Unlocking The Power Of DSCR Loans For Real Estate Investors

Welcome to another episode, Loan with Jen, whether you're tuning in on a podcast or watching us on YouTube, thank you for joining us today. We are talking about DSCR loans, which is a special type of financing for investment properties only. So if you're an investor or a wannabe investor, thinking about your first, second, third, fourth property, whatever, we have an expert here today and we are gonna answer your questions about DSCR loans. So Cara Eubank is with Angel Oak and she actually, we do business with them. So she does business with lenders like me and she's agreed to come on today. Cara, thank you so much for joining us. Thank you, Jennifer. I appreciate it. Thank you for inviting me. Happy to be here. Yeah, sure. So remember we're talking to homeowners. So if we talk about lingo, which is easy for industry people to do, we've got to make definitions. But I'm dying for everyone to know, what does DSCR mean? Let's start there. It still sounds confusing even after you know what it means. It stands for Debt Service Coverage Ratio. Yeah, that's confusing. Yeah, it is. So tell us, so this is for investors only and just walk us through some of the high level bullet points of what this loan is. You bet. So we like to see that they have a primary and we like to, we'll look at their primary, make sure that it's bigger and prettier, not prettier necessarily, but bigger and maybe, basically we just don't want to see that they're trying to buy a primary under this program. The beauty of this program is it's for investors who, and we can do short term rentals as well, we don't require any employment nor income. Therefore, there's never any debt to income ratio. So that is really awesome. And a lot of investors love that portion of this loan. I do too. Yeah, it's easy. It's easy and a lot of investors have all their money bent up in their properties. So they don't, and you don't check for reserves or anything like that. So on this, yes, we do. We do six months reserves. However, it's on that subject property. And I'll tell you also this program, we obviously look at their credit also, but you can do a purchase, a rate and term refi or a cashed out refi on this. So if you have investors that already have investment properties, it's a great thing. It's a great tool because we can do them in one, two, three, four, five packs and they can cash out on those properties and then turn around and increase their portfolio. That's awesome. And you'll do them in the name of an LLC too, won't you? Absolutely. We will do it in the name of the LLC. The LLC does not have to be seasoned. So they could have gotten it yesterday and that is perfectly fine. Whomever is on the LLC though, must be on the loan. And we personally max out at two borrowers. Okay, got you. That's good to know. And so let's touch upon credit and then we're gonna go with down payment on the down payment requirement. So what's the minimum, the lowest credit score that you will accept on this program? On this program right now, it's at a 680. Okay, cool. Yeah, that's totally reasonable. And then- I'll tell you this though also. So what DSCR means is basically it means cash flow. So how these programs, I mean, this program is out there is because we'd like to see that the investment property is cash flowing. What that means is that basically when we order the appraisal, we order a rent comp analysis. And with that rent comp analysis, let's just say the appraiser said, it looks like the rent can be $2,500. So we'd like to see that the payment interest, taxes and insurance and HOA association fees would be $2,500 or less. Now, however, we do have where if you have a 700 credit score and it's just a max of 75% LTV, it does not even have to DSCR. It can be whatever, like your payment can be 2,800 and the rent is 2,500. It can be whatever. As long as you have a 700 credit score. A 700 credit score and the LTV is 75%. That's awesome. Yeah, it's incredible. Yeah, y'all have amazing products. That's why we love to partner with y'all. And so, Cara, yeah, thank you. There's companies like Cara's. I mean, Cara has competition, but they treat us really well and always so knowledgeable. And so in your local market, if you're looking for this type of a loan, find a local lender that can become your go-to that uses a company that has hopefully Angel Oak that has these great, fantastic products because they're out there and not all lenders use these products. It just, some people just, some companies just decide not to, but we're super excited to offer this. So DSCR. So once again, check out in the notes, we'll put the other episode I did with Cara, which is on bank statement programs, which is another non-QM program. You can do, well, you don't need to do bank statement on this one because you're not doing income. You're exactly right. The only thing, just one, sorry, I don't mean to, you do need reserves on this one though. So you've got your down payment and closing costs you have to verify. So that's really the main, that and credit's the main requirement, right? Correct. Okay, cool. What about down payment? What's, I'm sure it depends on credit score. So let's say I have 680. That's a great question. With a 680, you can get a 75% LTV. With a 700, you can get an 80% LTV. The max LTV on this is 80%. If you're doing a cash out here in Texas, the max is 80% anyway. Yeah, exactly. Yes, on cash out. Well, that's for primary though. You're right. My apologies. Yes, for investment, it must be 75% LTV. Well, but on, so your cash out maximum is, you said 75? Correct. Okay, which is generous. I mean, when you're not really verifying anything and you're just going on credit, that's awesome. That's awesome. So what can people expect on these types of programs? I mean, obviously the rates are a little bit higher. I mean, right now in this day and age, I mean, we're recording this in 2023 and our investment property rates in conventional are like in the sevens. So. So this, to be honest with you, it really depends on if it does cash flow. If it does not cash flow, the rate is a little bit higher than rather than it actually cash flowing. I have something else that I was gonna say and now I can't remember what it was. Down payment. The rates, the down payment, I'm sorry. Can we? Keep talking. Yeah, I'll keep talking. So the down payments are like on a purchase, they would be, we were at 20% or 25 and there's gonna be different rates for each of those, but that's super, super reasonable. I mean, most investors expect to do that kind of down payment. And, you know, marry the house, date the rate is what is being told in today's market. And that's very true because you can go back and you can always rebuy back when, I mean, once the market has kind of calmed down. Yeah, and most investors are actually really good and open to that. They know, they're just looking for the, whatever the rate combo is. You know, they just usually want it to cashflow also. I mean, they wanna be a one-to-one ratio, right? Like they wanna, yeah, that's awesome. Do you have any maximum loan amounts that you'll do under this program? The max is 80%. I mean, loan amount, like you won't go over 100,000. We can go up to, our minimum loan amount on this one is 75,000 and our max is 1.5 million. Oh, wow, cool. Yes, we've got a combo. Awesome. And prepayment penalty, is there any prepayment penalty? There is, we use a standard three-year prepayment penalty. We do offer a four-year prepayment penalty that will give you a little bit of a benefit to the rate, but you can buy out the prepayment penalty. Okay, gotcha, gotcha. And are the rates, for y'all, are they 30 or fixed? Are they arms? What are they? Across the board, we're all 30 or fixed. Okay, awesome. Well, cool, it sounds pretty straightforward. So I'll put some more information in the notes. Also put a link to that bank statement program for anyone that might be interested in that. But DSCR, thanks for joining in. Thanks for joining us, Cara. Thank you, Jennifer, I appreciate it. Thanks so much for having me. Talk soon. Okay, sounds good.