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good afternoon

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today we are joined by Chris Brazell

Director of operations for the Sherry Riano team

what's up Chris

hey how we doing today

good man good

my name is hunter Boyd

I'm the director of sales

of The Sherry Riano Team and this is mortgage mindset

today we've got an exciting topic

one of my favorite loan programs

it is a DSCR loan

this is a non qm

non qualified mortgage

if you tuned in a couple weeks ago

you heard Chris kind of explaining what that even means

um so without further adiu

let's dive in Chris

what is DSCR

what does it even stand for first

so DSCR is just a clever little acronym

we love acronyms in the mortgage world

stands for debt service coverage ratio okay

that helps me

none yeah yeah

we're done yeah

shut her down

so what debt service coverage ratio means is

this is for people that are looking to invest in real

estate and buy investment properties okay

and so a debt service coverage ratio

all that means is that

we're qualifying clients on the property

and not on themselves as bar wars

what that means is that

the property is gonna be an income producing property

as an investment property

and so what we're looking for is rent schedule

of rent comparisons are comparable schedule

on the appraisal to see what kind of income

this properties is

intended on generating or what it the potential

income it can generate as a rental property okay

so the income produced by the property or with

the expected income produced by the property

provided by the rent schedule

which is a part of every appraisal package um

so really there isn't much

you can tell about this prolong program unfortunately

until we get an appraisal completed

that's correct yeah

so up front

this is a little bit different and with

most not QM loans are gonna be a little different yeah

they're all gonna have different nuances

and things like that

but on the DSR loan

first thing we do is get the appraisal done

because the appraisal is gonna dictate

how we can structure the loan

and what I mean by that

is that we take the full housing payment

for that particular property based on

the loan that we're

presenting to the client

and so the full housing payment

the full Piti HOA

when what that is short for again

another acronym

is Principal

Interest Taxes

Insurance and HOA

so the full housing payment on that particular property

on the subject property

we're looking for a rent comparison schedule

on the appraisal to see what kind of rent that property

can produce

and so big the big thing on these loans is the ratios

and what the ratio means is

what that rent comp schedule says

on the potential monthly income it can produce

how that compares to what the Piti

the full housing payment sets up

okay alright

so before we get any further into the weeds

I do wanna put this uh

not so fine print

very boldly stated

uh fine print

these products

they change guidelines quickly

this is not like a conventional in FHA VA

where it damn near takes an act of Congress

for something to change

this is something that can change on

the investor's whim

literally overnight

whether you're working with a share Rihanna team

or you're working with some other lender

who has non qm products

I do encourage you to check with that lender before

you make any offers

ensure that the loan program

the loan structure that that lender had

that client and set up in

is still available

two weeks 30 days

24 hours after initial prequalification

yeah that's correct like

like we talked about

when we introduce these nine QM products

but during Covid

these went away

all of them were gone

and now they're coming back

but as you said

hunter the invest

this is an investor driven product

and so what that means is that the investors dictate

the guidelines

the rules the regulations

they're gonna service these loans

and keep them within their own personal portfolio

so they can change the guidelines daily

if not hourly

so yes double check with us every

single time

this almost sounds like an investor

friendly credit union

that doesn't sell off their loans um

like you know

we all have some experience with some local credits in

the credit unions in the area that

really house their own products

and they can change their interest rates at Wham

uh they can change their guidelines at whim

and they can do that because if this thing goes into

late payments

foreclosure

that same institution that started

is going to be handling that

process in the courts as well

so there's a little bit more power

but so these programs

they always kind of remind me of

you know something that

most people may not equate them to

but is a very familiar product

just in a different sense

alright so let's kind of get into

what right now we're seeing with these products

and you know

just some over general guidelines once again

check with your lender before you go

you know place an offer

with these loan structures

we're gonna be talking about some new

even for us

some new loan

structures that we haven't seen in a

very long time

