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- [00:00]
A
Welcome to Real Talk Real Estate, the show where we cover how to build wealth in real estate with no fluff, no BS, and no sales pitches. I'm David Green and I've been doing this for over 10 years. I've seen the ups, the downs, and everything in between. This is the show where we pull back the curtain and show it to you, too. So if you want to build wealth through real estate or you just love learning about it, you found your home. What's going on, everyone? This is Real Talk Real Estate. Welcome to Mortgage Monday where Christian Boucharder and I, owners of the one brokerage, break down what's going on in the mortgage industry today. We've got an interesting show for you. We're going to rifle our way through different non QM loans. QM stands for, I believe, qualified mortgage. Is that right, Christian?
- [00:41]
B
That's correct.
- [00:42]
A
Which is basically government insured Fannie Mae, Freddie Mac loans. Everybody looked at those like the safe loans and the other loans were the bad loans because during the last mortgage crash, they created regulation for the safe loans, but not for the non government, non QM loans. Well, things are a little bit different today where a lot of those lending standards do apply to other loans and lenders are a lot more careful with who they give their money to. So we're going to talk about loans that you may have never heard about before that just might be good for you or someone you love. So you're going to walk away educated and hopefully reach out to us when you want to buy a house and we'll help you figure out if the conventional loan or a non conventional, AKA non QM loan is best for you. Christian, how are you today?
- [01:27]
B
I'm good. This will be a kind of a, a fun summary, right. I feel like these are things that we've kind of piecemealed throughout the years, but it's good to get them all in one episode and let people know what type of financing is available out there for them.
- [01:38]
A
That's right. This is going to be a shorter episode. But please, if you have any interest in these at all, let us know in the comments or reach out to Christian or I. We'll give our information at the end of the show. Okay. First loan is the DSCR loan. Everybody talks about this. I see posts about it on Facebook and in other places all the time. What is a DSCR loan?
- [01:58]
B
Yeah, this is the tried and true, probably the one that you guys have most commonly heard about, stands for debt service coverage ratio. I call it the cash flow Loan so you don't have to remember all the fancy letters. All it means is that the prime way that you qualify, qualify for the mortgage is does the property collect enough money to pay for its debt. And obviously a property's debt is its mortgage. We have properties or, I'm sorry, we have programs that can support long term rentals, short term rentals. We're actually working on kind of some groundbreaking programs for midterm rentals and pad splits as well as even something as far reaching as a sober living home or an assisted living care facility, a hospice, you know, things. Hospice is tough because there's actually medical services. But you know, a lot of these more unique kind of creative approaches that you see people utilize when cash flow becomes harder to realize. There's programs for you guys, right? Even taking this up into the commercial space, the five plus unit space, you know, I think of cult borrowers right now, we're working with right now. One buying a 14 unit complex in Indiana, I believe it is. There's another 28 unit we're doing in northern Florida. We can do those guys. That's, that's a form of the DSCR loan that just goes above the classic one to four unit space. And that's commercial underwriting. Right. It's based on the property's performance, making sure that it generates enough money to pay for its expenses.
- [03:28]
A
So a debt service coverage ratio is something that typically was used in commercial real estate, like you just said. And the idea is the property needs to make more than the cost of the loan. So a ratio of 1.2 means the property makes 20% more than what the mortgage would be to own it. So the bank wants to see that the cash flows of the property are more than the debt that they're giving you on the property, which is a way of approving you that isn't based on how much money you made, it's how much the property makes. And then the higher the ratio, the better of an interest rate you're going to get. The lower the ratio, the lower of an interest rate you're going to get. We can do DSCR loans on properties that aren't cash flowing. Positive though, isn't that correct?
- [04:09]
B
That is correct. Those are called no ratio loans and it's a subversion of the DSCR loan that just doesn't require that one to one. And I will say it's a caveat, they're higher interest rate when compared to dser. And typically the lender wants to know what your plan is to give you a Couple examples, people who are buying properties that are occupied with tenants paying submarket rates that have a plan to get those tenants out, whether it's to do cash for keys or some alternative, you know, strategy, whether it's somebody who needs to renovate the property to get it into a condition that can cash flow. Somebody looking to add square footage. Right. David's classic example of, you know, converting sun rooms, adus out of garages, things like that that you've heard him mention in the past. Those are scenarios where people may use a no ratio loan for the time being to get to the point where obviously the goal is to cash flow. Right.
- [05:06]
A
All right, next up is commercial loans. Now these are done on DSCR ratios, but these are classified as properties that are five units or more. We can do commercial loans at the one brokerage in addition to residential loans. So what's the person that should reach out if they're trying to buy a commercial property? And what type of properties are you seeing people use these loans for?
