Jumbo Mortgages & DSCR Loans, Multi-Million Dollar Mortgages EXPLAINED

Welcome to another insightful clip of EYL Medium! In this clip, hosts Rashad Bilal and Troy Millings bring on mortgage expert Matt Garland to break down everything you need to know about jumbo mortgages and DSCR loans.

Have you ever wondered what a jumbo mortgage is and how it differs from conventional loans? Matt Garland dives deep into the specifics, explaining that jumbo mortgages are loans that exceed the limits set by Fannie Mae and Freddie Mac. If you're dreaming of owning a mega-mansion, a jumbo mortgage might be your ticket. However, these loans come with stricter qualification criteria, including a lower debt-to-income ratio and full documentation, such as W-2s, pay stubs, bank statements, and tax returns.

Matt also delves into options available for self-employed individuals who might not have traditional income documentation. He highlights popular choices like bank statement loans, where lenders assess income based on business bank deposits over a 12-month period. These loans come with higher interest rates but can be a viable solution for entrepreneurs looking to invest in their dream homes while minimizing tax liabilities.

We also explore the world of DSCR (Debt Service Coverage Ratio) loans, which are crucial for real estate investors. Unlike traditional loans focusing on personal income, DSCR loans evaluate the potential of the investment property to generate sufficient income to cover the debt. Matt walks us through the essential metrics and calculations needed to secure these loans for both residential and commercial properties.

Key takeaways from this episode include:

1. *Jumbo Mortgages:*

• Jumbo loans are for amounts exceeding the limits set by Fannie Mae and Freddie Mac.
• Stricter qualification criteria including a low debt-to-income ratio and full documentation.
• Options exist for self-employed individuals through bank statement loans.
• Understanding the trade-offs between higher interest rates and tax savings.

2. *DSCR Loans:*

• DSCR loans focus on the property's income potential rather than personal income.
• Key calculations include operating costs, property expenses, and cash flow metrics.
• Easier approval process compared to first-home mortgages, with a minimum down payment of 20% if it meets the 1.2 DSCR requirement.

Whether you're looking to invest in luxury real estate or searching for financing solutions tailored for investors, this episode has something for you. Matt provides valuable insights and strategies to navigate the complexities of jumbo and DSCR loans effectively.

Don't miss out on this comprehensive guide to mastering jumbo mortgages and DSCR loans. Watch now and equip yourself with the knowledge to make informed investment decisions!

*Timestamps:*

00:00 - Introduction: Jumbo Mortgages

00:20 - What are Jumbo Mortgages?

01:50 - Full Documentation Loans

03:00 - Bank Statement Loans

05:15 - DSCR Loans Explained

06:30 - Key Metrics for DSCR Loans

08:50 - DSCR vs. Hard Money Loans

13:30 - Tips for Real Estate Investors

*Hashtags:*

#EYL #JumboMortgage #DSCRLoan #RealEstateInvesting #FinancialLiteracy #LuxuryHomes .css-j9qmi7{display:-webkit-box;display:-webkit-flex;display:-ms-flexbox;display:flex;-webkit-flex-direction:row;-ms-flex-direction:row;flex-direction:row;font-weight:700;margin-bottom:1rem;margin-top:2.8rem;width:100%;-webkit-box-pack:start;-ms-flex-pack:start;-webkit-justify-content:start;justify-content:start;padding-left:5rem;}@media only screen and (max-width: 599px){.css-j9qmi7{padding-left:0;-webkit-box-pack:center;-ms-flex-pack:center;-webkit-justify-content:center;justify-content:center;}}.css-j9qmi7 svg{fill:#27292D;}.css-j9qmi7 .eagfbvw0{-webkit-align-items:center;-webkit-box-align:center;-ms-flex-align:center;align-items:center;color:#27292D;}

Episode Transcript

Speaker 1 (00:01):
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Speaker 2 (01:51):
Jumbo mortgages. What's that? I love it? So jumbo mortgages. Right, So,
typically when we're looking at jumbo mortgages, these are loan
amounts above what Fannie May, Freddie Mac will purchase from
a lender. Right so, and loan limits are about to

(02:17):
go up anyway, there's a couple of lenders that's already
you know, increased the loan limits for twenty twenty five.
So you know, a single family in twenty twenty five,
Fanny May will go up to eight hundred and two thousand.
It's not official yet, but several lenders have already put
it out there because we anticipate that they will in

(02:38):
November raise the loan limits again. So any loan amount
that is that exceeds the threshold that Fannie May and
Freddie Mack will buy right. And so these loans are
typically portfolio loans because the government is not backing them,
so the lender is lending pretty much their own own

(02:59):
money on this one. So the requirements to get qualified
for this jumbo mortgage is going to be it's gonna
be a lot tougher, especially if you're going full documentation.
Full documentation, ladies and gentlemen, is when you're providing your
W two's pay stuffs, bank statements, taxi turns. That's a
full documentation loan. So your DEBTA income ratio will have

