All Forum Posts by: Nathan Frost

DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth. They don't consider the borrower's income.

Here's a bit more in detail about how rates are calculated for DSCR loans:

1. Credit score- the higher the best. 780+ generally gets best pricing for investment property loans with most lenders

2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.

3. Are you cash flowing the property? Is your DSCR ratio greater than 1-meaning are you cash flowing. Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit.

4. Prepayment penalties generally range from 1-5 years and you get to decide the length of the term. The longer the term, the less of an impact on the rate.

I've included an example below to help illustrate this. So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.

See example below:

DSCR < 1

Principal + Interest = $1,700

Taxes = $350 Insurance = $100 Association Dues = $50

Total PITIA = $2200

Rent = $2000

DSCR = Rent/PITIA = 2000/2200 = 0.91

Since the DSCR is 0.91, we know the expenses are greater than the income of the property.

DSCR >1

Principal + Interest = $1,500

Taxes = $250, Insurance = $100 Association Dues = $25

Total PITIA = $1875Rent = $2300

DSCR = Rent/PITIA = 2300/1875 = 1.23

Lenders will typically let investors vest as an individual or an LLC.

 If the property is in a very high demand location, you are better off with an agent mainly because there will be a lot more eyeballs on it and could go above the list price. You also can negotiate that fee down especially if it is a more expensive property. 

If it is a lower demand market and you are not in a hurry to sell, you could go the FSBO route. It sounds like you are getting some free help from friends and that is awesome! The paperwork can be tricky so you'd want to ask your agent friends to at least look it over and maybe give them a few bucks for their time and advice.

I often buy using Subject To to buy properties. If you choose to use this technique these are some of the Pitfalls to watch out for.

Subject To Pitfalls

1. The bank can call the loan due (due on sale cause).

2. You need money to do a "no money down" Subject To. The seller needs moving money, there are oftentimes an arrears that has to be paid on the loan, there are oftentimes HOA fees that are due, there are title costs, there are escrow costs, usually there is deferred maintenance, you have to make mortgage payments out of pocket until you get a renter in there, you have to pay utilities and taxes, and you need reserves in case it all doesn't go as planned.

3. You can really mess up the seller's credit if you miss payments and they can then sue you.

4. If the seller files bankruptcy in the future you have to prove to the court that you bought the house fairly. That means you have to hire an attorney with uncertain outcomes.

5. If there is a fire and you haven't set up your insurance properly you could be in for a big surprise and not receive a payout.

6. A common source of Subject To deals is people in distress (foreclosure) who have a pending sale date. If you promise them a "rescue" and you don't get it done before the foreclosure sale they can sue you and the local authorities can investigate you.

7. In many jurisdictions (Washington, Oregon, California & others) it is unlawful to contact people in foreclosure unless you are an attorney or real estate gent.

8. If you miss payments on the underlying loan you can go to jail after a very unpleasant investigation.

9. The seller can come back in a year or two and say the sale was unfair and they were taken advantage of and an attorney will believe them and sue you.

10. You can use a Quit Claim Deed and that can be rejected when you go to sell the property.

11. The seller can disappear from contact over time and not be available when you go to sell - you need their assistance oftentimes depending on the lender.

12. You can't contact the lender directly, they won't talk to you.

13. The payment can change and you won't be notified.

14. You can find out later that there was someone else on title that you weren't told about until you get sued.

15. Of course there are more Pitfalls. Did you think this was easy? ;-)

There are solutions for all of these but that is a conversation for later.

No. In my experience it is almost always "off market" with rare exception and it has to be arrainged on a case by case basis. Very few people will accept Subject To, but it does happen and does work, if you do it legally.

If it was easy, everybody would be doing it. ;-)

 And when you do finally find someone to do Subject To, with understand the following

Using Subject To, to Get Properties

https://www.biggerpockets.com/forums/311/topics/1060320-using-subject-to-to-get-free-properties-a-quick-guideline