DSCR Loans for 5-9 Unit Multi-Family | Buy Small Apartments

DSCR for five to nine unit multifamily properties. Hey, what's going on, everybody? It's Jeff Tripartha and Jeff the Mortgage Pro. Thanks so much for watching here. I really appreciate it. If you do love these videos, please do me a favor and click the like button down below. And if you really like the different things that I put out, I'd love to have you subscribe to my channel. And you can go ahead and hit that subscribe button down below. All right, let's jump into this one. This has been a good one. I've had so many questions about these types of loans. And the reason why I think I get a lot of questions about this is it's really hard to find financing for five to nine units, especially under the two to three million dollar mark, right? You know, most commercial lenders, if your loan amounts over two million, they're happy to help you out because they're going to be able to make big commissions on things like that. You know, terms are a little bit better. But this is kind of a niche. Anything under two million or under three million, really, for a five to nine unit property anywhere in the U.S. is definitely going to be somewhat of a challenge to be able to qualify for. So what I love about this type of a product that I have for you today, this is strictly based off of a DSCR rental property. Like it's it's going to be treated as like a DSCR rental loan. If you dive into like commercial financing, there's a lot more things that go into that. DSCR is a part of it. But with a residential DSCR loans, we're literally looking at whether the income that's coming in of the property is greater than the expenses of the property going out. That's all the things that we're looking at for this type of a type of a loan. Now, you still have to have equity and credit and things of that nature. But those are the main things. As long as the property is going to cash flow at a number that we need it to cash flow out, you're going to be in a good position to be able to get this loan. So let's go through some of the different guidelines on this five to nine unit purchase of a property or a refinance, if you'd like to do that. So this is for its experienced investors only. And what's an experienced investor? You have currently owned a primary residence for at least one year, and you most own at least one commercial or non owner occupied investment property for at least one year. So if you meet both of those criteria, then you're considered an experienced investor. And you can apply for this loan if you find a deal that you like or if you already have a property that you want to refinance. You can do this type of a loan. The eligible properties for this, again, are five to nine unit multifamily properties. These are only residential loans or only residential units. So five to nine unit, basically apartments. And then the max acreage is two acres. So it can't be huge and spread out over a large area. The different types of loans we have, this are 30 year fixed and 10 year interest only loans, which is amortized over 30 years as well. And those things would be interest only for the first 10 years of that type of a loan. Now, I like the interest only option oftentimes because the monthly payment might be a little bit lower than the 30 year fixed option. But just know that the 30 year fixed option is definitely available as well. These are for loan amounts. It's important. These are for loan amounts from 400,000 up to three million. So you definitely need to make sure that the loan amount is going to be less than that. Even over two million, it's going to be a little bit harder. We may need to get an exception. I do have a couple lenders that will go that high, but it's a little bit different type of financing. You know, every every lender that does this has a little bit of quirkiness to them, I would say. So some things, some of them like up to 10 units, some of them like maximum nine units. And this is what this video is about, is up to nine units, but maximum of three million dollars for a five to nine unit property. The minimum credit score you're going to need, you're going to need pretty good credit. You need a minimum of 680. Anything under that, you're not going to be able to apply for this type of loan. It's really harder to find financing for credit that's less than 680 for these types of properties. Obviously the better credit that, you know, the better the terms are typically going to be, the better the rate. And it's definitely helpful, but 680 is the minimum credit score. So the loan to value on a purchase and rate and term refinance is a maximum of 75% loan to value. And what that means on a purchase is that you have to put 25% down or more to be able to get this type of a loan for a five to nine unit property on a rate and term refinance. The maximum loan to value is again, 75% LTV. And then for cash out refinances, the maximum loan to value is 70% LTV. So if you have a property, maybe it's own free and clear, you can still probably take out a pretty good amount of money up to 70% of the value. But if it's close and there's not much room for you to take cash out up to 70% of the value, then the loan won't work very well as a cash out refinance. Okay. Um, the maximum cash out that you can get is typically 500,000, but there's possibly exceptions that you can get on that with other compensating factors. So maybe you have really ridiculous credit, maybe you already have great reserves and you don't need to, uh, you know, source any of that or don't need to use the cash out for reserves. All of those different things would, wouldn't matter to help you get more than $500,000 cash out if you really needed it. Okay. So, you know, don't think that that's a limiting factor. If you need more than 500 K cash out, maybe there's some other things that we can help out with and try to get an exception on that. Um, the minimum DSCR for five to eight units, five to eight units is 1.0. So that means that the income coming in has to be just slightly greater than the cash than the expenses going out on the property. Now, if it's nine units, then the property has to have a DSCR of 1.25 or higher. So that's a little quirk in there. So make sure that, you know, when you're talking with us about this type of loan, you know, let us know how many units it is. We can help you determine that. Um, the best pricing is going to be for 1.25 or better, whether that's a five to eight units or the nine units. So if your property is really cash flowing, then you're going to have better pricing. Most likely the maximum vacancy that we can have in this is 20%. So we would use to calculate what the debt service coverage ratio is 75% of the market rent to calculate the income for that unit that's vacant or units that are vacant. So on an eight unit property, 20% vacancy, um, you would need to have like just only one unit could be vacant really, uh, to make that, make, make that work. So maximum 20% vacancy. Um, if you had everything leased up and you're going to need to have three months worth of rent, but, but the first month and the last month rent that you would usually use as a secure deposit that actually counts as two months. So technically the only person needs to be in there for two months to be able to determine that they've been in there for at least three months to not consider that, that unit, uh, unoccupied. Okay. Um, these types of loans, it's most beneficial that you close in an LLC just about every one of them that I've done. Most people close into LLCs. I've occasionally seen somebody closing their own individual name, but, um, usually the LLC is preferred for this type of a transaction. So just keep that in mind for reserves, you're going to need six months. And then if the loan amount is greater than 1.5 million, you're gonna need additional three months. You're gonna need a nine months total for reserves. Um, and then with this type of a loan, this is a crazy thing. The cash out cannot be used as reserves. So you have to have your own assets whenever you're doing a transaction on this and reserves. Remember is just one month worth of principal interest taxes and insurance monthly payment. Then we would multiply that by however many months of reserves that we need. So a cash out cannot be reserved used as reserves for this type of a property in this type of a loan. So just keep that in mind. And then lastly, um, these loans also since they're DSCR loans come with prepayment penalties. So you're going to run into these, the shorter the prepay equals the higher the interest rate. So that's just a fact you can go anywhere from no prepay all the way to a five year prepay. And I would say that most people are probably going to be long on these types of investments are going to keep them over the longterm. So a five year prepay may not be too bad, especially if you can get the property to cashflow pretty well. And then you have other people paying your mortgage for you because these are investment properties. Okay. So if you have any questions at all, about five to nine unit multifamily, uh, DSCR loans, and again, these are residential, you know, treated as residential DSCR loans, even though these are considered commercial properties. Um, please reach out to me. I've got a calendar link down below and you can go ahead and click on that. Love to schedule a time and chat with you about your purchase or refinance of your five to nine unit property. Thanks so much for watching. Look forward to chatting with you again, really soon. Have a great day.