(03:20):
to be, you know, forty three percent all below, and
some jumbo lenders want to see forty percent all below,
you know, And you can get loan amounts three up
to three million, four million, five million, just depending on
that lender. So you know, this is when you're trying
to buy that that mega mansion, that big old dream

(03:41):
house of yours, you're going to use a jumbo mortgage. Now,
if you are self employed and you're looking to buy
your mega mansion or your dream home that maybe cost
you two million dollars two and a half million dollars,
and you don't file your taxes property and you've write
off everything. No't worry. There are loans out there that
can help you with out providing all this information, like

(04:02):
bank statement loans where we're using the down the deposits
that you're receiving in your business bank statements over a
twelve month period and the lender will average that out
and determine how much income that you're bringing in based
off of those deposits, and we can use that to
qualify you. This loan is extremely popular amongst entrepreneurs who write,

(04:26):
who take full advantage of the tax code. This is
going to come at a much higher interest rate than
what a paper full documentation jumbo loan is going to get,
but it's well worth it to pay that two percent
margin higher two and a half percent margin higher and
rate than paying probably a couple hundred thousand taxes. Right.

(04:49):
So again that's when you need to mortgage plan. If
you are self employed and you're looking about this luxury
home you need to have a mortgage plan in place
so you know you can weigh out the pros and
cons ahead of time. But there are definitely options out
there for all buyers in this jumbo market, whether you're

(05:09):
full documentation, whether you're going non traditional and you want
to get that luxurious dream home of yours.

Speaker 3 (05:17):
So just really quick on the jumbo loan, it's usually
a higher interest rate prime example, if the interest rates
are seven, you could typically see at ten percent.

Speaker 2 (05:26):
So if you're doing a full documentation loan, and let's
just say you're going to like a retail bank like
we just mentioned, honestly, the retail banks is going to
give you the best deal. Like a mortgage company, a
mortgage broker cannot compete with a retail bank like a
JP Mulgan because they know you got money. So if
you go over there and you bring over two hundred

(05:48):
and fifty three hundred thousand, the positive that they're going
to give you a great, a great deal. Right So
their rates right now might be in the files for
a two million dollars on a thirty ear fix right
now because they're letting they're making their own rules so
to speak. Right it's their portfolio money. Now, if you

(06:08):
are a non traditional buyer, then that rate today might
be somewhere around seven and a half to eight percent
on this you know type of paper. If you're doing
non traditional finance and like bank statement loans, light doc loans,
p and L loans, you know, things of that nature.
We're not showing traditional documentation. You're going to pay a

(06:30):
premium for it, right, but you're going to get into
the house. And that's most important for these self employed
barbers because they can afford that payment. If they're buying
at that level, they're not really too concerned about that
payment shot, because they'd rather have a payment that's five
hundred or one thousand dollars higher, so that way they
don't have to pay one hundred thousand, two hundred thousand

(06:52):
in taxes, so it balances itself out. So the interest
rate is important, but it's not as equally as important
and looking at the full spectrum from a holistic point
of view of where you stand. Sure.

Speaker 4 (07:07):
So all right, so let's get into this investing before
we leave. So now let's talk about the.

Speaker 2 (07:17):
Yeah, So the d TR loan, So the ds CR
loan stands for debt service coverage ratio, so commercial loans,
commercial loans, So all right, let me start off like this.
So in residential we have DTI, right, your debt to
income ratio. When you're dealing with commercial lending, we have

(07:40):
DSCR debt service coverage ratio. That is the DTI of
the property. Right now, lenders have now started allowing over
the past couple of years, investors who want to buy
residential real estate use the same formula and calculation to
how we underwrite investment commercial properties. We can now use

(08:04):
it in the residential investments space as well. Right, So
when you're looking to do a true investment property, now,
this is when you use your LLC. Okay, we're not
looking at your W two's, your taxoo turns, your pay stubs.
We don't want to know where your large deposits came from.
All of that stuff is irrelevant. The only thing the

(08:25):
lender is really going to do from your personal side
is run your credit to make sure your credit is
above a six to twenty credit score. Right, and as
long as you're above a six twenty credit score, depending
on how big the deal is, in most cases, you
should be. Okay. Now we're looking at the property itself,
and we're looking at dscrs. So the bottom line is

(08:47):
is the property cash flowing? If the property is cash flowing,
then the lender will lend on this property. So when
you're looking at an investment property, do you need to
know how to analyze that property and underwrite it not
just as an investor, but also from a funding perspective,

(09:08):
because we need to know what you're operating cost sold?
What are the expenses of the property? Right? We already
know property taxes and assurance, but what other expenses are there?
Do you have to pay for? You know, your utilities.
Do you have to pay the light, build the gas,
the water, the sewage? Right? What is all these expenses?