um primarily

less than 20% down on a DSCR loan

so we're talking about 15% down

not even an

traditional investment

properties require 20%

so not even needing that much

for these loan

programs um

kind of phenomenal

we've seen that come

out in the last

maybe 30 days or so

that's correct

yeah so again

this is all based on investment properties

this DSR is only

for investment properties

and as we all know

or you know

we tend to tend to know

or kind of have a

in the back of

our minds that

you need 20% down on investment property

this loan does only

require minimum 15% down

it's nuts yeah

it's great so

it's a strong product

it's a great

for people to build their investment portfolio

on investing in real

estate but again

with only 15% down now

as you've said

time and time again

check with us you know

we're gonna look

at the rates

there's gonna be points

and things like that involved

with getting these loans

but we can run

scenarios for

you but again

a minimum of 15% down is

all that's required on these loans

another thing that I like about these

because dealing with investors

it this is an investor driven program

this is only

you can't get a primary residence

with this loan type um

a lot of investors want to immediately close in

the name of their LLC

and what is so cool

because we're

not using the bar or

the individual bar or income

we can close these in an LLC

that's right

and I think that's a

high appeal there

just because um

it's going directly

there's there's

the bar where

the individual bar never has

anything in their name

I think that brings some peace of mind to an investor

that's correct and again

you gotta flip your

your mindset on these

cause we're

not qualifying the bar

or we're qualifying

the property

and so you know

if those of

you that have been in

the business

you know 20+ years

you go back to

the early 2

when we did you know

stated income

stated asset

no DOC loans

yeah this is a no income loan

we do not qualify

the borrower

based on income

we're qualifying

the property so yes

we can close in

the name of an LLC

there's a lot of very

variables in these that

allow us to do things that are

outside of the normal

conventional loans

because this is an

property driven program

every time we talk about

like pre 2,008

I get the I

hear the song like

and I'm gonna

age myself just a little

bit here um

but the Will Smith song

wow wow west

like the wow wow west

every time you say

I just like

that's the image

I have my head is

Will Smith's music video for

wow wow west

those are good times

back up but it

was telling you

um so talk about some other cool things that this

this loan program has um

a 30 year interest only available

we've seen that come out recently

that's just nuts

so there's no advertise payment on that

correct yeah

that's right

it's a so again

this is all about monthly cash flow

so if you're looking at interest only on these loans

monthly cash flow on these investment properties is

is the potential

is there for these to have a lot of monthly cash flow

on the rent you're bringing in or the only

making interest only payments on these loans and again

if you're buying in this area

most areas around you

you're still gaining appreciation yeah

that's I mean 10 15

20% that's right

it's a win win

so you're investing in real estate

now keep that in mind

so it's not like putting money in the bank

where you're gaining interest on your money

you're literally gaining uh

money by investing in the real estate

and gaining appreciation on the on the home cool okay

yeah alright

um let's uh

let's talk about non warrantable condos

so this is a

something that we're seeing more

more prevalently after that thing in Florida

um with the condo collapse right

yeah so when that condo did collapse down in Florida

so Fanny Mae

Freddie Mac

they lost their pants on those

because a lot of people that had mortgages on the

on the units within that condo complex

you know of course

they weren't gonna pay the mortgages back

cause there was no condo left

the building was unfortunately gone yeah

and so they

for any man

Freddie Mac have tightened down big time on condos

and so with that

this census product is income driven based on the

on the property

they do allow for non warrantable condos

one thing they do all yeah

they they one thing they do also offer is condo towels

now condo towels

they're becoming more and more popular in beach area

I will say that there's one specific community

at the beach that I'm thinking of that has condo tells

I didn't even know the term until I saw it

so condo tells

you're not gonna get a conventional loan

hahaha like a

like a hotel room yeah

you can't touch them

but on these products

you can get a condo tell

which is very cool

so you know

in Myrtle Beach

you know the beach areas in

North Carolina

and around there

you're gonna see those more and more prevalent where

you you're not gonna get conventional financing on them

but this DSR loan

allows you to get into that kind hotel

and start you know

start investing in

in the property there

that's cool

that's cool

