As DSCR Loans continue to grow in popularity, Mortgage Brokers who have fully embraced the Non-QM suite have reaped the rewards. The best brokers have access and great relationships to all of the top wholesale DSCR lenders and can offer their clients a great range of options for their rental properties. As DSCR Loans continue to explode in growth, and more and more major mortgage lenders embrace the product. It’s never been easier for brokers to provide great options. However, what separates the good DSCR Mortgage Brokers from the great ones are the ability to find solutions to “outside the box” scenarios and unique deals. Let’s face it – the best brokers are problem solvers. They find ways to tackle seemingly unsolvable scenarios and get deals done for borrowers that place their trust in their mortgage expert.
Easy Street Capital through our pioneering Signature Broker Program is the top wholesale DSCR lender for seemingly unsolvable scenarios to get the toughest DSCR deals done for our top broker partners. Our DSCR Loan programs remain cutting edge. We are constantly listening and looking to the market to provide solutions for what’s coming next!! Here are some solutions for some of the most challenging DSCR Loan Scenarios in 2024!
Table of Contents:
Rural DSCR Loans – Solutions for financing a rural property with a DSCR Loan
“No Seasoning” DSCR Loans for quick Cash-Out Refinances for BRRRR Method Investors
Mixed Use DSCR Loans
No Ratio DSCR Loans
Quick Closes Needed – Hard Money for Non-QM Mortgage Brokers
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Rural DSCR Loans – Solutions for financing a rural property with a DSCR Loan
One of the most common scenarios that can have brokers, borrowers and lenders all pulling their hair out is the perfect deal progressing towards the closing table – until surprise, the appraiser determines the property is rural. Boom – a loan looking like a smooth and easy close is now ineligible. Proceeds are cut and you are left scrambling trying to find a solution. Rebutting an appraiser, shooting for an exception or desperately shopping the deal around are common responses to the dreaded rural designation for a DSCR Loan.
An extremely frustrating experience – especially because there is no clear definition of what makes a property rural! The same town, zip code, even neighborhood can be rural to one appraiser, suburban to another and sometimes even considered “urban” as a surprise! Further, many DSCR lenders don’t do rural properties. Finding a top wholesale DSCR Lender that can reliably execute on DSCR Loans secured by rural properties is a top priority for every top-tier mortgage broker.
Easy Street Capital Rural DSCR Loans
Easy Street Capital’s DSCR Loan program is defined by its flexibility and common-sense underwriting. But its also geared toward on-the-ground concerns for brokers and borrowers and creating a reliable and consistent experience. Under our standard series DSCR Loan Program we avoid the rural headaches by determining whether a property is rural upfront. We evaluate a property as rural or not based on the public USDA database, regardless of appraisal determination. This gives much needed certainty so the borrower can rely on the term sheet and the quoted terms. No need to sweat out the appraisal’s determination weeks later – after going through the documentation demands, the underwriting process, and if it’s a purchase, likely earnest money and other costs!
What’s more – under our standard underwriting guidelines – a USDA rural determination is hardly a kiss of death! We have very rural-friendly DSCR eligibility and pricing. No negative pricing LLPA; simply LTV limits of 70% for Rural DSCR Acquisitions and Rate-Term Refinances and 65% for Rural DSCR Cash-Out Refinances! Hardly low leverage!
What’s more – Easy Street Capital has additional loan programs as well. If a property is deemed rural by the USDA designation and suburban or urban by the Appraisal – it can likely still qualify under our Signature Series guidelines at Maximum leverage! That’s right – 80% LTV for a Rural DSCR Loan for an Acquisition or Rate-Term Refinance (if rural on USDA but not appraisal) and 75% LTV for a Rural DSCR Cash-Out Refinance Loan too!
What about rural short term rental DSCR Loans? Surely, this rural flexibility can’t work for STR Loans too? Wrong! These rural DSCR loan flexible options work on vacation rental loans as well – with Zero pricing penalty or further restrictions! Looking for a wholesale DSCR lending option for a rural vacation rental – maybe in a small and seasonal, but potentially lucrative vacation rental market that’s hard to find DSCR options for? The solution is here – reliable and consistent rural DSCR Loans under our Signature Broker program!
