Looking for Advice on Investment/DSCR loans

Oklahoma City, Oklahoma
Rehabbing & House Flipping
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Looking for Advice on Investment/DSCR loans

Gene D Stephens
Member since 2024 · 7 posts · 4 votes

I'm looking at purchasing a property with the money going to roughly 50%, for the initial investment, and 50% for renovations. I'm leaning towards getting a DSCR loan, but have no experience with this type of loan. If this isn't the type of loan which would be recommended, if anyone knows of a different loan that would better fit this situation, please let me know. Also, if anyone has any experience with DSCR lenders online, I would love to hear any recommendations.

Thanks,

Gene

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Zachary DealPro Member
Lender · Member since 2023 · 464 posts · 425 votes
1y

Hi David, you will need to use a hard money loan for the initial purchase and rehab. DSCR loans are only for rent ready properties (no "subject to" or min less than $2,000 in deferred maintenance). You can refinance into a DSCR loan once the renovations are completed and get out of the higher interest debt. DSCR loans are a great option for investors looking to scale their portfolio as they are property specific and allow you to close in an LLC

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  • Jason WrayPro Member
    Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
    1y

    Gene,

    Feel free to reach out and ask me any questions you want I am very familiar with DSCR. There are certain do's and don'ts when it comes to DSCR so it is wise to ask up front. One thing that DSCR is not really set up for is if the property is "Subject to" meaning not move in ready/live able.

    Usually of the home requires major repairs it may require a HML "hard money loan" then you refinance in 6 months on the new ARV.

    DSCR is also not a great avenue for low loan amounts because all loans under $125K will take a rate hit and the minimums are usually $125k after down payment with some going down to $100K Min. Feel free to reach out to me or send me an email I can walk you through the basics and go over what is required and what to avoid. There are also other loan programs out there that are better suited if it does require renovations.

    [email protected]727-637-4289
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  • Gene D Stephens
    OP
    Member since 2024 · 7 posts · 4 votes
    1y

    Jason,

    Thank you for the advice.  The asking price is under $125k and like mentioned earlier, the renovations would be 50% so there are major repairs (not move-in ready).  Sounds like, from your perspective, this type loan would not be best for my situation.  I also kept my first home and it is paid off now and worth approximately $150k, with current renters.  I've been doing some light reading, and it sounds like refinancing that property and using the proceeds to reinvest elsewhere might be a better option.  I'm relatively new to this and am grateful for any advice from the forum.  Thanks again.


    Gene

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  • Stevan Stojakovic
    Financial Advisor · FL · Member since 2024 · 441 posts · 99 votes
    1y

    For your scenario, a DSCR loan could work well if the property's projected rental income can cover debt payments, but most DSCR lenders don't include renovation costs directly.

    If your goal is to rent the property post-renovation, you might pair a DSCR loan with a short-term hard money or fix-and-flip loan to cover the rehab costs. Fix-and-flip loans can fund up to 90% of the purchase price and 100% of renovations, though they come with higher interest rates and shorter terms. Alternatively, construction loans can provide staged funding for significant renovations but require more documentation.

    If you're holding the property long-term, consider refinancing into a DSCR loan after renovations. This ensures you lock in better terms based on the improved cash flow. Your choice should align with whether your goal is quick resale or long-term rental income, and you should consult lenders who specialize in both DSCR and rehab-friendly options.

    Best regards, Stevan

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  • Samuel DioufBusiness Member
    Real Estate Agent · Columbus & Cleveland, OH · Member since 2023 · 1k+ posts · 1k+ votes
    1y

    If you're looking to use 50% of loan for renovation costs, you would use a Hard Money Loan then, after renovations, refinance into a DSCR loan.

    Definitely do more research on the BRRRR method as that sounds like what you're trying to do.

