Lending Options for First Time Rental Property Investor

Member since 2023 · 2 posts · 0 votes

New to the Property Investment space but learning more every day. I am looking for any positive and negative experiences, or preferences regarding financing first property. Does DSCR Loan make sense or standard mortgage financing? Curious on everyone's thoughts and experiences. Thanks!

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Jason WrayPro Member

Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes

Christian,

DSCR is a good program if you do not have enough W2 income or have less than 2 years 1099 self-employed. DSCR only uses the monthly rent(s) of a property to qualify not the persons income. DSCR requires 20% down and in most cases has prepayment penalties in order to get a reasonable rate. DSCR is geared for investors who want to use the rents to qualify and avoid using personal income to avoid DTI issues.

You also have a Portfolio program which is just a banks private capital where they service the loan. That only requires 15% even up to 4 units and covers all other property types including Condo, Townhome, and SFR's. What makes it unique is the down payment is only 15% on 2-4 Unit multifamily rentals. Most banks require 20-25% for 2-4 Units sometimes 30 for 4 units but with portfolio 15% across the board.

There are no prepayment penalties with portfolio and they have lower rates versus DSCR. Conventional programs are okay 15%-20% depending on number of units and offer a fixed 30 year but you will pay 2 points for a good rate in most cases. If you need to close in an LLC or have it switched down the road you can go with Portfolio, DSCR or Freddie Mac. Fannie Mae will not allow you to close in an LLC so make sure your check in advance.

In this rate market Portfolio is the best way to go to save on points, rates, and No prepays. If your putting 30% down or more DSCR does offer a 'DSCR Elite" program and the I/O interest only rates are attractive. But again you may have to take 2-3 year prepay for it to get you below the 7's on a 5/6 ARM.

Have the Banker/Loan Officer price up all options based on your down payment and property type to get the best idea of savings.

[email protected]727-637-4289

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Jason WrayPro Member
Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
3y
Christian,

DSCR is a good program if you do not have enough W2 income or have less than 2 years 1099 self-employed. DSCR only uses the monthly rent(s) of a property to qualify not the persons income. DSCR requires 20% down and in most cases has prepayment penalties in order to get a reasonable rate. DSCR is geared for investors who want to use the rents to qualify and avoid using personal income to avoid DTI issues.

You also have a Portfolio program which is just a banks private capital where they service the loan. That only requires 15% even up to 4 units and covers all other property types including Condo, Townhome, and SFR's. What makes it unique is the down payment is only 15% on 2-4 Unit multifamily rentals. Most banks require 20-25% for 2-4 Units sometimes 30 for 4 units but with portfolio 15% across the board.

There are no prepayment penalties with portfolio and they have lower rates versus DSCR. Conventional programs are okay 15%-20% depending on number of units and offer a fixed 30 year but you will pay 2 points for a good rate in most cases. If you need to close in an LLC or have it switched down the road you can go with Portfolio, DSCR or Freddie Mac. Fannie Mae will not allow you to close in an LLC so make sure your check in advance.

In this rate market Portfolio is the best way to go to save on points, rates, and No prepays. If your putting 30% down or more DSCR does offer a 'DSCR Elite" program and the I/O interest only rates are attractive. But again you may have to take 2-3 year prepay for it to get you below the 7's on a 5/6 ARM.

Have the Banker/Loan Officer price up all options based on your down payment and property type to get the best idea of savings.
[email protected]727-637-4289
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Christian Koepnick
OP
Member since 2023 · 2 posts · 0 votes
3y
Jason,
Thank you so much for your reply, and I appreciate the detailed info! Based on your info a Portfolio Program is the way to go, especially closing in an LLC. Aside from the Federal Savings Bank you represent, are there other banks that new investors should be looking into? Thanks!
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Nate HerndonPro Member
Lender · Springfield, MO · Member since 2023 · 277 posts · 195 votes
3y
Quote from @Christian Koepnick:

Jason,
Thank you so much for your reply, and I appreciate the detailed info! Based on your info a Portfolio Program is the way to go, especially closing in an LLC. Aside from the Federal Savings Bank you represent, are there other banks that new investors should be looking into? Thanks!

