DSCR Loans for 2-8 Unit Mixed Use Property | Invest in Real Estate

Mixed use for two to eight units on DSCR loans. Hey, what's going on, everybody? Jeff Travartha, Jeff the Mortgage Pro. Thanks so much for joining me today. I really appreciate it. If you like these videos, please do me a huge favor. Go ahead and click on the like button. And if you really, really like these videos, I'd love to have you as a subscriber. So go ahead and hit that subscribe button down below and you'll see when my videos come out and hopefully they'll pop up in your feed. But thanks so much for watching. I really appreciate it. I get this question a lot and I thought I'd do a video about it. And this is for using DSCR loans on mixed use properties. And the tricky thing is that these are oftentimes really hard to finance. You could go to commercial financing on these types of loans. It gets to be a lot more work coming in with lots more documentation than you would probably need with a DSCR loan. So the DSCR loan is kind of solving this issue because we can now do mixed use units anywhere from two to eight units. So let's go through some of the different guidelines here to make sure that we have everything lined up here so you know what you're looking for. And when you reach out to me about your mixed use property, hopefully you can check all the boxes here that says, hey, this is gonna be a good property for us to help you finance. So the first thing is, this is for eligible units or two to eight units. Obviously the maximum acreage we can have is two acres. So if it's anything bigger than that, can't do this type of a loan on that type of a property. Commercial use for the commercial unit that you have is limited to three things, restaurant, retail, or office. So if it's something that's other than those three things, then it won't work for this type of a loan. So commercial, in this case, can only be limited to restaurant, retail, and office space. The commercial income and the square footage must be less than the total residential income and the square footage. And it needs to be, so for example, the residential income needs to be 51% or greater of the income that's coming in for that mixed use property. And the square footage would also need to be 51% or greater than the commercial square footage of the property that you have. So keep that in mind when you're looking at these. And oftentimes that's pretty tricky to be able to calculate. Hopefully you know that if you own one of these buildings or if you're trying to buy one of these buildings, that's something that you can help figure out pretty easily to be able to determine if that's gonna be gonna work or not. This loan is for experienced investors only. So what's an experienced investor? Well, in the case that we define it here, you need to own a primary residence and you need to have owned it for at least one year. And then you also need to own at least one commercial or non-owner occupied investment property for at least one year as well. So you own at least two properties basically, and one of them is treated as an investment property, one's a primary residence, and you have that over time. So you would be considered an experienced investor in that instance. Maybe you don't have a primary residence or you sold a primary residence, but you own like 15 rental properties. You'd probably be still considered an experienced investor because you kind of know what you're doing in that instance and we'd probably still be able to qualify you for this type of a loan if that's the case. So this type of a loan has two different options. You can do a 30-year fixed option or you can do a 10-year interest-only option. 10-year interest-only is amortized over 30 years. The first 10 years would be interest-only payments. And then also we have the 30-year fixed available. I do like the interest-only often. I actually, I like the option that has the lowest payment. So we would wanna determine between the two of those which one's gonna give you the lower payment between each of those options. This has loan amounts anywhere from 400,000 all the way up to 3 million. So this is a really tricky space to finance in all honesty. Most commercial lenders are gonna need, you know, $2 million loan amounts or higher. Otherwise they don't wanna waste their time with it because they don't feel like they make enough money or whatnot. But for me, like anything from 400 to 3 million, I'm gonna be able to help you out with this type of a product. So make sure that your loan amount is within that range. The minimum credit score for these mixed use DSCR loans is 680. Obviously the better the credit, the better the terms are gonna be. But the minimum credit score is 680 on these types of loans. The maximum loan value on a purchase is 75% up to 1.5 million. And the max LTV for rate and term refinances is 70% up to 1.5 million. So actually the purchases are gonna give you the highest LTV on these DSCR mixed use properties. Then lastly, if you're doing cash out, the maximum cash out we can do is 65% of this loan. And that has to be greater than six months since the acquisition date of the property. So you can't just buy a property and then turn around and take cash out right away. You have to wait six months. And it's also called six months seasoning. If you've ever heard me say that before, to be able to take cash out on a property for these types of loans. The maximum cash out is usually 500K. Now there's gonna be some exceptions in this instance, especially if there's a lower loan to value or other compensating factors. Maybe you have a ridiculously great credit. Maybe you have a ton of reserves on the outside already. And this is gonna be able to help you. So those compensating factors could definitely help you get more than 500,000, but usually the limit is gonna be 500,000 for the maximum cash out on these things. The minimum DSCR for mixed use properties, the two to eight units here, 1.1. You're gonna be having the best pricing if you can get to a 1.25 DSCR or better. Remember the DSCR is just calculated with the income of the property versus the expenses of the principal interest taxes and insurance monthly mortgage payment or interest taxes and insurance monthly mortgage payment. That's why the interest only option may sometimes be a better option because it could hopefully get you a lower number for your payment. So that increases the DSCR sometimes. All right, max one unit vacancy on the two to three units, two unit vacancy on the four to eight units. And then the commercial unit is the only unit that cannot be unoccupied for these types of loans. The commercial unit has to be something that is currently leased up or rented. You have to have a three month history on rental income to be able to consider it as a non-vacant type of unit. And what that means is that you could count the first and last month's rent that you usually collect in the beginning, you can count that as two months. And then they would have to have another monthly payment before they can consider that a three months worth of rent that comes in from that particular unit. So that's whether it's the residential space or the commercial space, still need to have that three month rental history before you can consider it not vacant. So the maximum again, one unit for two to three units and two units for 48 units can be vacant. If it's a vacant, we need to still calculate the DSCR obviously, we're gonna use 75% of whatever the market rent is as determined by the appraiser that's gonna help us determine what the actual rent should be for that property. And we're gonna use 75% of that number to help with the income versus the expenses to determine the DSCR on this loan. This must close in an entity. I don't think I've ever seen this one closed like in somebody's individual name. So you're gonna need to close typically at an LLC. That's the one that's most common, but there's other ways that you can close as well. But again, LLC is by far the easiest one to do and most likely that everyone's gonna use to be able to close in these mixed use properties. And then the reserves, six months principal interest tax and insurance or interest taxes and insurance, depending on if you have an interest only or a 30 year fixed loan, you need an additional three months for loan amounts over 1.5 million. So nine months would be required. And you cannot use cash out for reserves on this type of a transaction. So you're definitely gonna need to have liquidity already in order for you to be able to do a cash out refinance on a mixed use property with the DSCR loan. And then lastly, remember these have pre-payment penalties as well. They can be fixed pre-payment penalties. They can be declining pre-payment penalties. So there's options for either one of those. It could go anywhere from no prepay all the way to a five-year prepay. The longer the prepay, the lower the rate's gonna be typically and then vice versa, the higher the prepay, excuse me, the shorter the prepay, the higher the rate's gonna be. So just use that in determining what you wanna do. But hopefully if you check all these boxes and need more information about a five to, excuse me, a two to eight mixed use property, I'd love to be the one that helps you finance this. If you see my calendar link down below in the description and you wanna talk to me about this, go ahead and click on that link and let's get started and have a conversation with you about whether you're purchasing or refinancing a mixed use property with the DSCR loan. Have a great day. I look forward to chatting with you on the next show. Have a good one, bye.