Can a rookie use a DSCR loan for a duplex?

Question

What's up everyone!

I'm a new investor shopping in the Cincinnati market, and I just want to make sure I'm starting on the right foot.

Here's the back story: My wife and I are about to move states, and when we do, we will be shopping for a house hack, but in the meantime, we want to get our feet wet with a small multifamily property in Cincinnati. This property will be the first of many, and we hope to continue scaling in Cincinnati over the next few years.

To start out, our plan is to buy and hold a cashflowing 2-4 unit property using a DSCR loan. I have a few reasons for this. 1) We are both self-employed and our income is inconsistent. 2) We don't want to impact our DTI, because we are planning on buying a house hack within the next year or so.

We would be open to going up to 6 units for our first property as long as it's within budget.

Now that you have some context, is it possible for a rookie to use a DSCR loan on a duplex or triplex? (Any lender recommendations? What LTV? Anyone done this before?)

Would my previous industry experience (property management, acquisitions, asset management, Realtor) improve my chances of qualifying for a DSCR loan?

Am I approaching this the right way, or am I missing a better alternative?

Thank you in advance for your insight! I look forward to giving you all an update when we close on our first property!

Robin Simon · Answer

Yes - a DSCR Loan would be an option for you.  There is a range of DSCR lender underwriting policies for "1st time investors" - some don't allow it, some do with no restrictions, and some in the middle (typically cut max LTV by 5% or so and restrict against anything over 4 units)

Also - check out these BiggerPockets articles for a ton of info about DSCR loans:

DSCR Loans: What Are They And How To Get The Best Terms

https://www.biggerpockets.com/...DSCR Loans: How To Use Pro Strategies To Save More And Make More

https://www.biggerpockets.com/...Multifamily DSCR Loans: A New High-Impact Loan Option For Real Estate Investors?

https://www.biggerpockets.com/...12 Frequently Asked Questions (And Answers) About DSCR Loans

https://www.biggerpockets.com/...

Tony Severance · Answer

@Caroline Gerardo You are working with some VERY restrictive DSCR lenders! Leases and deposit checks are NOT required at closing with most DSCR lenders. I do these loans all over the country and have never had those as conditions. Also, many DSCR lenders now only require 3x to 6x the subject property's monthly PITI payment.

Robin Simon · Answer

Where are you getting these numbers / order?  completely made up?

Marco Fiore · Answer

Yes, DSCR loans are generally available to first-time investors, but rules will vary by lender. There are restrictions such as a maximum LTV lowered by 5% or requiring a higher minimum credit score. Feel free to reach out if you have any questions or if you want to speak more about investing in Cincy in general!

Caroline Gerardo · Answer

DSCR is ONLY for investors. Often there is a 1-2 or 3 year prepay which you can buy out of by paying 2 or 3 points. You sign an agreement that the property is not going to be owner occupied during the time the loan is in place. You need larger down payment: 15 to 25 percent down, depending on your profile and property type. Property must cash flow with market rents. Appraiser determines what the market rents are... You need lease and deposit check at closing so the property has to be move in ready not a rehab. In addition to down payment you need reserves which is 12 times or 24 multiplied by all you debt. Most lenders will not loan to you if you have no prior mortgage. No forbearance, no modifications on mortgages in the past. Your great credit, cash in checking and savings, and property ready to cash flow are the basic conditions to qualify.

Tony Severance · Answer

@Caroline Gerardo

My response related to reserves was a reply to this statement in your post:

"In addition to down payment you need reserves which is 12 times or 24 multiplied by all you debt. Most lenders will not loan to you if you have no prior mortgage."

Reserve requirements on most of the DSCR loans we provide are equal to either 3 months or 6 months of the monthly PITI of the subject property.  And when getting a DSCR Cash out loan, the proceeds from the loan count toward the reserve requirements.  They do not care about other properties, other than the borrower's primary residence (which is NOT part of the reserve requirement), nor do they care about other debts the borrower may have.

In addition, we can do a DSCR loan on a purchase of an investment property even if the borrower is a renter. We only need 12 months of housing history and proof of rent payments.

The DSCR market has evolved a great deal over the past couple of years, which has opened up access to more investors. Also, the loans have become much less restrictive than they were only a couple of years ago.

Justin Hammerle · Answer

@Thomas Lebens - if this is your first property and you plan to occupy why not consider an FHA?   You can refi into a DSCR at the 1-year mark, buy another - rinse and repeat.

Dave Poeppelmeier · Answer

That's a good idea for the House Hack, but I can tell you FHA offers are very difficult to get accepted right now, at least in Toledo. The DSCR loan is a great tool because it's looking at the income potential of the property, not just your personal finances. Now, you're going to pay for that in much higher rates that you'll get in FHA or even Conventional loans, but if you're willing to bite the bullet on that to get started, then it's a great tool to use. Best of luck to you!

Tony Severance · Answer

@Caroline Gerardo

@Thomas Lebens

Caroline - From the info you are providing, it just sounds like I just have a broader list of DSCR wholesalers at my disposal that offer better terms than those you are using.

Thomas - The bottom line is that you can definitely use a DSCR loan to meet your needs and achieve your investing goals.

Have a GREAT weekend!!

Thomas Lebens · Answer

This first property would not be owner occupied, but that's probably what we will do when we move and buy our house hack. Thank you for the idea!

Can a rookie use a DSCR loan for a duplex?

Can a rookie use a DSCR loan for a duplex?

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