- [05:26]
B
Yeah, I'll break them into two. There's what's designated as what I'll call residential commercial, which is kind of that weird middle ground where it's too big to be residential, but it's too small to be true commercial. That's the five to 10 unit space. So if you have like a six unit apartment complex, you know, or two triplexes on one lot, you're in like this pseudo middle ground. Right. We do those. We actually thrive at those. We have one of the best investors in the entire country in the 5 to 10 unit space. If you're targeting one of those, send this video to your friend if they're doing it. Anybody or agent who works in that space. A lot of times it's kind of a niche group of people that buy all the six units in the area because they've kind of honed into that asset class. We're very good at them. When you get above 10 units, you get into true commercial. You're completely out of the DSCR realm at that point. And that's the same, you know, the same products that, you know, some huge investor gets when they buy like a 1400 unit apartment complex. Right. When you see the big, huge, you know, studio apartments, you know, in urban, you know, metropolitan areas. Right. We can finance those though. Obviously investor experience comes into play a little bit more significantly on those just because of the, the stakes. Right, right. Of, of an acquisition like that. And we're talking, you know, some of these 20, 30, 40, $100 million purchases, sometimes for these larger units, you know, and obviously the underwriting will change as you scale through the different asset classes. But yeah, we, we do all of them. So it extends throughout, you know, from one to a thousand and even above that. Right.
- [07:10]
A
All right, so people have a commercial property they want to buy, they should reach out if they're interested in a DSCR loan. Oh, let me ask you this. For DSCR loans, who, who's your ideal borrower? Who's the person that should say, hey, I think I want that loan as opposed to conventional?
- [07:22]
B
Yeah, super good question. To make it easy, it's somebody who has bought their way out of conventional lending. And it's funny because you would think conventional lending, like if I was creating a program, you would want to lend money to a good borrower. Conventional kind of works opposite. Once you prove that you have a successful track record in investing, once you pick up more and more properties, and it gets harder and harder to get a conventional loan. Fannie Mae does not like investors. They're not friendly with them. They're not friendly with business owners or entrepreneurs or real estate investors. The guidelines are kind of like anti you. Right. Anti David, anti Christian, anti our clients. Right. But if you can qualify for a conventional loan, you should stay in that realm. Typically, you're going to get a little bit better term, little bit better offer on the rate and, you know, terms of the loan. But the DSCR loan is great for the person in that scenario. You've outgrown conventional. You still want a 30 year fixed at a competitive interest rate. You know, you don't want to go through all of the routine of, you know, especially, you know, someone I think like you, David, own multiple businesses, multiple income streams. Nobody wants to review your tax returns. Right. So a lot of our clients, if you're a business owner, if you have four or five different income streams, if you have seven or eight different rental properties, chances are very high you won't qualify conventionally. DCR loan is the ideal format of a loan product for those people.
- [08:51]
A
Very good there. All right, next up is a bridge loan. What's a bridge loan and how should they be used?
- [08:57]
B
Yeah, so I'll say I'll break this up into true bridge and then what we typically refer to as bridge. True bridge is otherwise known as the buy before you sell program. So if you own a primary residence and you want to move into a new one, but you need the proceeds of your sale to buy a new house, obviously, but you can't sell the house because you're still Living in it. You can do a true bridge loan, which is where you leverage the equity in that house before you sell it to buy the new house and then you sell the old house once you're moved. But what we, that's not what we refer to when we say bridge. But if you Google bridge loans, those are a lot of the options that you'll see pop up in the industry. We refer to bridge loans just to mean in general to be short term lending, short term financing. What that means is that you need a quick loan to bridge you from point A to point B. And typically point A is an unlendable asset. Whether that's a property that needs renovation, whether that's a property that you're going to add to, whether that's a property that you had to just close on because you had to write a five day escrow because it was super competitive. Right. It's, it's something just meant to acquire and get the property to what the exit strategy is. And then you would refinance into one of the first two options that we discussed, you know, conventional or dscr. Right. Because those are the better long term financing options. Bridge just means short term lending though.
- [10:26]
A
In your opinion, what's the best feature of a bridge loan?
- [10:30]
B
Being able to finance renovation. That's number one. And quick closing. It's number two. Very little underwriting in a bridge loan. It's, it's called what we call abl, asset based lending. And what that means is that it's fully determined by the asset if there is enough equity in what you plan to do. There is a bridge lender out there. People call it hard money or private money. It all means the same thing. There's a lender out there who will finance it for you. Right.
