Are DSCR loans Fannie/Freddie?

Question

Are these outside of the ten loan limit on Fannie/Freddie?

Thanks in advance! :-)

Christian Wamsley · Answer

Greg — good question, and it’s one that trips a lot of investors up.

DSCR loans themselves are non-QM / portfolio loans, so they are not Fannie/Freddie-backed and do not fall under the 10-loan agency cap by product type.

However, where it gets nuanced is how the loans are held:

• Many DSCR loans are made to LLCs, which keeps them completely outside the agency count.
• If a DSCR loan is in your personal name, some lenders may still consider it when evaluating overall exposure, but it’s not counted the same way as an agency loan toward the Fannie/Freddie 10-loan limit.

Many DSCR loans are made to LLCs, which keeps them completely outside the agency count.

If a DSCR loan is in your personal name, some lenders may still consider it when evaluating overall exposure, but it’s not counted the same way as an agency loan toward the Fannie/Freddie 10-loan limit.

That distinction between agency-backed vs. portfolio and entity vs. personal name is usually the deciding factor.

Hope that helps clarify it a bit.

Erik Estrada · Answer

I guess a better question is why would you go with a Fannie/Freddie loan if you are pushing the 10 limit? That's main reason why most investors use DSCR financing. Also you don't have to squeeze every dollar on the DTI ratio if you are writing off many expenses on your tax returns.

Patrick Roberts · Answer

This is a bit of a loaded question. FNMA/FHLMC count financed properties where the borrower is "personally/individually obligated" on the loan for a 1-4 unit residential property. Some lenders will consider a personal guarantee (PG) on a DSCR loan made to an entity as being included in this definition. It really will vary by lender and how much buyback risk they want to take, as well as how open-minded and skilled their underwriting manager or CRO is. Commercial real estate is specifically excluded, but a DSCR loan made to an entity secured by a SFR is not commercial real estate; it's still a 1-4 unit residential property.

Additionally, some secondary market investors and private mortgage insurers have overlays that others do not. So for instance, let's say Investor A is where your lender/broker is sending the paper, and Investor A has an overlay that includes PG'd DSCR loans in this definition, then your lender/broker may decline to close the 11th loan, even though other lenders would close it because they send their paper to a different investor.

I've had to fight a similar battle for one of my clients. What I've been told is that PG'd DSCR loans to entities don't count under this rule, and Im not aware of any buybacks because of this, but that also doesnt mean this hasnt been tested yet somewhere that I'm not aware of. Maybe another lender who has a different experience with this can chime in with more info.

Derek Brickley · Answer

@Derek Brickley but I maybe didn't answer the question you actually asked - if you're applying for a conventional loan and you have DSCR in your name they do count towards the limit. (Unless it's a primary residence then there is no limit)

Derek Brickley · Answer

Hey Greg! Yes they are, one of the biggest reasons investors start to use DSCR once they get their portfolio built up.

Are DSCR loans Fannie/Freddie?

Are DSCR loans Fannie/Freddie?

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