https://www.youtube.com/watch?v=YvfaIjcwSVU

In this informative video, Jeff Trevathan, known as Jeff the Mortgage Pro, explores the topic of DSCR (Debt Service Coverage Ratio) loans, which are specifically designed for investment properties. He discusses how these loans can help individuals access cash from their properties quickly, even in situations where traditional loan options may not be viable due to factors like unemployment or poor credit.

Key Points:

1. Loan Amounts: DSCR loans can accommodate loan amounts of up to two million dollars, making them suitable for a wide range of property values, especially for one to four-unit properties.
2. No Income or Employment Verification: One of the key advantages of DSCR loans is that they do not require income or employment verification. Lenders primarily evaluate the property's cash flow to determine loan eligibility, making it accessible to those without a traditional job.
3. Property Ownership: There's no limit to the number of properties you can own when applying for DSCR loans. Additionally, some investors prefer having an entity such as an LLC or S Corp for property ownership, but it's not a strict requirement.
4. Loan Terms: DSCR loans typically offer 30-year terms, but there are options for 5/1 ARMs and 7/1 ARMs as well. Interest-only terms are also available in some cases.
5. Reserves: Lenders require as little as three months' worth of reserves, which include principal, interest, taxes, and insurance. These reserves are a risk assessment and do not need to be spent.
6. Loan-to-Value (LTV): DSCR loans allow borrowers to take out up to eighty percent of the property's value in cash. This means that a minimum of 20 percent equity must remain in the property.
7. Credit Score: Borrowers can qualify for DSCR loans with credit scores as low as 640, making it accessible to individuals with less-than-perfect credit.
8. Non-Warrantable Condos: In some cases, DSCR loans can be used for non-warrantable condos, which are typically challenging to finance due to litigation issues. However, eligibility depends on property equity and cash flow.
9. Short-Term Rentals: DSCR loans can be used for properties with a history of short-term rentals, such as Airbnb. The income generated from these rentals can be considered in the loan application, provided there's a 12-month average income history.

Case Study: Jeff shares a real-life example of a client with a $450,000 condo in Florida. The client had paid cash for the property, which had appreciated by $150,000 since purchase. Their credit score was 739, and they needed $200,000 in cash-out for their next investment. Jeff used a DSCR loan with an 8.5% interest rate, resulting in a monthly principal and interest payment of $1,538. The property's total monthly payment, including taxes and insurance, was around $2,500. The property's history as a vacation rental, bringing in approximately $3,500 per month, yielded an excellent Debt Service Coverage Ratio of 1.4, making it an ideal candidate for the DSCR loan.

Conclusion: Jeff emphasizes that while DSCR loans may have slightly higher costs, they offer a hassle-free solution for accessing cash from investment properties. As long as the property cash flow is sufficient, borrowers can often secure these loans, even with less-than-perfect credit. Jeff invites anyone with questions to reach out for personalized assistance.

[Music] Hey everyone, thanks for joining me. Jeff Trevathan here, Jeff the Mortgage Pro. Today, we're looking at a really popular topic, one that is very prevalent in today's market, especially with the way that interest rates have gone up and the documentation requirements on a traditional loan to get those things going. So today, we're looking at a Debt Service Coverage Ratio loan, also known as a DSCR loan, and this is something that's specific to investment properties. In particular, today's episode is about taking cash out of your property with a DSCR loan.

So maybe you don't have a job right now, but you have an investment property. Maybe you have poor credit, but you still have a cash-flowing property. All of those instances are places where we can use a DSCR loan to take money out of your property because we don't have any verifications in terms of employment or income for a DSCR loan. So let's go through some of the things that will help you in terms of getting the cash out of this property really quickly. Let's go through some of them:

You can have loan amounts up to two million dollars, which I think is pretty big. Sometimes we may go higher; sometimes, we go a little bit lower. It's all credit-dependent and how the whole credit profile sets up, but two million dollars is a good number to look at in terms of how much money you can get out. These are for properties of one to four units. Now, there are some investors that will do five to eight units. I am not one of those people, but I specialize in the one to four-unit category for DSCR loans.