- [10:59]
A
Very bad credit scores. People can still get a loan.
- [11:04]
B
To a degree. Yes. They're much more flexible if the, if the project is strong. You know, it's hard to get a bridge loan for somebody with a 500 FICO score. That's just always going to be a fact.
- [11:15]
A
Right, okay, so more like debt to income ratio is not as important.
- [11:19]
B
Yeah, not even considered. There's no debt to income ratio, no income calculation. There's typically some down payment required based on your experience will determine how much of that you can put down. But, but very, very 90% property based. They want to know that the, the, the project that you're undergoing is strong and there's going to be equity when you're done.
- [11:42]
A
All right, next up is a heloc, a home Equity line of credit. This is a second position loan. We do them at the one brokerage you can do primary residence or investment property. What are HELOCs and who should use these?
- [11:54]
B
Yeah, that's exactly right. Stands for a home equity line of credit. There's also HE loans, the less well known one, which is a home equity loan, which is basically just a second mortgage. It's a fancy word, but what these are is that it enables you to tap into the equity in a property that you own without impacting your first mortgage. So these are perfect for all the people with their Covid rates. Right. Assuming that you qualify, we're able to throw a second loan on that property, extract equity, potentially, if you have it there, use that to pay for renovations or home. The most common use of these is typically home, you know, remodels, upgrades. Remodels, yeah. Or potentially extracting equity for a new down payment. Right. If you wanted to leverage that into a new purchase. But yeah, freeing up equity and properties that you own without impacting your first mortgage. These can also be used in our Fusion product where we get you a simultaneous first position loan and a heloc. We call that a piggyback to potentially get you better terms on the purchase of a mortgage. Right. So it doesn't always have to be in terms of extracting equity. You can use the combination of a first loan and a HELOC to buy a property as well. So you start your journey on that property with two loans from day one. Definitely possible. It's more rare, but it's an awesome tool in the right situations to help people save on their debts.
- [13:17]
A
All right, let's talk about the Fusion loan, because I think we probably do these better than almost anybody else in the country. What's a Fusion loan and who should use this?
- [13:24]
B
Yeah, this is just the combination of a first loan and some form of second position financing. Whether that's a HELOC or a HELO. The two most classic scenarios of it is, number one being when you're putting less than 20% down. Walk through this with me. So let's say you're. Let's say you're buying a second home. That's a very common time to use this. The second home loan allows for 10% down. Okay. However, if you put 10% down, your rate's pretty high. That's an expensive loan product. And you pick up pmi, which is mortgage insurance, which is an extra expense every month on your monthly payment. And that's at the cost of putting less than 20% down. 20% is when you get rid of PMI and you get a little bit of relief on your interest rate. What we would do instead is we would probably get you like a 70% first. So if you're buying a house for $1 million, we'd get you a $700,000 first mortgage. So that mortgage is going to be priced like a 30% down mortgage, which is going to be priced really good, and you'll have no PMI. And then we'll get you a 20% HELOC behind it. So you're still getting a total of 90% leverage, but you're not paying the pricing surcharge of getting a 90% first loan. You're getting the savings of getting a 70% first loan and then picking up the added expense of the 20% HELOC. It's not always the right answer, but for the right scenarios, it can actually lead to very significant savings for the right borrowers.
- [14:54]
A
That's what we're all about. How do we save people more money? All right, the last two loans are the bank statement and the foreign national. Let's start with the bank statement. What is a bank statement loan?
- [15:05]
B
Yeah, bank statement loan is, we mentioned the DSER when, you know, good for business owners and people who can't show income on tax returns or who may have purchased their way out of qualifying. But the DSER can only be done on a rental property. Obviously if you need rent to offset the income, you have to have rent, which means it has to be a rental. Right? Bank statement loans are kind of the equivalent when you want to buy a primary. And what I mean by that is let's, let's use the example of like a general contractor, right? Some guy who does a bunch of projects, you know, he's a home remodeler, whatever, and he collects a bunch of basically what amounts to commission, right? The, the income for his work. And he has a lot of expenses every year. So he utilizes his business structure to write off most of his income. You know, he's got to buy lumber, he's probably got to pay some subcontractors, and at the end of the year he basically has a zero dollar taxable income. Now the likelihood that he actually made zero dollars is pretty low. That's the name of the game, playing the tax game in America, right? The goal of every entrepreneur and business owner is to get your taxable income as close to zero as possible. So you limit the taxes you pay. Typically what that means is if you're in the conventional Realm, remember, we're all we're discussing here today is non conventional. But if you write all of your income down to zero conventional, you don't qualify because you made no money on paper. Right, Right. So the bank statement loan applies all of the same underwriting as the conventional loan. However, the only change it makes is instead of relying on your tax returns to tell the lender what you made last year, we go based off your bank statements. So, David, you would show me your last 12 or 24 months, one to two years of your business bank statements, and I would see every month, David's getting 10,000. Ten thousand, ten thousand. Ten thousand, ten thousand. Well, it looks like David makes ten grand a month. Right. And they take operating expense hits, so maybe they'll take like a 30% hit for business operations. And they'd give you credit for 7,000amonth in rental income times 12, that's 84,000 a year. Whereas conventional, you're getting credit for zero. You'd be able to buy something, and the bank statement program would be the only way that you could do that and buy a primary if you find yourself in that situation of a business owner. So I almost call the bank statement loan the business owner loan. It's such a great opportunity for business owners to buy primary residences, and that's once again because the DSCR can't be used on your primary.
