Frequently Asked Questions
14-21 calendar days. Fix n flip
20-30 calendar days. DSCR, vacation rental, multifamily, commercial, mixed use
30-60 calendar days. Full doc bank loan for multifamily, commercial, or mixed use
For multifamily (5+ unit residential), mixed use, and commercial, you would need 70% of the property leased to get a refi, and we could either look at the private lenders at higher leverage, quicker close, and higher rate, or the banks to get a regular full doc bank loan.
Fix N Flip Loans and New Construction Loans usually only require a desktop appraisal (lender's internal valuation) but sometimes they require full appraisal.
Glossary
What is DSCR?
Debt Service Coverage Ratio (DSCR) is a generic finance term for business cash flow as a proportion of debt service. It is not just for real estate finance.
If an online store has $15k / month income before debt service and it has loan payments of $10k / month then that loan has a debt service coverage ratio of 1.50.
If a rental property has $12k / month in actual rents and the mortgage payment on that property is $10k / mo including escrows for taxes and insurance, then that loan has a debt service coverage ratio of 1.20, assuming lender doesn't subtract for vacancy loss and operating expenses.
What is a DSCR loan?
The DSCR loan, also known as the long term rental loan, short term rental loan, ltr loan, str loan, and 30 year no doc loan, usually refers to the 30 year no doc loan for 1-4 unit residential rental properties with no income verification. The lenders syndicate these loans to investors who issue bonds, and there is a market for the bonds like RMBS or CMBS.
There are other DSCR loan programs, for multifamily, commercial, and mixed use properties. These loans are with private lenders and they don't require personal or business income verification. Generally, the multifamily and mixed use with > 50% square footage residential DSCR loans have a little higher interest rate than the 1-4 unit residential, and they have occupancy requirements. The commercial and mixed use > 50% square footage commercial DSCR is priced even higher but it works sometimes on convenience or if the bank doesn't want to do it.
Do DSCR loans require leases or occupancy?
For 1-4 unit residential properties, they do not require leases or occupancy. For other property types, the no doc / DSCR loans usually require the property to be at least 70% leased.
What is a Fix N Flip loan?
The Fix N Flip loan, also known as the fix and flip loan, fix n flip bridge loan, and rehab bridge loan, usually refers to a purchase and rehab bridge loan for a 1-4 unit residential property with a 12 or 18 month term.
Purchase and rehab bridge loans for multifamily, mixed use, and commercial properties could be called fix n flip loans, multifamily bridge loans, fixed use bridge loans, and commercial bridge loans.
What is the difference between a DSCR loan and a fix n flip loan?
DSCR loans for 1-4 unit residential are syndicated on the bond market and have a lower interest rate.
Can I use a DSCR loan for a bridge scenario?
You can, but they mostly have prepayment penalties, so it is not necessarily less expensive for a short term scenario, and the bridge programs often have more aggressive leverage.
What is a new construction loan?
A new construction loan, also known as a ground up loan, or ground up construction loan, is a purchase and rehab bridge program for building a new single family house, 2-4 family house, or a phase of houses with a 12 or 18 month term.
What is a hard money loan?
Hard money loan is another word for private bridge loan, so fix n flip, new construction, or any bridge program that is from a private lender and not a bank.
What makes it 'hard' is that it is short term (12 or 18 months), and it is from a private lender, so the rates are higher than bank rates.
Do hard money loans fund purchase and renovation?
Yes. The loan amount includes a rehab holdback which gets drawn out to borrower as work is completed on the property. Our lenders won't extend draws for materials or appliances- they go off the budget you send, and the percentage completed on site for each line item at the time they inspect.
What is a private lender?
A private lender is any lender that is not a bank, credit union, insurance company, or institution. Private lenders are also known as nonbank lenders or non-bank lenders.
What is a commercial loan?
Commercial loan is a generic term for any loan to a business. Business credit cards, equipment loans, commercial real estate loans, and even the DSCR and fix n flip products are all types of commercial loans.
Sometimes people refer to a 'full doc' loan from a bank as a commercial loan. These loans requires 2 years of personal and business financials and asset verification, in addition to the property level underwriting.
What is the BRRR method?
BRRRR or BRRRR method stands for 'buy, rehab, rent, refinance, repeat'. It is also known as BRRR or BRRR method, which stands for 'buy, rehab, rent, refinance'. It means buying property for cash or with a fix n flip loan, fixing up the house and/or raising the rents, and refinancing instead of selling. Our brokered loan products go hand in hand with the BRRRR method.
What is LTV?
LTV stands for 'Loan To Value'. LTV is the loan amount divided by the value of a property. For a purchase scenario, value is considered the lower of the purchase price and the appraised value. For a refi, assuming seasoning requirement is met, value is just the appraised value.
What is LTC?
LTC stands for 'Loan To Cost'. It is the loan amount divided by the purchase price of the property plus hard cost of any improvements. For a project that is $200k purchase price, and $20k rehab budget, a 90 LTC loan would be $22k + closing costs from borrower and loan amount $178k towards purchase + $20k rehab holdback from lender. Lenders sometimes quote these at 85/100 or 90/100, which means the lender funds 85 or 90% of purchase, and 100% of rehab. For budgeting purposes, the down payment percentages never include closing costs or soft costs.
Calculators
The periods are monthly- for a 30 year mortgage, the # of months = 360.
This is not applicable to a bridge loan, which is a type of balloon loan.
If you don’t yet have the last 12 months (T12) or previous year end financials from the seller or listing agent (or yourself if you are the owner), please get that information. Sometimes people don’t have an income statement on pdf or excel, but they do have a tax return which has the relevant information. Ask if there have been any changes in the tenancy, leases, or expenses since that tax year so you can make appropriate adjustments. Review any existing leases.
To approximate net income from a tax return, take the bottom line net income figure from the first page and add the dollar amounts for “depreciation” and “interest” which should be on a breakdown on the later pages. Check to make sure the tax return does not include other properties.
To use this calculator, you can either input the net income in the gross income field and input $0 for the expense rows, or you can fill out gross income and the 3 expense rows. For a 10 year loan with a 25 year amortization schedule, plug in 300 for “amortization term (# of months)”.
Bridge loans are typically 1-2 year balloon loans, interest only, where the borrower intends to repay the loan by either refinancing (taking out) the bridge loan with a permanent loan, or selling the property and repaying the loan at sale.
The above assumes interest being charged on undrawn amount for any rehab budget. The total interest cost is lower if there is a rehab budget and no interest on the undrawn amount, or if the loan is repaid early and minimum interest is already met. Interest payments are paid monthly by the borrower, often out of pocket if the property is being rehabbed or mid-lease up and there is no tenant in place. If the borrower fails to make interest payments or gets to the end of the loan term and fails to sell or refinance for an amount to repay the bridge loan, then the borrower will be in default, the loan will be accelerated (full balance due immediately), and the property goes into a foreclosure process or workout process where lender takes title.
Lenders underwrite these deals based on borrower’s skin in the game (% of purchase price as down payment), appraised value (as is, and as complete), and borrower’s experience, credit, and assets.
Getting a bridge loan for commercial or residential real estate from a bank generally requires good credit, income history, and track record. Private lenders will write loans based on the property fundamentals and cash down payment from borrower, with less stringent borrower-level requirements, albeit at a higher interest rate.