Here's the kicker, which I love and why I think people really, really like this product: there is no income or employment verification needed. So when we fill out an application, you don't need to do anything in terms of where you currently work or your job because we're strictly looking at the cash flow of the property and whether it makes sense or not to do a loan on that particular property.

There is no limit to the number of properties you own, and another benefit is that some investors like to see that you have an entity set up to fund your property in, like an LLC or an S Corp. Others don't really care, or it doesn't matter to them; all they care about is that you have a cash-flowing property. That's hard to emphasize enough because that's really what we're looking for here.

Interest-only is available. Most of these are 30-year terms, but you'll see some 5/1 ARMs, 7/1 ARMs available as well. Usually, the 30 years seem to be pricing out the best, but there is an interest-only option in some instances.

You have as little as three months' worth of reserves. Remember, a reserve is just a calculation that we do as lenders. It's just for risk, and it's not stuff that you actually have to spend. It's just a calculation. So do you have 401ks? Do you have retirement? Do you have cash in the bank left over after you're done? You need three months' worth of principal, interest, taxes, and insurance to be able to make sure that the property cash flows, okay?

Up to eighty percent LTV. That means that when you're taking cash out, you can take out up to eighty percent of the value of the property, which I think is pretty cool. That means you have to have at least 20 percent remaining, and you can roll in any closing costs, just like any other cash-out or rate-and-term refinance. You can still roll the fees in there if you need to help pay for some of those costs.

It's up to down to a 640 credit score. So if your credit is not in the best of shape, but you still have an investment property and it's a cash-flowing investment property, you can get a loan.

Non-warrantable condos are allowed in some instances. What we're looking for in those instances is if it has pretty good equity and it's going to cash flow, then non-warrantable condos are considered. Now, this is a big one because Fannie Mae and Freddie Mac, you know, the aggregators that do forward mortgages, they do not like to have non-warrantable condos. A non-warrantable condo just means it's really hard to finance because it has litigation pending on it. So with the DSCR loan and if it's an investment property, there is a possibility that you can get financed with the DSCR loan, but it still has to make sense. Again, and again, emphasizing that the property still has to cash flow.

Short-term rentals are allowed. So if you have an Airbnb or vacation rental property or vacation rental somehow, however, it's run, as long as it has a history of being a vacation rental and we can verify that, we have an average income over 12 months, then we can use that income to help you offset the debt on this particular loan.

So let's go through a quick case study or an example here: I had a client just recently that had a $450,000 condo in Florida, and it had zero mortgage on it. So they paid cash for it about four years ago. It's appreciated about $150,000 since they purchased it, and their credit score was pretty good, 739. They needed about $200,000 in cash out, minus any closing costs that we're going to use to get this loan. So they needed to get this money so they could invest in their next property that they wanted, and it was all tied up in equity. So we used a DSCR loan for this. A $200,000 loan at 8.5% had a principal and interest payment of $1,538 per month, and then with the total payment, somewhere around $2,500 because it was a condo, and you have to include taxes and insurance as well. So right around $2,500.

And since this was a vacation rental, they had a history of this thing renting out for 24 to 48 months, and it actually brings in about $3,500 a month in income. So if you take the Debt Service Coverage Ratio on this one, this is 1.4, which is excellent. What we're looking for is a ratio over 1%, typically, but 1.4 is even better. So you're going to get optimal terms in your financing, and this is a great loan and a great scenario that just happened. If you have something similar and you have a property that needs to take cash out and it's an investment property, definitely consider the DSCR loan. It is a little bit more expensive, but the hassle is so hassle-free. There's not a lot of extra work to be able to do this type of loan as long as the property cash flows. You're going to be able to get a loan for the most part.

If you have any questions at all, please feel free to reach out to me. I'm going to put a link down below for my link tree account. Go ahead and click on that and grab my calendly link, and you can set an appointment with me. I'd love to chat with you and help you out with your next DSCR loan. Have a great one. Bye."

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