let's talk about the ratio

so you mentioned it earlier

when you just started talking about like the

the ratio the payment versus the um

expected rent and stuff

talking about if the ratio

either doesn't come in

at 1 to 1 or if it comes in above 1 to 1

maybe the appraiser

expects it to make more than the monthly payment

can you tell me what

how those things affect the law

sure yeah and again

going back that's why we get the

appraisal done up front

because we need to know

that rent comparable

the comparable schedule is gonna look like for

the potential rent on the property

I'm gonna say that over and over again yeah

cause that's how this

this loan program is driven

so let's and I'm gonna throw random numbers out there

let's say your full

monthly mortgage payment plus HOA

is about $2,000 a month

that rent comp

schedule comes in at 25 dollars a month your

your ratio is plus 1%

meaning that the rent is a

the potential rent on that property

is above and beyond what the housing payment is

so that allows us to set up the loan based on

having a good ratio on the

on the home

and so it gets you

access to better rates

better pricing

loan and things like that

but we can literally go as low as 0 to 1

and what I mean by that is

if you if the rent comparable

schedule comes back and says

oh guess what

it's not gonna make any money

which is you know

that's not the case

but the appraiser will say zero

the appraiser

can say zero dollars

can say zero

I I haven't seen that yet

haha yeah haha

so but we can go as low as 0 to 1

and obviously

the lower it goes

the higher the risk

the higher the risk

you know the pricing is not gonna be as

as as as good

so you're gonna

get hit a little bit

on the risk

level on that

interest rates going up

interest rate going up

points going up

things like that

so we can do though

as low as 0 to one

so we get that

appraisal back

that allows us to set up the loan

and based on

the rate the ratios

and then we move

forward on that

based on that

but yes the

that's where

the big key is gonna come in

as what that rent comparable

schedule comes in at

based on what

the monthly housing payment is

on that property

for our real estate

agents that

are listening right now

this is gonna be

really important

um for you guys

this next thing

I'm gonna share

that is the

due diligence period

on these contracts for

this type of loan

this is why it's so good to be in communication with

your lender

because if you have a DSCR

loan product

you do not wanna

put a short

uh due diligence

period on those contracts

you're gonna give yourself

ideally at least

two weeks um

and that is because we need to make sure that one

we can get the

appraisal back in time

if the ratio

does change

if the expected

income is less than

the month of payment

we need to make sure that

borrower can still qualify

with that lower

ratio and higher

essentially

higher interest rate um

one thing I do wanna touch on

as well so it's

it's investor specific

but most investors that I've seen

do require this

in order to be

eligible for a DSCR

loan program

your borrower needs to

own their current residence

and I'm not talking

you know a look

they staying with mama

and they don't have a payment

I'm talking about

they need to be on a deed somewhere

and that is

mainly to protect

the investor

from someone saying

they're going to

get this loan program

get into the house

move in themselves

and use it as their primary residence

that's an increase risk

to the investor

they do not wanna have that situation

so they do require this

on a lot of investors

that they borrow

own their home

that's a good point honor

and that is key

they they cannot

get a DSR loan

unless they have a primary residence that they

own outright

that is correct

not outright

excuse me they

can have a mortgage on it

but they have to have a primary residence that they

currently live in

there you go

there you go

and last thing

we want to touch on

is just like

the loan limits for these

this is not something that

you're gonna be able to get

50 thousand

dollar loan amount on

Chris you want to talk about that

just a little bit

yeah so minimum

hundred thousand dollars

in all honesty

we like to see one 50+

but a minimum

of 100 thousand dollars

but we can go up to 3 million

so you can buy nuts

buy the whole condo tell

we have a commercial department for that

well up to 3 million and again

since this is a non qm loan

non fanny main on Freddie Mac

we don't even talk about jumbo loan limits

and things like that yeah

this is a straight up

it's an investor product and so cool

so we don't think about conforming loan limits

so we can go up to 3 million

but definitely minimum of 100,000 on these loans

that's good

that's good all right

we're gonna say it one more time

these products change guidelines quickly

check with your lender before you place an offer

if you're using a DSCR loan structure

today has been awesome

thank you Chris for being here

if you found some really good education out of this

if you've enjoyed this conversation

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