All Forum Posts by: Robin Simon

Yeah "DSCR Loans" are part of non-QM domestic mortgages, they wouldn't be an option for a foreign property

It really depends on what type of property you are looking to finance, that will be the driver of what type of lender you need

Is this a house hack / partial owner occupied property?

Are you looking to buy something turnkey or a property that needs rehab?

Do you qualify for conventional financing (W2 income, employment history, strong credit, not maxxed out) or need something with easier qualifiaction?

Thank you Rosie. DSCR loans are here to stay and I personally believe we have likely topped out on rates currently, however the speed that rates will go back down will probably be a bit slower than the rapid run up these last six months. Right now, the market is getting less concerned about rate and a little more conservative regarding leverage and cash flow. I think strategy should shift towards looking for good deals, sellers that panic and cut price too much or were rental property beginners that are overwhelmed what they signed up for. Doing these deals maybe at 70% LTVs instead of 75% and a little more pickier on quality and there will be great deals to be had w/ DSCR loan financing

 This just isn't accurate - it may have been 2-3% higher on average a few years ago when Non-QM was still newer, however it is not nearly that much higher currently

Adapted from a twitter thread (@RobinSimonESC), thought I'd share here!

"DSCR Loans" are popular investment property mortgage loans for real estate investors, perfect for people that struggle to qualify for conventional financing (no W2, stretched DTI), hate intrusive documentation or are ready to SCALE (buy lots of properties, fast). Qualification for a DSCR loan is almost completely based on the property rather than you, the borrower. Outside of running credit and making sure you have a few months of payments in the bank, the rate/structure/points and qualification will be based on the real estate

Pricing generally is driven by the big 3 metrics: 1) Credit Score, 2) DSCR (debt service coverage ratio) and 3) LTV (loan to value ratio). However, there are few other "levers" that can have a huge effect on your interest rate. One of these is Loan Purpose.

Generally there are three buckets for "Loan Purpose" in DSCR Loans 1) Acquisition 2) Rate-Term Refinance 3) Cash-Out Refinance

Acquisitions are the simplest. This is a loan for purchasing an investment property. Refinances are when you are taking a loan on a property already owned, either using the new loan proceeds to pay off a prior loan (or simply taking a loan out on a property you own free & clear.  Whats the difference between Rate-Term Refinance and Cash-Out Refinance? Lenders may differ slightly, but it generally means if you are getting cash in your pocket at closing (New Loan > Old Loan + closing costs/escrows). We define anything >$2k a cash-out.So why does it matter? Loans with Purpose of "Acquisition" will have an interest rate that is generally 50-100 bp BETTER than a cash-out refinance (i.e. 6.5% instead of 7%). Main reason for this? The lender can trust the value much better. The best indicator of value is "market price" - i.e. the highest amount the property would go for in an open market. By definition, an acquisition loan will be on a property that is being purchased at exactly market price, so lender can be comfortable w/ value risk.

For a Cash-Out Refinance - a value is determined by an independent appraisal, but at the end of the day its just an imperfect guess, making the deal riskier for the lender (risk made an error on a property overvalued by "expert" opinion).  In addition, the investor has more "skin in the game" on an acquisition - psychologically, someone who just plunked down 20%+ in equity is going to do what it takes to not default and keep the property. Someone who has no equity in the property probably won't fight as hard...

What about "Rate-Term Refinance"? These are actually priced like Acquisitions rather than cash-outs, primarily due to the "skin in the game' factors mentioned above. Someone not taking any cash out (or putting MORE cash/equity into the property) should be less likely to default.  Bottom Line - as a real estate investor, its helpful to learn the "levers" that will determine the terms of the loans you are eligible for, and hopefully this is a helpful insight into how Loan Purpose affects your rate!

Yeah...No. DSCR lenders are not "conforming" but they need to be eligible for non-QM securitizations and this is an underwriting requirement that is necessary for such securitization

It all depends on if its permitted and the appraisal will value it as a duplex, then the DSCR lender will qualify with income from both units. If not operating legally, they will probably still potentially lend, however it will be based on SFR market rent

 As a beginner, I would focus on the market that you are located in or at least near.  You want to be able to learn the crucial lessons as you start and not have it be hundreds or thousands of miles away IMO

Definitely agree with this. Generally, you want to max out what you can qualify for (DTI) and fit under qualification limits as that will give you best rates and terms. When you hit those maxes, move on to DSCR which will still provide good terms and let you scale unlimitedly

I would look for markets that are "drivable" from big cities and are more in the average value range (i.e. not luxury).  People will still take vacations in recessions, but they are more likely to cut back on the super high end ($500+ per night) destinations, or places that require a flight, higher travel costs.  I.e. people in the Southeast may look to Gulf Shores, AL or Pensacola, FL instead of expensive vacations to Miami or the Keys.  Some properties may actually do better in a recessionary environment