, or they penalize you with an excess add on fee and/or rate. .
Secondly, an IO really only make sense if you're investing in a short-term duration. If you capturing true equity gain, you gotta wait for a longer period than say 3-5 years. So yes, you can IO then sell. But IO then re-fi, you just paid interest and captured very little equity. What's the point? You might even run the risk of being underwater.
If you want to cash flow more "on paper", invest in the hood. Or if you want to do it, learn to buy distressed, fix up and pull money out but not as much as people think like 80% probably closer to 75%. Or don't bother with that and put 30-35% down on MLS deals that are still primed for upside(i.e good locations that well below citys median price point). And before someone says that's speculation, no **** sherlock so is all forms of investing.
The visualization of the BP forum is always like this :
Newbie investor almost has no clue about what they are asking. Then the friendly retail investor is giving advice from the interest of investor. But then our DSCR lender friend is giving advice that redirect the answer into their own loan product (which ofcourse carry higher interest rate). Then someone from retail investor like what you said, that that's not particularly correct. Hence our newbie investor is getting confused again.It's just, retail investor like us, sometimes getting bored too giving the answer/help.
It's the visualition of mortgage, loan, P&I, loan product , amortization that's very important here to be understood by the investor.
- 2yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Carlos Ptriawan:
Quote from @V.G Jason:
Quote from @Selina Giarla:
Thank you! Are DSCR usually fixed rates? Do they require annual DSCR tests? Do I need to refi to pull cash out? I see you referenced that so curious how that works. Does LLC as borrower have a higher rate than if it were personal? What if the LLC would be brand new with no financial history? Assuming DSCR is greater than 1, are the rates usually better than 30 yr fixed. Is there an I/O option?Quote from @Stacy Raskin:
Quote from @Selina Giarla:
It would be for a rental. I was aiming for texas but open to other landlord friendly states so long as the numbers work. I just need an idea of where to start. I have no idea... is the 10/1 int only ARM at 9%, 7%? Pts, no pts? Not sure.Quote from @Stacy Raskin:
@Selina Giarla, what kind of loan are you trying to do and is it for an investment property? If so, what state and what are the details? There may be some additional loan programs depending on the situation.
An option is to get a DSCR loan. 1-4 unit programs generally have better rates compared to 5+. These have 30 year fixed options.
More info here:
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.
I don't know why a DSCR loan would make sense, if you're unable to make it cash flow originally with the DP. That's the underlying problem and the advice is to use a loan product that literally is the opposite of that? Makes little sense. It needs to be intrinsic for a DSCR loan to qualify, or they penalize you with an excess add on fee and/or rate. .
Secondly, an IO really only make sense if you're investing in a short-term duration. If you capturing true equity gain, you gotta wait for a longer period than say 3-5 years. So yes, you can IO then sell. But IO then re-fi, you just paid interest and captured very little equity. What's the point? You might even run the risk of being underwater.
If you want to cash flow more "on paper", invest in the hood. Or if you want to do it, learn to buy distressed, fix up and pull money out but not as much as people think like 80% probably closer to 75%. Or don't bother with that and put 30-35% down on MLS deals that are still primed for upside(i.e good locations that well below citys median price point). And before someone says that's speculation, no **** sherlock so is all forms of investing.
The visualization of the BP forum is always like this :
Newbie investor almost has no clue about what they are asking. Then the friendly retail investor is giving advice from the interest of investor. But then our DSCR lender friend is giving advice that redirect the answer into their own loan product (which ofcourse carry higher interest rate). Then someone from retail investor like what you said, that that's not particularly correct. Hence our newbie investor is getting confused again.It's just, retail investor like us, sometimes getting bored too giving the answer/help.
It's the visualition of mortgage, loan, P&I, loan product , amortization that's very important here to be understood by the investor.
You say it nicely. Way more nice than me.
It's really just shills that need to push their products always taking the opportunity to prey on new people. And a few of us willing to intervene and put some sense into it. Between the columbus cartel, the trash agents, and the desperate lenders I get it business is hard. But business needs to be sustainable, meaning push people in the right direction not put one over on them and get yours and go. They'll come back if you marry them right. Lots of these shills miss the forest for the trees. It takes usually the totally non affiliated retail investor on here to set things straight.
- Member since 2023 · 50 posts · 16 votes2y
Quote from @Zach Edelman:
There are definetly DSCR lenders should be able to offer an IO and ARM mortgage.
Is there a website that can search nationwide lenders for these tyoes of rates? Bankrate wont do it
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @V.G Jason:
Quote from @Carlos Ptriawan:
Quote from @V.G Jason:
Quote from @Selina Giarla:
Thank you! Are DSCR usually fixed rates? Do they require annual DSCR tests? Do I need to refi to pull cash out? I see you referenced that so curious how that works. Does LLC as borrower have a higher rate than if it were personal? What if the LLC would be brand new with no financial history? Assuming DSCR is greater than 1, are the rates usually better than 30 yr fixed. Is there an I/O option?Quote from @Stacy Raskin:
Quote from @Selina Giarla:
It would be for a rental. I was aiming for texas but open to other landlord friendly states so long as the numbers work. I just need an idea of where to start. I have no idea... is the 10/1 int only ARM at 9%, 7%? Pts, no pts? Not sure.Quote from @Stacy Raskin:
@Selina Giarla, what kind of loan are you trying to do and is it for an investment property? If so, what state and what are the details? There may be some additional loan programs depending on the situation.