“No Seasoning” DSCR Loans for quick Cash-Out Refinances for BRRRR Method Investors
Another common DSCR Loan scenario that has brokers scrambling is the borrower insistent on a cash-out refinance with no “seasoning”. Seasoning refers to the amount of time between the refinance loan and the date the property was purchased. Typically, when someone is looking for a “no seasoning” DSCR Loan, what they really mean is the ability to do a cash-out refinance earlier than the standard six-month seasoning period. Ever since April 2023, when Fannie Mae updated its guidelines for conventional loan cash-out refinances to require a seasoning period of a full year – this question has increased in volume!
BRRRR Method investors rely on the velocity of their capital and quickly cashing out to recycle their equity. This Fannie Mae update effectively removed conventional financing as a feasible option for these investors. As a result, DSCR Loans became the go-to option for brokers working with borrowers utilizing the BRRRR method.
Easy Street Capital Short-Term Cash-Out Refinance Loans & Solutions for BRRRR Method Investors
Easy Street Capital’s DSCR Loan program is also geared towards “no seasoning” scenario solutions for cash-out refinances! Under our Signature Series loan program – brokers can lock in DSCR rates and terms for borrowers on Cash-Out Refinances with as little as three months seasoning. We have DSCR Loans for Cash-Out Refinances returning up to 100% of the borrower’s basis (purchase price + rehab costs) in as little as three months! With just a minimum qualifying credit score of 700 and up to 70% LTVs for Cash-Out Refinances (80% LTVs for Rate-Term Refinances!), its no wonder Easy Street is the best choice for brokers finding solutions for BRRRR Investors!
Mixed Use DSCR Loans
For many mortgage brokers, especially those that offer business purpose loans on commercial properties as well as residential investment properties – Mixed Use properties consistently present a mouth-watering opportunity. Unfortunately, this is usually coupled with a frustrating challenge to find a reliable wholesale lending solution. Mixed Use properties are generally properties that have both residential and commercial spaces. A common example is the classic office, shop, restaurant or bar on the ground floor with a few apartments above. Mixed Use properties can often be a great investment opportunity, especially in traditional urban markets.
What is the main Mixed Use challenge for Mortgage Brokers?
A lot of these properties are somewhat low in value – such as the $500,000 to $1.5 million range – making them too small for commercial real estate lenders. Their commercial nature, however, also usually makes them a no-go for traditional residential lenders.
What is a Mixed Use DSCR Loan?
These are a newish solution for investors in these properties – combining the best aspects of DSCR Loans, which are traditionally residential only – for properties with commercial spaces! This means that for Mortgage Brokers serving clients with Mixed Use scenarios – you can offer a “DSCR Loan” with a 30-year full amortization, an easy qualification with DSCR based on only Rent/PITIA (no other expenses) and LTVs up to 75%!
Easy Street Capital Mixed Use DSCR Loans
For Easy Street’s Mixed Use DSCR Loans, the property just has to be majority residential in every which way.
Meaning:
- 51% of the net rentable square feet residential space (vs. commercial)
- 51% of the underwritten rent (fully leased mandatory) from the residential units
- Half or More of the Units residential
Other Mixed Use DSCR Loan program requirements include a $400,000 minimum loan amount, a DSCR minimum of 1.00x (again, calculated with only property taxes and insurance included as expenses) and minimum qualifying credit score of 680!
Most small balance commercial lenders that are the top alternative for brokers for Mixed Use are likely much tougher in qualification. They often have higher minimum loan amounts, much more stringent DSCR minimums, and expense assumption requirements and more. If you are a top mortgage broker in the residential and commercial space (“resimercial”), 2024 is the time to get acquainted with Mixed Use DSCR Loans!
No Ratio DSCR Loans
What are “No Ratio” DSCR Loans? The name itself is a bit of an oxymoron. Even the most seasoned mortgage brokers may be scratching their head when it comes to finding lenders that offer DSCR Loans… with no DSCR ratio. However, when it comes to DSCR Loans, generally the “No Ratio” terminology means that the DSCR ratio is under 1.00x. A DSCR Loan with a sub-1.00x is a deal that, at least on paper, is not cash flowing.
To most mortgage brokers, “No Ratio” really means a DSCR ratio less than 0.75x. Many top wholesale non-QM lenders now offer DSCR Loans with underwritten DSCRs less than one. They usually, however, set the floor at 0.75x (or sometimes 0.80x or 0.90x). When cash flows fall below 0.75x, many brokers struggle to find a lender comfortable financing their client’s scenario.