    [email protected]614-662-1652
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  • Paul Cijunelis
    Property Manager · Downers Grove, IL · Member since 2012 · 99 posts · 40 votes
    1y
    Quote from @Gene D Stephens:

    Jason,

    Thank you for the advice.  The asking price is under $125k and like mentioned earlier, the renovations would be 50% so there are major repairs (not move-in ready).  Sounds like, from your perspective, this type loan would not be best for my situation.  I also kept my first home and it is paid off now and worth approximately $150k, with current renters.  I've been doing some light reading, and it sounds like refinancing that property and using the proceeds to reinvest elsewhere might be a better option.  I'm relatively new to this and am grateful for any advice from the forum.  Thanks again.
    Gene

    I would use a PML for the acquisition and rehab. These are typically interest only and require a payment of 1-4 points up front depending on your area and the PML. Around here 12+2 is typical. Typically they would require your numbers up front, rehab with a schedule of "draws". This is advantageous bc later you have a third party loan (not your personal money) so seasoning period is 90 days to DSCR out. If it was your own money I think you have to wait 12 months to refi.

    Run your numbers and make sure you will CF with a renter first. Make sure your rehab is "renter" cost rehab. etc.
    1Reply
  • Zachary DealPro Member
    Lender · Member since 2023 · 464 posts · 425 votes
    1y

    Hi David, you will need to use a hard money loan for the initial purchase and rehab. DSCR loans are only for rent ready properties (no "subject to" or min less than $2,000 in deferred maintenance). You can refinance into a DSCR loan once the renovations are completed and get out of the higher interest debt. DSCR loans are a great option for investors looking to scale their portfolio as they are property specific and allow you to close in an LLC

    [email protected]
    2Reply
  • Brittany MinocchiBusiness Member
    Lender · Massillon, OH · Member since 2022 · 1k+ posts · 486 votes
    1y

    Hey Gene!

    Based on your post and other comments, it sounds like your rehab is extensive enough that the property isn't habitable. If that's the case, you'll want to start with a fix and flip (or hold) type of loan, complete your renovations, get it rented out and THEN refinance into a DSCR loan for a long term hold.

    Your initial terms will vary based on your investment experience, but generally, you want to plan on needing 20% of the purchase price if you're a newer investor and the lender will cover 100% of the rehab. You will also need to front some of the cash to start the rehab before you get a draw approved with most lenders. The loan will be interest only for about 12 months (up to 18-24, but 12 is common) with a balloon due at the end. You'll want to have your rehab completed prior to the balloon coming due. Having a lease in place will help you as well - some lenders won't refi a vacant property.

    For your refi, you're usually looking at 75-80% max LTV with a debt service loan. Seasoning periods (how long you have to have owned the property) vary between lenders, but 0-6 months is typical.

    Happy to connect and answer any other questions you have, good luck! 

    [email protected]330-354-6590
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  • Arun D.
    Flipper/Rehabber · Scottsdale, AZ · Member since 2013 · 11 posts · 7 votes
    1y

    Is it a flip or rental? What is your plan after rehab. You're probably better off getting a Hard Money Loan. It's easier and quicker.

    Focus on the actual deal first. For example if you think the house is worth 200K fixed up you need to pay 100K to afford the hard money loan and rehab budget and still have a profit. Be careful taking any loan without knowing your numbers. 

    0Reply
  • Gene K.
    Investor · Bergen, NJ · Member since 2011 · 21 posts · 6 votes
    1y

    Hey Gene, for your situation, you probably need to get a fix&flip loan to acquire and do the renovation. Once you complete and rent/stabilize, you should easily be able to get into a DSCR loan. Some lenders offer discounts to return borrowers so maybe look into both flip and DSCR rates when finding a lender.

    1Reply
  • Jeffrey BlackmanPro Member
    Lender · Chicago, IL · Member since 2017 · 107 posts · 34 votes
    1y

    Hi @Gene D Stephens, I think you got great advice on using a fix and flip loan. I was wondering if you found a lender, and if so, how your project is going. I'm both an investor who has done fix and flips and a mortgage lender. I have programs that require only 10% down for the purchase, and will finance 100% of the rehab. Even for first-time investors. I have others that can close in just a few days, if that's your priority.

    I'm happy to share my experience both as an investor and as a lender.

    2Reply
  • Srini Murthy
    GA · Member since 2015 · 67 posts · 17 votes
    1y

    HI Jeffrey

    I am in need of a fix and flip loan. I will reach out to you via DM.

    thanks,

    Srini

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