An option is to get a DSCR loan. 1-4 unit programs generally have better rates compared to 5+. These have 30 year fixed options.
More info here:
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.
I don't know why a DSCR loan would make sense, if you're unable to make it cash flow originally with the DP. That's the underlying problem and the advice is to use a loan product that literally is the opposite of that? Makes little sense. It needs to be intrinsic for a DSCR loan to qualify, or they penalize you with an excess add on fee and/or rate. .
Secondly, an IO really only make sense if you're investing in a short-term duration. If you capturing true equity gain, you gotta wait for a longer period than say 3-5 years. So yes, you can IO then sell. But IO then re-fi, you just paid interest and captured very little equity. What's the point? You might even run the risk of being underwater.
If you want to cash flow more "on paper", invest in the hood. Or if you want to do it, learn to buy distressed, fix up and pull money out but not as much as people think like 80% probably closer to 75%. Or don't bother with that and put 30-35% down on MLS deals that are still primed for upside(i.e good locations that well below citys median price point). And before someone says that's speculation, no **** sherlock so is all forms of investing.
The visualization of the BP forum is always like this :
Newbie investor almost has no clue about what they are asking. Then the friendly retail investor is giving advice from the interest of investor. But then our DSCR lender friend is giving advice that redirect the answer into their own loan product (which ofcourse carry higher interest rate). Then someone from retail investor like what you said, that that's not particularly correct. Hence our newbie investor is getting confused again.It's just, retail investor like us, sometimes getting bored too giving the answer/help.
It's the visualition of mortgage, loan, P&I, loan product , amortization that's very important here to be understood by the investor.
You say it nicely. Way more nice than me.
It's really just shills that need to push their products always taking the opportunity to prey on new people. And a few of us willing to intervene and put some sense into it. Between the columbus cartel, the trash agents, and the desperate lenders I get it business is hard. But business needs to be sustainable, meaning push people in the right direction not put one over on them and get yours and go. They'll come back if you marry them right. Lots of these shills miss the forest for the trees. It takes usually the totally non affiliated retail investor on here to set things straight.
This is just fortunate that I've been contacted by two lenders on kinda different product line :
https://www.sanfranciscofcu.com/home-loans/ --> they have 10Y IO 10YARM
fcmhomeloans.com---> they have 40Y IO loan
I believe both program is part of their own portfolio product loan.So why IO product is good ???
a) you can still add to the principal so you can "carve out" your principle payment , with and without pre-penalty
b) both product is still working towards your DTI
Now the challenge is the following in case you dont want to add into principal:
if your home doesnt have appreciation ---> then IO only product is good
if your forecast appreciation is less than 3% and interest rate is expensive and you plan to sell within 5 years --> then IO only product is good
but if your forecast appreciation is greater than 6% and interest rate is cheap and you plan to keep the house more than 3-4 years ---> then better choose 10YARM/30YFRM
Meant to say this loan product is useful when one is able to visualize the amortization payment and carve it out.For example, in 2013 I purchase SF for 500K. I sell in 2023 for one mil.
Interest rate is very low during that time.
Hypotetically, if I use IO loan only, I would lose money as aggregated principal is much less in IO only product.
But since i use 10YARM then I made lot of money, even better than 30YARM.
But now things are changing. Since interest rate is now high, then IO product becomes interesting.
When interest rate is above 6% ; the principal portion of the first 5-8 years is so low that it almost has no point of having principal, so IO loan product becomes (g00d) product, BUT.....
this is the but:
1) if i plan to hold the house longer than 10 years hence it's better if I add principal which will reduce cashflow
2) but if you plan to house longer than 15 years, and your home appreciate more than 5% yoy, just for the sake of 100 dollar cash flow, then you miss the bigger thing which is appreciation. So unless you add paying principal, don't do this. - Member since 2019 · 7k+ posts · 4k+ votes2y
Also @Selina Giarla , this is just for your consideration , I know one CU that has 10YARM "Movable" product that their ARM is always have spread of negative 50-75 bps compare to 30YFRM.
Currently they have:
10/10 40 Years APR 6.440% Payment per $1,000 $5.77
30YFRM 6.875% APR: 6.892% Payment per $1,000 $6.57 - Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Selina Giarla:
Quote from @Zach Edelman:
There are definetly DSCR lenders should be able to offer an IO and ARM mortgage.
Is there a website that can search nationwide lenders for these tyoes of rates? Bankrate wont do it
best rate is always check local Credit Union, they are always the one that usually having crazy offering...chck your local newspaper, no nationwide lender can beat them.
I only go to DSCR route when I exceed my DTI (which I already hit) lol
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