Does personal residence debt affect commercial DSCR?

4 Replies

I'm considering buying a primary residence with an FHA loan which means I'd have ~96% LTV. Would that high LTV negatively affect a commercial property loan--meaning would I be required to have have a higher down payment for the commercial building to compensate for the highly leveraged SFH? I know there has to be a certain LTV ratio among a portfolio but I'm not sure if primary residence is relevant. Thanks for any help.

DSCR is specific to a particular property and is not affected by any other properties you may own. It is simply a calculation of how much income the property generates in relation to it's ability to service the debt on the property.

Originally posted by @Alex Tobias :

I'm considering buying a primary residence with an FHA loan which means I'd have ~96% LTV. Would that high LTV negatively affect a commercial property loan--meaning would I be required to have have a higher down payment for the commercial building to compensate for the highly leveraged SFH? I know there has to be a certain LTV ratio among a portfolio but I'm not sure if primary residence is relevant. Thanks for any help.

The DSCR for the commercial property is not affected by FHA financing your SFH purchase.

Your personal global cash flow does impact all of your borrowings.

Any experienced commercial originator or underwriter will tell you the same. The reason lenders review your personal and other obligations is quite simple. Even though the primary source of repayment from a commercial property will be the cash flow from the subject property, if the sponsor(s) has significant personal and/or other obligations that require a significant draw from the subject project, it may negatively impact the cash flow.

The global cash flow calculation holds true for most deals until you get to the size of deal where the lender underwrites the commercial project solely. Rule of thumb, if you are taking out a personal mortgage you are not that borrower class--yet. 

Thanks everyone. 

@Dan Wallace That's what I figured. From what I understand when a bank underwrites DSCR they will look at the individual property as well as the overall DSCR of the portfolio so I figured personal debt would matter, especially with a small, low-yielding portfolio.

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