(09:29):
And then also we're going to look at property management, right,
how much is that percentage? Then you have to save
for your cap ex expenses, which is your capital expenditures
if anything breaks, right, We're going to put all of
this into the calculator to see exactly what those expenses
come up, and then also what's the gross income. So
at the bottom line is we're looking at to make

(09:51):
a long story short and to put this whole the
layman's terms, because I want to go nobody's had. We
want to make sure that the property is paying for
itself and the owners of that LLC are making at
least a twenty percent profit after all the expenses. That
is a one point too that DSCR ratio that the
lender is looking for, and if it does meet this requirement,

(10:13):
then the lender will lend on that property. Right So, lenders,
and let's be I'm going to be very clear right now,
it is much easier to get approved and get funding
for investment properties than it is for your first home.
Much easier. There's not as much paperwork, there's not a

(10:33):
lot of hassle with it, as long as you know
how to present the numbers to the lender properly and
not over exaggerating them to try to make the deal work,
because we're going to do our own due diligence and
if that deal cash flows, and a cash flows property
is going to close. Now, typically when you're doing a
DSc ALL loan, this is going to require at a

(10:55):
very minimum, a minimum down payment of twenty percent if
it meets the DSR requirement of one point two or percent.
If it doesn't meet that requirement, then the lenda will
require you to put more money down. So this type
of loan is strictly for live men, not for freshmen.
If you ain't got the money, say hell.

Speaker 4 (11:17):
No, they're gonna want their money rain sleep hell So
that's a no rest in peace all these rules.

Speaker 2 (11:25):
Man, it's a biggie okay, refinancing.

Speaker 4 (11:28):
Want to talk about that, yeah.

Speaker 2 (11:31):
I mean we could, we could talk. We could talk
about that, or we can. We want to take some
questions about this cause I saw a thousand and one questions.

Speaker 3 (11:38):
Yeah, I mean you saw some if you want, yeah,
go ahead, man, all right, questions please.

Speaker 2 (11:45):
So already and so somebody asks, Rashida says, the minimum
down payment of twenty percent. Yes, it's twenty percent, And
I want to be clear again on that, only if
it meets the one point two DSR requirement. So just
because the minimum down payment is there, it doesn't mean

(12:06):
that that property will cash flow out of it, right,
So you might have to put twenty five percent, you
might have to put thirty percent. Whatever it takes to
get that property to DNCR and the cash flow then
you have to do it. Now, another thing, I'm going
to talk about DSCR because I saw this question come
up earlier is about the LLC. The LLC does not

(12:28):
have to be established for two years. The LLC does
not need business credit. The LLC could be a brand
new LLC. You can open up the LLC on Monday
and get into a contract on Friday with that brand
new LLC. Okay, let's be very clear. It could be
a brand new LLC because lenders know investors will will

(12:50):
use multiple different LLCs for each investment property they buy.
So you have to understand that that you do not
need to established business credit. It doesn't need to be
something that's been in the long standard because I get
that question all the time, so I just want to
throw that out there real quick. What else you said

(13:13):
something about refinancing, right shotty, I think that real quick.

Speaker 3 (13:17):
Before we go to refinance. Somebody was asking, is there
a difference between this and a hard money loan? Because
it sounds like the similarities.

Speaker 2 (13:26):
Can we draw a similar difference. It's it's a big difference.
It's it's nothing. It's separated apart from hard money. Right,
hard money is one thing. Ds CR is one thing. Right.
DNCR loans doesn't have rehab money attached to it. The
ds CR loan is for rental stable rental properties. It's

(13:48):
not for rehabbing. When you want to buy a rehab
and you do your bird strategy right, buy, renovate, refinance, rent,
repeat right. The DSc loan, the DSCR loan is used
to refinance out of your hard money loan, the hard
money loan, and again that's different forms and calculations. Some

(14:11):
you need to be at sixty five seventy percent max ARV.
ARV is your after renovated value. But you know, I
would recommend if you can get fifty five sixty percent
ARV on your on your hard money deal, it's going
to make it easier for you to exit out of
that hard money and go into your refinance. Because when
you're doing a refinance on the DSCR loan, your loan

(14:33):
to value, your loan to value your LTV drops to
seventy percent. In some cases maybe seventy five percent LTV,
but most you most of the time I tell my
people my mentors use seventy percent ARV because you need
to be able to I mean seventy percent as your

(14:55):
max period because if you at seventy five, you only
have a five and cushion to get out of that
hard money to refinance. So if you start off at
fifty five sixty percent ARV on your on your your
rehab project, now you have a ten to fifteen percent
margin buffer that you can now refinance, maybe pull a
little capital out of it too, and now go into

(15:17):
your permanent finance and with the DsCl low. So your
hard money loan is going to be used to fix
buy the property and fix it up. But remember hard money,
the terms are going to be typically twelve months. You
can get past twelve months, but then it's going to
get more expensive what you're gonna have to pay to
keep extending that hard money loan. Right, but again this

(15:37):
is strictly for live men, not for freshmen. Flips flop
every day, b every single day. So it's very important
that you know your numbers, you know exactly what the
hell you're doing, because these construction costs can add up
quickly fast, in a hurry.

Speaker 4 (15:57):
Like flop flips flop every day you live.

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