All Forum Posts by: Stephanie P.

 At 7.25 and 2, I bet your phone is ringing off the hook.

Hey Tanu,

Welcome to Biggerpockets.

With little to no experience, you'll probably be capped at 80% of the acquisition and then they'll cover 100% of the rehab, paid out in draws.  That means as the project progresses, you'll send pictures of the completed work and if it's satisfactory, they'll wire additional funds to continue.  Usually there are 3 to 4 draws depending on how much work is necessary.  The first draw is acquisition and sometimes they add the demo to it.  Then once the demo is complete you'll start on the trades with HVAC, electric, plumbing and carpentry.  Once the trades are complete you'll get your close in inspection and another draw.  From there it's the cosmetic piece with drywall finishing, paint, cabinets and flooring.  Each lender is different, but they'll require a budget and scope of work to get going.

Once the work is complete and the property is stabilized (rented), it's time to apply for a conventional loan and if you don't qualify for that for whatever reason, go for a DSCR loan. Lots of brokers on BP can help you with that.

Hope that helps

Stephanie

 That's really inexpensive.  I'm not seeing anything remotely close to that.  The least expensive lender I'm seeing right now has a floor rate of 7.375 and it costs 1.25% to get there at 75%.  That doesn't count our origination fee of 2.

In two sentences, you brought up some really good points for all DSCR borrowers to ponder.

1.  Rates aren't where they were a year ago.  They're in the mid to high 8's with a couple to few points at 80% loan to value.  How do you get it lower?  Pay discount points to reduce the rate or pay to get the ltv lower.  Rates are not going down in the near future.  They're actually getting back to normal.

2. If you are in the DSCR world, you will encounter a pre payment penalty. There's no getting around them. What you do with it is up to you, but because these loans are inherently risky (no income verification always is) and you're asking lenders to put up their money to fund your venture, while not asking you for much other than a minimum of 15% down, they are going to ask for a specific return on their investment. That's all a pre payment penalty is; an assurance that the lender is going to get x amount of interest over the first few years of the loan.

3.  If you did the math and you would have paid 120K, but only 10k to principal, then you understand how amortization schedules work.  The amortization schedule doesn't change with the rate so you're going to pay a little bit of principal in the beginning regardless of the interest rate. 

4.  No matter what you do, a mortgage loan is a tool and not every tool works for every situation.  That's why there are so many variables.  If you're a long term hold person, then a 2 year interest only loan with no prepay makes NO sense, but if you're looking to acquire the property, stabilize it and count on a value increase before you sell it, it makes all the sense in the world.  You see, it's up to you and how you want to or have the means to structure your loan.

Get a good mortgage broker to help you sort this all out.  Have conversations with a few and go with the one that you trust the most.  Rate, while important, isn't everything.

Stephanie

The post is about DSCR financing, not anything BofA has in their portfolio.

 How many points?

DSCR financing is made for your situation. We recently got an unemployed man financed on a 2.1M purchase of a 29 unit building at 75% loan to value.

The cash flow of the building and the guarantor/borrower's credit is the key.

PM sent

Stephanie

Get a HELOC on the first property and use it just in case.

 Here are the tips I give to new investors

House hack if you can.

Use an FHA 203K loan type so you can renovate a property the way you want it using the bank's money

Get multiple units using FHA so you can get the most doors with the least money out of pocket

IF house hacking is out of the question, look for seller financed properties.

If that's out of the question then use conventional financing as much as possible.  It's the least expensive with the lowest cost.

Find properties by going to meetups and REIA's and talking to investors

Build a team of people you can trust to help you.  Contractors, Realtors, lenders, brokers, insurance folks and title companies

Good luck and all the best

BTW  Remember it's all just a math problem.  If the numbers work, pull the trigger.

Stephanie