All Forum Posts by: Nathan Frost

This is an old post, but my experience with COGO was so bad, I need to chime in and say it was terrible! They were slow, cumbersome, and impolite. Their appraisals come in low so you have to bring more to close than they promise. I almost lost a deal and had to change lenders days prior to my deadline.

@Nathan Frost Why does the topic say non DSCR? There are plenty of programs that allow you to go down to a 1.0 using a simple gross rents/PITIA approach...LLC vesting would be fine We have an email thread already. Let me know if you want to chat about this deal today. The industry standard is NOT 1.25x DSCR on SFRs...

Hi @Nathan Frost I was a banker for many years before we started this company several years ago. Banks and DSCR lenders are going to look at deals entirely differently...and they calculate DSCR differently. For a DSCR Lender, they only look at what potential rent that the appraiser assigns to the property on the appraisal (using a form called a 1007). They then compare that to the Principal, Interest, Taxes, Insurance, and HOA payments. That's pretty much it, so for a DSCR Lender, DSCR = RENT/(PITI + HOA). The bank is going to add in things like vacancy factors (they might deduct 10%-25% off the rent amount to account for vacancy...that varies from bank to bank). They also will add in maintenance expense, etc. They will use historical data from your tax returns instead of the potential rent that a DSCR lender requires. Banks will usually also look for a much higher DSCR figure like 1.25X-1.30X to qualify, where DSCR lenders are usually at 1.0X-1.1X with many going to below 1.0X for experienced investors with strong liquidity. You can do the loan under your LLC with the bank or with a DSCR lender, but Fannie Mae and Freddie Mac are going to require you to do it in your name. The issue with using Fannie/Freddie on future deals is that while DSCR lenders only look at the cash flow on the subject property, banks and Fannie/Freddie are going to do a "global cash flow", which means that they are going to look at all of your income and all of your debt combined. Math becomes a problem in that Fannie/Freddie only want to see you have a 43% (in reality a bit higher...but let's use 43% for this illustration). I know these numbers are going to be silly, but hang with them for this example. Let's say you have a current job with an income of $1000/mo and your mortgage, car payment, credit card payments, student loans, etc add up to $400/mo, that's a 40% Debt to Income Ratio and you would qualify. Let's now say you find a property that will yield you an additional $1000/mo in rent that positively cash flows by $200/mo...great deal, right?. Well, the bank and Fannie will calculate your new income at $2000 ($1000 current plus $1000 in rent) and compare that to your current outflow of $400 plus your new expenses of $800. You're now at a 60% DTI and you no longer qualify. Fannie makes it almost impossible to scale, so that's why you'll struggle with a bank or Fannie...you're adding multiple rentals to the calculation. I'm happy to explain more if you have Qs, but I think I'll let others chime in. Let me know how I can help. Doug

It may be possible depending upon the overall scenario as a direct lender each loan is unique. What amount are you looking to receive and what will be the LTV?

You can use a DSCR loan under your LLC, but the typical ratio is at least 1.0. What type of property is it?

 There are two 40 year options out there right now.  10 year interest only that fully amortizes years 11-40 and a 40 year fixed option.  Both reduce the monthly payment, improving cash flow, over the 30 year fixed option.

DSCR is based on the rents vs the monthly payments. Some companies don't care about a ratio at all if the loan to value is low enough while others will go down to a .75 ratio so the rents can cover 75% of the monthly payments. The most common is for the rents to cover the mortgage completely or a 1.0 debt ratio and above.

The borrower or guarantor's credit is the other main consideration on these loans.

No, it's called an interest only loan. You're still stuck with interest.

IO loans really only save you in a high cost areas or high appreciating areas that you have to bid up. In both those cases, you're saving a principal payment for the first 10 years but you gain no equity in the first 10 years. At 20-25% down, that's about 8-10% in equity you're not achieving. If you are really saving significant money on your PITI by going IO, you're likely buying in high(er) cost areas so that "savings" is actually going to bite you in the *** if/when the property appreciates in that first decade. If you're buying in low(er) ish areas, you're saving a very little amount of principal and gaining no equity in those 10 years. Run the ITI payment with an IO vs a PITI loan in $300k houses @ 7.5% and $800k @ 7.5%, you'll see what I am saying. Then check what you believe is going to happen: 3-5% appreciation, more than 5%, sub 3% and see if it's worth missing the principal payment.

DSCR loans are usually a point higher than CONV, and was that way with me at least the last 10 weeks. But I'm now being told 1.5-2% simply cause the biggest of the biggest are scared to lend. These work when you're trying to immediately finance under your LLC, cannot be underwritten appropriately, or simply want to value the deal at the deal level-- PITI less NOI. With higher rates on these your NOI is up, and it's unlikely even at CONV rates you're getting intrinsic so DSCR is particularly harder with even higher rates. I've done a few DSCR loans because I felt rates would go up and I'd then go CONV and transfer title/deed to my LLCs. To make DSCR intrinsic, you're going to have to put like 33% + down to get them to bite. Some do under 1x DSCR(meaning PITI=NOI or less), but you're going to paying for that in rate making it even less intrinsic.