All Forum Posts by: Clayton Silva

Really depends on type of mortgage, conventional, FHA, VA, DSCR, etc?

My general rule of thumb is $2,500 -$5,000.  Any item worth less than that I never buy warranties nor service plans.  Generally a scam in my opinion.  And even the $2,500-$5,000 range is optional for me personally. 

Couple thoughts:

1) If you are going to put a mortgage on the home which I imagine you will, you are going to have to get the property appraised.  This has an inspection element determining the value of the home to give you an idea of what it is actually worth in its current condition.

2) I would definitely do inspections, but I would not do them until you are in contract.  Do them now, and who knows what will happen in 3, 6 or 12 months between now and buy time. 

3) I would have a very good title agent involved to insure the property (title policy), provide a clean chain of title, prepare the new deed, etc.  (I know a lot of really good ones in CA). 

4) Lastly, I would get pre-approved with a lender sooner rather than later.  It could all be a moot point if the seller wants 800k and you qualify for 500k if that makes sense. 

Hope this helps and happy to answer any questions you have!

I do a mix of all of it. The intangible that people rarely can assess is whether or not the lender can actually get a loan closed. Amazing rate, fees and terms mean nothing if the lender drops the ball and cannot get the deal done and you lose EMD or worse along the way. I have worked with wholesale lenders, retail lenders, commercial lenders, hard money/private money etc., but determining whether or not someone can actually get the deal closed is a skill that comes with experience. Honestly, one of the quickest ways to determine a good lender is one that is looking for the hurdles ahead of time. If someone asks very few questions and rushes to tell you how good their pricing is, I would stray away. That is just me.

They are doable lol, but I always prep clients that it is not going to be fun for either of us, and I have done enough of them to know which ones are possible and which ones are near impossible. I recently closed an STR, rural (very rural), DSCR, with no primary housing expense and no documentable experience. Not an easy loan at all, but it is possible.

Other than paying a lot of points AND the broker origination out of pocket, nothing too out of ordinary. Still hard to be 100% because I do not know your PPP and structure of PPP. Your post mentioned Cleveland OH at the bottom, which I know OH caps PPP at 1% which most lenders don't even have that option so it is likely that you have none on this loan. Might be worthwhile asking if they can do a 1 year 1% PPP to reduce the rate and points a tiny bit but they may not have that option. The lack of PPP is why the APR is higher is my guess. Also don't know if you HAD to buy rate down to get it to DSCR?

Every element of a mortgage is a risk calculation to the bank.  Leverage, FICO, income vs no income, more documentation vs less documentation, appraised value, duration of loan, etc. are all risk factors that banks consider when making the decision to issue a mortgage.  Rural properties are uniquely difficult because one of the most critical elements of residential mortgage risk calculations is the appraisal.  In order for a bank to feel comfortable with the value of the property, they have to get an appraisal and in order to get one, there have to be recent sales comps in the nearby area.  Because rural areas are inherently low density, there are fewer sales comparables for an appraiser to use to justify value.  This will always make banks more hesitant to issue a mortgage.  

DSCR rural properties are even more difficult because you are adding an additional layer of risk by reducing the amount of income documentation for ATR (ability to repay) which further poses risk to the bank. This is why a lot of folks I work with get frustrated by lower LTVs, or higher rates, with rural properties simply because the bank is hedging for additional risk.

Some shops like ours can still get them done, but always with the preface that it will often involve more work than other similarly structured DSCR loans, but I wanted to share this as a PSA for folks.

Many people reach out to me for STR, DSCR, rural loans and now you have added 3 compounding risk factors in the banks eyes so in order to overcome this determination of risk, it is imperative to have the following if you want to have any success securing financing for your next adventure AirBNB:

1) bullet proof credit score

2) very healthy reserves

3) experience is almost a requirement now for these types of scenarios but at a bare minimum, you have to have owned your primary or have extremely well documented housing expenses.

Hope this helps people understand a bit more about why these are trickier than normal.

Cheers!

 My pleasure! Happy to help

Yes it does. There is no box in Loan Estimates for NonQM loans (DSCR is a Non Qualified Mortgage...meaning it does not get sold to Fannie or Freddie). As such, most DSCR loan estimates go out as "conventional" in the box you highlighted. Nothing out of the ordinary there.

Couple notes in case your lender did not explain it:

1) The owners of the LLC are still personally guaranteeing the loan contrary to popular belief. Despite the LLC technically being the note holder, there is still a personal guarantee.

2) DSCR loans CAN report to credit. While they may not initially, these loans get packaged up and sold to different hedge funds, servicers, insurance companies etc. When they do get sold/transferred, the new servicer may not fully read through the agreement and may report the loan to your personal credit.

3) Regardless of whether it reports to credit or not, it technically will impact DTI once reported on Schedule E for tax returns. Might be able to make the case that if it is not on credit and title is in LLC name you can omit it from DTI calc, but that is going to come down to specific lender guidelines and underwriter a lot of the time in regards to how they interpret that.

Hope this helps!