DSCR New Mexico Property/ Guarantors??

Question

Hello!

Looking for some guidance… My partners and I (LLC set up) are first time investors in STR. We decided to go with a DSCR in the LLC name to help protect our personal assets… We are near closing which has taken WAY too long in my opinion… (we are on month 3 with 3 extensions)…Regardless, at this point 2 of the 4 of us in the partnership are being asked to sign as guarantors of the loan…

• 1 Is this normal? To me it kind of defeats the purpose of protecting personal assets and standing up the LLC.
• 2. It is my understanding that the LLC and DSCR loan being in the LLC still protect us if we were to get into any type of litigation with renters but wanted to open it up and see if there are any watch outs I am not aware of?
• 3. What is the normal timeline for a DSCR loan? We have provided everything needed from us when asked but we keep getting one off requests from our lenders vs just ask in for what is need upfront.

Thanks in advance!

Amanda Long · Answer

Thank you both!

Brittany- That is a great question! The appraisal was the longest hold up but the junior loan officer we were assigned seems to have zero idea what he is doing and zero sense of urgency... For example the (first) 1007 comes back and he shares with me he is going to review it with his team and call me... He calls and tells me "the income to mortgage isn't 1:1 and he is going to have to let the lender know." To which I reply, 1. The income amounts look to be long-term rental (which they are and came in 30% lower than what the STR average did) and 2. why did the appraiser look at homes 20 miles away to compare to when there are PLENTY of rentals in town... Response "Oh, yeah.. these are long-term rentals and yeah, why did they go 20 miles out..."

I shouldn't be catching these things... He should!! We are just so far in now I am trying to get this across the finish line... I looped in the owner of the company but things are still pretty rough.

Brittany Minocchi · Answer

Personal guarantees are EXTREMELY common. Your other questions are better suited for an attorney to avoid misinformation. As far as timeframe, anywhere from 21-45 days depending on how quick a borrower gets their docs to underwriting, how long the appraisal takes, etc. Why is it taking 3 months?!

Erik Estrada · Answer

Hi Amanda,

I think this is where most borrowers get confused on a DSCR loan. Just because the property can close in an LLC with a DSCR loan, does not mean the loan is made to an entity. Lenders will still require a personal guarantee since it is a full recourse loan. As for the legalities of setting up an LLC to protect you and your partners, I would consult with an attorney for best judgement.

DSCR loans typically take 21 days to close. You should allow a 1-2 Weeks for the appraisal, and 1-2 weeks for title and insurance. Assuming this is a clean file, with no exceptions required, most Underwriters take anywhere from 48-72 hours to review a loan and get CTC, or provide further conditions.

It's really important that you work with an experienced loan officer or broker, especially on a time sensitive purchase transaction. They will know exactly what to request from you, way before the UW conditions for it. Too many times I see Loan Officers transitioning from doing conforming loans to doing DSCRs, but they really have no clue what they are doing. So the deal ends up falling out or they take forever to find solutions.