Hey @Christian Koepnick, welcome to BP! There are many DSCR and rehab loan programs available to first-time investors. For the loans that I have recently closed in Indianapolis, the 30-year fixed term has been the best solution for clients in this higher-rate environment. That longer amortization helps lower the monthly payment, and limit your down payment to 20%.

As I'm sure you know, Indianapolis does offer the unique opportunity of finding properties listed for sale under $100,000! However, there is only one DSCR program that offers loans on properties under $100,000 in purchase price/value. That program can go down to $75,000 value and $50,000 loan amounts on 1-4 unit residential properties.
[email protected]417-605-2196
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Ali Nichols
Investor · Member since 2022 · 235 posts · 127 votes
3y
Hey @Christian Koepnick there are some co-investing opportunities in the DSCR space for lower down payments as well. Let me know if you would like more info on those types of opportunities.
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Olga Ford
Member since 2023 · 9 posts · 0 votes
3y
Quote from @Nate Herndon:

Quote from @Christian Koepnick:

Jason,
Thank you so much for your reply, and I appreciate the detailed info! Based on your info a Portfolio Program is the way to go, especially closing in an LLC. Aside from the Federal Savings Bank you represent, are there other banks that new investors should be looking into? Thanks!

Hey @Christian Koepnick, welcome to BP! There are many DSCR and rehab loan programs available to first-time investors. For the loans that I have recently closed in Indianapolis, the 30-year fixed term has been the best solution for clients in this higher-rate environment. That longer amortization helps lower the monthly payment, and limit your down payment to 20%.

As I'm sure you know, Indianapolis does offer the unique opportunity of finding properties listed for sale under $100,000! However, there is only one DSCR program that offers loans on properties under $100,000 in purchase price/value. That program can go down to $75,000 value and $50,000 loan amounts on 1-4 unit residential properties.

Hello! What lender is this that allows this loan amount?
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Nate HerndonPro Member
Lender · Springfield, MO · Member since 2023 · 277 posts · 195 votes
3y
Hi @Olga Ford, that would be through our team at LoanBidz.com! Will send you some information.
[email protected]417-605-2196
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Olga Ford
Member since 2023 · 9 posts · 0 votes
3y
Quote from @Nate Herndon:

Hi @Olga Ford, that would be through our team at LoanBidz.com! Will send you some information.

Thank you!
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Brayden Hrycko
Lender · Allentown, PA · Member since 2023 · 207 posts · 38 votes
3y
Hey @Christian Koepnick,
When you say first property are you referring to soley an investment or a primary (house-hack/multi) that you're using as an invesment as well. If it is just for an investment DSCR/portfolio is great. If you're looking to live in it, you'd be stuck on the conventional/fha method.
Feel free to reach out/fill us in on what exactly you're looking to accomplish.
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Devin PetersonBusiness Member
Lender · Sarasota, FL · Member since 2022 · 2k+ posts · 667 votes
3y
Quote from @Christian Koepnick:

New to the Property Investment space but learning more every day. I am looking for any positive and negative experiences, or preferences regarding financing first property. Does DSCR Loan make sense or standard mortgage financing? Curious on everyone's thoughts and experiences. Thanks!

If you have just started in the investing game, it's relatively tough to secure DSCR financing with no prior mortgage history. It's possible - but don't expect really sexy terms. If you are looking to get started I would recommend house hacking via FHA 3.5% - this will allow you to establish yourself as a first-time buyer, and first-time investor, gain some experience as a landlord, and then cash flow from other units as well.
You can do this as many times as you'd like. DSCR was established for folks who are looking to separate personal from business finances.
[email protected]860-538-3672
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Stephanie P.Pro Member
Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
3y
Quote from @Christian Koepnick:

New to the Property Investment space but learning more every day. I am looking for any positive and negative experiences, or preferences regarding financing first property. Does DSCR Loan make sense or standard mortgage financing? Curious on everyone's thoughts and experiences. Thanks!

Always exhaust your conventional financing first.
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Boyd McClean
Member since 2023 · 15 posts · 1 vote
3y
Why do you not think outside the box? Why go with conventional financing that costs additional fees? Do a joint venture or use private funds.
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