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DSCR Loan Case Scenario
DIANNE BURNETT CASE SCENARIO QUESTION FROM TAYLOR GILMORE ON DSCR LOAN
Hi Gustan,
Could you do the deal below?
commercial
refinance
in LA
on Westin
currently occupied to child care center
government program
DSCR is 1.49
building appraised for $1.2mn
$500k loan currently on property
mortgage she’s paying is $3500
income from child care center is $5400
good DSCRBest regards,
Taylor Gilmore -
2 Replies
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We offer all types of residential and commercial real estate loans, especially DSCR loans. For example, one of our niche loans does not require the property to DSCR and requires no bank statement, taxes, or income. These are our construction ground-up loans for 1 – 4 units up to $6mm. Any spec home builder can get a loan with them paying 25% down on the lot, and we will loan up to 100% on the vertical as long as we are under 85% to cost and under 80% LTV on the finished loan. Additionally, our Hard Money Loan requires No income nor DSCR either, the LTV goes as high as 75%. Most are 65% LTV. In Utah and Idaho, we lend 75% LTV with no credit pull, income, or assets on any non-owner-occupied property in a metro area, up to $2.5mm.
One of the problems in Investor Real Estate Lending is determining if you have a CRE (commercial real estate) deal or a house rental when a house is used as a commercial Biz. If the house is in a residential neighborhood and it looks like a house, and if that commercial biz leaves, it remains a house, it’s a house, and it will be getting a 1004 appraisal with a 1007 rental market supplement that gives me a new monthly rent amount as a house. That amount will be used if it’s lower than the current rent to determine the DSCR. I spoke to a loan officer, and there’s always a learning curve. This scenario is a cash-out refi, and he does not know the loan amount, LTV, credit score, zoning, lease term, credit scores, how long the house has been owned, or the price paid. The loan officer has us experiencing a common complexed situation. I’ll post a form here that he and anyone else can use to gather all pertinent INFORMATION to price and place your loans.
The loan officer has an additional issue that he will need to determine. Some houses have been rezoned commercial, you will find these usually along main streets where businesses are comingled. However, suppose this house is in a residentially zoned neighborhood. In that case, it’s a residential house, or it could be commercial in a commercial or mixed-use zone, using a permitted or conditional use permit. If commercial, another type of appraisal is used, and other types of loans are offered. All of these answers will determine the type of loan we will offer, along with its term, penalties, and rate, and if we can use the rental agreement VS the rental appraisal supplement 1007 (the appraiser will also perform a rental market analysis report called 1007 if a 1004 appraisal is used). I asked for the long-term lease agreement for the state-certified daycare, this is additionally important to know. This information determines how we will see the house classified and what type of loan will be offered. Just because the lease is in place does not mean that the lease amount will be used to calculate the DSCR because 1007 will also give a rental monthly amount number, and the lower of the two will be used to determine the DSCR.
If this is a house with a conditional use permit, I could require a rebuild letter from the city or county, and The DSCR would go off the Appraisal rental supplement is lower than the current lease being paid.Please note that CRE DSCR (the debt service coverage ratio) is net operating income divided by total debt service.
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This reply was modified 1 year, 5 months ago by
Gustan.
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This reply was modified 1 year, 5 months ago by Gustan.
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This reply was modified 1 year, 5 months ago by Gustan.
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This reply was modified 1 year, 5 months ago by
Sapna.
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This reply was modified 2 months, 3 weeks ago by
Ravinder Sharma.
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This reply was modified 1 year, 5 months ago by
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Real estate lending issues for investors with properties that can be described as partially commercial and partially residential are quite honestly a headache in the most sincere terms. People’s situations seem pretty complex, especially when considerations are given to what category the property is going to fall into and, most importantly, what its usage is.
Explanation of the procedures:
Guidelines for identifying property types:
- If it’s a house situated in a residential neighborhood and appears to be residential, it is classified accordingly.
- If it is lower than the current rent, a DSCR will be computed using a hundred-four appraisal and a hundred-seven rental market supplement.
Other factors that a loan officer considers include the following:
- The information to be provided includes the loan amount, LTV, credit score, zoning, lease term, credit scores, ownership period, and acquisition price.
Concern:
- Determining whether a house is in a mixed-use, residential, or commercial zone.
- Zoning laws determine the final appraisal of the house:
Residential zone: For a house treated as residential, this will even be the neighborhood where the house is situated.
Commercial zone:
- This commercial property has different loan and appraisal requirements.
- Leasing and formally signing a decree Q1, whereby properties are measured to become completely institutionalized houses/invested in long-term leases such as state-certified daycare.
- For example, lease agreement bodies determine how the property type is bound to be classified regarding the investment.
- DSCR computations might take the minimum value between the lease sum and seven rental markets supplementary over the hundred units for only seven.
Rebuild Letters and Conditional Use Permits:
Rebuild conditional use permits might require the submission of documentation, such as a rebuild letter issued by a city or county.
Next Steps for the Loan Officer:
Complete the form to gather all the requisite details.
Determine Zoning and Use:
- Check the zoning district’s classification to see what appraisal category and loan could be used.
- Evaluate the lease agreement and 1007 supplement to ascertain the DSCR based on the lease rate and rental values.
- This approach should clarify the property’s classification.
- Thus expediting the processes surrounding loan decisions.
- It would help if one had a form to share, as that would assist in capturing the required information promptly.
Please let me know if you need any other information or help with the next part!