Real estate investors are facing limited options in today's market. However, Community Real Estate Finance is here to help you navigate through the available loan options and provide you with the necessary support and guidance to make informed decisions. This is especially true for those who have good credit and a stable income.
Investors have the option of choosing conventional loans that offer better long-term rates without prepayment penalties. While DSCR (Debt Service Coverage Ratio) is useful for certain liability reasons, it is more challenging to work with at today's higher rates. Borrowers looking for more flexibility and fewer restrictions can opt for portfolio loans. We have expertise in identifying lenders that provide each type of loan and can help save you significant time and money.
Conventional investor loans offer several advantages. First, they have lower interest rates than Private, Hard Money, or DSCR loans. Additionally, conventional loans are not all about project cash flow but instead rely on the person who is backing them.
If you plan to purchase an investment property, be aware that a down payment of 20-25% or more may be necessary. In the current rate environment, it may not be wise to heavily leverage a property for cash flow purposes.
To qualify for a conventional investor loan, you generally need a good credit score, a stable employment history, and a low debt-to-income ratio. Other factors, such as your income, assets, and the property's appraisal value, will also be considered. It's also important to note that only 75% of the rental income will be used to determine eligibility. Specific requirements may vary, so it's essential to consult with a mortgage professional to determine your eligibility.
Conventional Investor Loans usually offer a 30-year fixed rate that is comparatively lower than a DSCR loan rate. They don't have pre-payment penalties, which means you can refinance to lower your rate or sell the property. DSCR loans, on the other hand, generally have pre-payment penalties and keep you tied to both the loan and the property. Portfolio Loans, however, are not as commonly known as Conventional and DSCR loans. They are loans held on the lender's balance sheet, such as those offered by community banks. They often come with fair interest rates, flexible terms, and sometimes no pre-payment penalty.
If you are currently stuck in a hard money or private loan and need help, we are here to assist you.
Investor loans with conventional financing can be a great option in today's real estate market. As property costs, including insurance expenses, continue to increase, debt service coverage ratio (DSCR) loans may not always be suitable without interest-only or long-term amortizations.
DSCR (Debt Service Coverage Ratio) loans have been a part of Commercial Real Estate for a long time. However, they are a relatively new concept in Single Family Investments. These loans offer many advantages, such as the ability to close in the name of an LLC for liability reasons. When interest rates were low, these loans were being locked in for many years. They are still available today, but you should consider the pros and cons before making a decision.
Pros: These loans can be held in the name of an LLC or other entity, offer fixed rates, and property cash flow is the primary consideration for underwriting. However, credit and assets are still important.
Cons: Pre-payment penalties can lock you in, which means that if you want to sell a property, you will have to pay the price.
We have years of experience in this field, and we can help you understand pre-payment penalties so that you can make an informed decision.
As mentioned earlier, these loans are an excellent choice because they are not sold off like Conventional and DSCR loans. Instead, the lender holds them on their balance sheet, allowing them to be creative with terms and less expensive than the private or hard money market. They also offer flexibility while you are figuring out your options.
Private or hard money lenders often use the term ARV (After Repaired Value) to determine the value of a property after repairs have been made. This approach assumes that the property will appreciate quickly based on market comparables in the appraisal. While there is nothing inherently wrong with this method in the right environment, it's important to note that different lenders have different valuation methods for underwriting.
Some lenders will want to know all the costs associated with your project and will not rely solely on the ARV. They will want to know details such as the purchase price, the repairs made, and will conduct their own appraisal to determine the Loan-to-Cost (LTC).
Before starting your project, it's important to reach out to us for assistance with your permanent exit strategy well in advance. This can help you save money and ensure that you are well-prepared for the lending process.
