DSCR vs conventional loan - 3 family

[Matthew Scheer]

Hi All,

I am under contract to purchase a 3 family with family members (one being my husband and the other brother in law). My husband and I will be 80% owners. We have been reaching out to lenders regarding loan terms and are getting the best offers for conventional loans to put in our personal names. We have good credit scores but are worried that down the line we'll have too much debt in our names if keep adding to our portfolio. Is it worth it to do go the DSCR route and putting loan in the LLC name with higher rates or should we just put loan in our personal names (and transfer title after the closing to the LLC)??

Morgan

[Erik Estrada]

Quote from @Matthew Scheer:

Hi All,

I am under contract to purchase a 3 family with family members (one being my husband and the other brother in law). My husband and I will be 80% owners. We have been reaching out to lenders regarding loan terms and are getting the best offers for conventional loans to put in our personal names. We have good credit scores but are worried that down the line we'll have too much debt in our names if keep adding to our portfolio. Is it worth it to do go the DSCR route and putting loan in the LLC name with higher rates or should we just put loan in our personal names (and transfer title after the closing to the LLC)??

Morgan

It makes no difference, DTI wise. You still need to sign a personal guarantee on a DSCR loan which will then legally require you to disclose the debt when you try to apply for a conventional loan. If you try to "hide it" it will be fairly easy to see you own a rental through your schedule E returns.

The benefit of a DSCR loan is the fact that you can qualify with no personal DTI. If you are currently in a spot where you can qualify conventionally, this will usually be the best choice. Once you reach the point where you can't qualify for conventional loans, then that's where you would utilize a DSCR loan.