- [17:34]
A
Folks, we're rocking and rolling here, and we haven't even talked about conventional loans, and we do more of those than probably anything else. So if you to just buy a regular house, imagine how easy that is for us if we can do these ones.
- [17:45]
B
All right, love, I'll take them every day.
- [17:47]
A
Yeah, we always talk about the unique, exotic stuff on these podcasts, but what we really want is the person who just wants to buy a normal house or whose mom wants to buy a house or sister, and we don't want them getting ripped off by unscrupulous lenders that are everywhere. All right, the last one for today is the foreign national loan. What is this and who should use it?
- [18:06]
B
Yeah, so this is straightforward. It's a loan that a non US Citizen can utilize to buy property in America. These loans are higher interest rate on average than what a citizen can get, and they typically require more down payment. But it is a possibility. Now with everything going on in the current economic climate, with, you know, Trump shaking up the news a little bit with what we're doing about foreign nationals and all these new kind of regulations that are coming out, I can't promise It'll be around forever. But as it stands right now, we definitely still have access to helping foreign nationals buy US Real estate. Regardless of your opinion on that. I know some people may be anti, you know, keep American real estate in Americans hands. I get it. But these loan programs do exist and if you got a family member that's not a US Citizen or maybe they have their green card or a temporary identification number, they can buy real estate. Right. There's absolutely loan products for them. And if they want to invest into America, it's, it's, it's really their only option. Right. It's the only loan product that will allow a non U S. Citizen to buy U S Based real estate.
- [19:14]
A
So they're not going to have a Social Security number. What do they need to have?
- [19:18]
B
Yeah, typically we, we first will try to see if you have some form of a credit score in the country that they live in. Canada and Mexico have an equivalent of credit score. We actually just closed one yesterday for a Canadian foreign national who we just underwrote them based on their Canadian credit score. Right. Pretty easy. If they don't have that, we will typically ask for two or three different trade lines which is things that you pay reoccurringly every year. So that could be your mortgage, your rent, your utilities, your car loan. Now if somebody's coming from another country and, and has never had any debt and has no financial proof of anything and we don't know where their money's coming from and we don't know what they pay, that's going to be a very hard loan to close. There needs to be something that we can point to to justify your credibility. You know, and 99% of people will have something like that if they're looking into buying real estate. Right. They'll have the rent they're paying in their home country or a mortgage or a car loan or something. Usually we can, you know, we, we can find something that will satisfy the concern.
- [20:29]
A
All right, good deal. If people want to reach out to you, they want to talk about getting a conventional loan or they want to learn about one of these non conventional loans. Where can they go?
- [20:37]
B
Yep, you can always find more about our company guys and all of these loan products and more. We only just, we only covered a small non, non conventional portion here today. All of these are summarized and explained on our website theone brokerage.com you can also always reach out to me directly if you're interested in having a consultation talking about any of these programs or even some that we may have not mentioned here today. You can find me best place at Instagram @the1 broker is my handle.
- [21:07]
A
There you go. You can find me at David Green24 on Instagram. You could find me at davidgreen24.com please the chat option to get a hold of me. Or you could get my contact information off of my Instagram and reach out. Let me know where you want to buy a house and what I can do to help you. Thanks again everybody for listening. Please share this podcast with any real estate agents that you know, because this information can help them quite a bit with the clients that they have that are trying to get financing for a house. We appreciate you guys. Leave us a comment. Let us know what you thought about today's show. Make sure you subscribe to the channel. We will see you next week on Mortgage Monday.
- [21:46]
B
Sam.