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Short Summary
Main recommendation: Non-conventional loan products such as DSCR loans, bank statement loans, and short-term bridge loans can help self-employed investors and those with many properties qualify when conventional Fannie Mae or Freddie Mac loans fall short. The speakers, Christian Batchelder and David Green of The One Brokerage, describe these products as safer and more flexible than the subprime loans of 2008 because they require verification and larger down payments.
Key Points
- DSCR (debt service coverage ratio) loans qualify the borrower based on the property's rental income versus its mortgage cost, rather than personal income, and are only for investment properties, not primary residences.
- Conventional loans often require a 12-month rental history and tax returns that show income, which can be a problem for investors who write off heavily or own many properties.
- Bank statement loans for self-employed borrowers use gross deposits into business or personal accounts, with an operating expense ratio applied (estimates like 25, 35, or 50 percent depending on employment type), and are verified through deposit verifications and business documentation.
- Bridge loans can lend up to 90 percent of purchase price, capped at 80 percent of appraised value, which can reduce down payment when a property over-appraises, but they are short-term, interest-only, and typically held 12 to 18 months at most.
- Loan fallout often happens when a pre-approval is set too close to the borrower's maximum and rates rise, so a buffer range is important.
Details Worth Noting
- Concrete instructions:
- Check the property type first: DSCR loans and rental-based qualification apply only to investment properties, not primary residences, and house hacking was not yet accepted under current lender guidelines for DSCR products.
- For self-employed buyers of investment property, use DSCR; for primary and second homes, consider bank statement financing.
- For bank statement loans, gather business licenses, proof of area of operations, invoices proving the business service, and bank statements showing regular deposits.
- For a bridge loan on a BRRRR deal, purchase below market value, confirm the property will appraise high, and plan to refinance within the bridge term.
- If a counteroffer goes slightly above your pre-approval, ask your loan officer whether it can be done before proceeding.
- Ask whether the lender uses a buffer in pre-approvals, and ask whether conventional loans can be locked and shopped before entering escrow.
- If a appraisal comes in low, request a reconsideration of value (ROV) by presenting better comparable sales with adjustments.
- Example from the video: a property under contract at $2.2 million that appraised at about $2.6 to $2.65 million avoided needing an extra $240,000 down payment under the bridge product.
- Terms: DSCR loans were described as not requiring zero or 5 percent down, and the speakers said they require a larger down payment than many people expect.
- The speakers distinguished these products from 2008 subprime loans, which had no real verification and sometimes negative amortization.
- The bridge product was described as interest-only at a high rate, meant to cover the renovation phase of a BRRRR.
Bottom Line
Non-conventional loans like DSCR, bank statement, and bridge products can help investors whose paper income doesn't reflect their real capacity, but bridge loans are short-term and interest-only, and all these products require verification and larger down payments than subprime-era loans.