Now less experienced brokers in the DSCR or Non-QM space are probably asking why even bring this up? Why would a real estate investor seek a loan on a rental property that’s losing so much cash every month?
Well, as any top DSCR broker will tell you, No Ratio DSCR scenarios are surprisingly common. There are many reasons that a successful investor would want a “no ratio” DSCR Loan, at least “on paper”, including:
- Properties in high appreciation markets – where investors want to bet on big time appreciation. Think of markets such as Austin, Texas or southern California in recent decades, for example.
- Acquiring turnkey properties that are very poorly managed with leases in-place. In this case, even though the DSCR metric is calculated based on the under-market leases, the property is likely to cash flow well in a few months as the leases roll.
- Markets in which the investor has a market edge. This could be a vacation market where the borrower has expertise or some other unique advantage. While this advantage generally can’t be underwritten in an official DSCR – the investor may know that in real life, they will outperform.
What makes DSCR Lenders comfortable with “No Ratio DSCR Loans”?(although admittedly, most wholesale DSCR lenders don’t offer this). The quickest answer is that a low LTV can make a lot of deals work. With ample cushion between property value and loan balance – many loans make sense no matter what the other metrics are.
Easy Street Capital No Ratio DSCR Loans
Forward-thinking DSCR lenders like Easy Street recognize that these “no ratio” deals can make sense for investors. They also can make sense from a risk perspective too! Many investors will be resilient in protecting sizable equity on their rental properties. With enough spread between the property value and loan balance – a foreclosure wouldn’t be the end of the world. It might even lead to an overall gain for the lender!
Easy Street Capital has multiple “No Ratio” DSCR Loan options with minimum LTVs much higher than you’d think!
Easy Street’s DSCR Loan Program Features:
- No Ratio DSCR Loans (less than 0.75x DSCR) up to 70% LTV for Acquisitions and Rate-Term Refinances! And up to 65% LTV for Cash-Out Refinances!
- Less than 1.00x DSCR – 0.75x DSCR to 0.99x DSCR to be exact – up to an astounding 75% LTVs for Acquisitions and Rate-Term Refinances! AND Cash-Out Refinances!
As long as rates remain high – it’s always a challenge to work the numbers to qualify on the DSCR Ratio. Don’t fret – Easy Street’s wholesale DSCR lending program has tons of options even if the on-paper DSCR falls below 1.00x. We can salvage deals with ease if market rent or insurance expense surprises torpedo expected cash flows!
Quick Closes Needed – Hard Money for Non-QM Mortgage Brokers
Rapidly rising rates have ravaged the refinance mortgage market the last few years. Many mortgage brokers that thrive in the traditional conventional lending space were forced to step out of their comfort zones to the Non-QM space and DSCR / Commercial lending world. Top brokers have been able to thrive despite challenging market conditions. Niche investors such as short term rental professionals, BRRRR Method investors and small multifamily owner-operators have still been able to make deals work. Mortgage brokers that can find them innovative loan options have continued to prosper.
But the real forward-thinking and top-tier mortgage brokers have not been afraid to embrace the world of hard money as well. Hard money residential loans, sometimes called “RTL” or “Residential Transition Loans” are typically for properties in need of renovations and for super-short terms. Most of these hard money loans carry terms of six or nine months. The main difference versus DSCR Loans? RTL if the property needs major rehab, DSCR if turnkey. Many brokers think that hard money lenders aren’t available to the wholesale side – but that is changing.
Easy Street Capital Residential Transition Loans
Easy Street Capital’s Signature Broker Program also gives access to elite brokers to industry-leading RTL options as well. For brokers with clients looking for a fix and flip or for the first two steps of the BRRRR strategy – Easy Street is a one-stop-shop – both DSCR and Hard Money options!
But its not just an extra program, Easy Street’s RTL product offers extremely compelling terms for brokers as well, including:
- No Appraisals Necessary – your borrowers can compete with cash offers for quick 48-hour closes!
- 1% Lender Fee for Easy Street Capital – any additional points charged remitted exclusively to the broker
- For BRRRR or “Buy and Hold” investors – execute the refinance with Easy Street again in as little as three months – earning commission on two loans in quick succession!
Looking to Learn More?
Apply for our Signature Broker program today!
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