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Jumbo Mortgages & DSCR Loans, Multi-Million Dollar Mortgages EXPLAINED · Earn Your Leisure

• 0:00
  Speaker 1: Jumbo mortgages. What's that? I love it. So jumbo mortgages, right?
• 0:07
  Speaker 1: So typically when we're looking at jumbo mortgages, these are
• 0:11
  Speaker 1: loan amounts above what Fannie Mae, Freddie Mac will purchase
• 0:19
  Speaker 1: from a lender, right? So And loan limits are about
• 0:25
  Speaker 1: to go up anyway. There's a couple of lenders that's
• 0:28
  Speaker 1: already increased their loan limits for 2025. So a single
• 0:35
  Speaker 1: family in 2025, Fannie Mae will go up to 802,000.
• 0:39
  Speaker 1: It's not official yet, but several lenders have already put
• 0:43
  Speaker 1: it out there because we anticipate that they will in
• 0:46
  Speaker 1: November raise the loan limits again. So any loan amount
• 0:50
  Speaker 1: that is that exceeds the threshold that Fannie Mae and
• 0:55
  Speaker 1: Freddie Mac will buy. These loans are typically portfolio loans
• 1:02
  Speaker 1: because the government is not backing them. The lender is
• 1:05
  Speaker 1: lending pretty much their own money on this one. The
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  Speaker 1: requirements to get qualified for this jumbo mortgage is going
• 1:14
  Speaker 1: to be It's going to be a lot tougher, especially
• 1:16
  Speaker 1: if you're going full documentation. Full documentation, ladies and gentlemen,
• 1:20
  Speaker 1: is when you're providing your W-2s, pay stubs, bank statements,
• 1:23
  Speaker 1: tax returns. That's a full documentation loan. So your debt
• 1:27
  Speaker 1: to income ratio will have to be 43% or below,
• 1:32
  Speaker 1: as some jumbo lenders want to see 40% or below.
• 1:37
  Speaker 1: And you can get loan amounts up to $ 3 million,
• 1:40
  Speaker 1: $ 4 million, $ 5 million, just depend on on that lender.
• 1:45
  Speaker 1: So this is when you're trying to buy that mega mansion,
• 1:49
  Speaker 1: that big old dream house of yours, you're going to
• 1:51
  Speaker 1: use a jumbo mortgage. Now, if you are self-employed and
• 1:55
  Speaker 1: you're looking to buy your mega mansion or your dream
• 1:57
  Speaker 1: home that maybe cost you $ 2 million, $ 2. 5 million, and
• 2:01
  Speaker 1: you don't file your taxes properly and you write off everything,
• 2:05
  Speaker 1: no worry. There are loans out there that can help
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  Speaker 1: you without providing all this information like bank statement loans,
• 2:12
  Speaker 1: where we're using the deposits that you're receiving in your
• 2:17
  Speaker 1: business bank statements over a 12-month period, and the lender
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  Speaker 1: will average that out and determine how much income that
• 2:25
  Speaker 1: you're bringing in based off of those deposits, and we
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  Speaker 1: can use that to qualify you. This loan is extremely
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  Speaker 1: popular amongst entrepreneurs who take full advantage of the tax code.
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  Speaker 1: This is going to come at a much higher interest
• 2:39
  Speaker 1: rate than what a paper full documentation jumbo loan is
• 2:45
  Speaker 1: going to get. But it's well worth it to pay
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  Speaker 1: that 2% margin higher, 2.5% margin higher rate than paying
• 2:54
  Speaker 1: probably a couple hundred thousand in taxes. So again, that's
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  Speaker 1: when you need to mortgage plan if you are self-employed
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  Speaker 1: and you're looking to buy this luxury home. You need
• 3:05
  Speaker 1: to have a mortgage plan in place so you know
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  Speaker 1: you can weigh out all the pros and cons ahead
• 3:09
  Speaker 1: of time. But there are definitely options out there for
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  Speaker 1: all buyers in this jumbo market, whether you're full documentation,
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  Speaker 1: whether you're going non-traditional and you want to get that
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  Speaker 1: luxurious dream home of yours. So just really quick on
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  Speaker 1: the jumbo loan, it's usually a high interest rate. Prime example,
• 3:30
  Speaker 1: if the interest rates are at 7%, you could typically
• 3:32
  Speaker 1: see it at 9% to 10%. So, so if you're
• 3:36
  Speaker 1: doing a full documentation loan and let's just say you're
• 3:39
  Speaker 1: going to like a retail bank, like we just mentioned, honestly,
• 3:43
  Speaker 1: the retail banks is going to give you the best deal.
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  Speaker 1: Like a mortgage company, a mortgage broker cannot compete with
• 3:50
  Speaker 1: a retail bank, like a JP Morgan, because they know
• 3:53
  Speaker 1: you got money. So if you go over there and
• 3:55
  Speaker 1: you bring over 250,000, 300,000 deposit that they go and
• 3:58
  Speaker 1: give you a great, a great deal, right? So their
• 4:03
  Speaker 1: rates right now might be in the fives for a
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  Speaker 1: $ 2 million loan on a 30-year fix right now because
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  Speaker 1: they're making their own rules, so to speak, right? It's
• 4:14
  Speaker 1: their portfolio money. Now, if you are a non-traditional buyer,
• 4:20
  Speaker 1: then that rate today might be somewhere around 7.5% to 8%
• 4:23
  Speaker 1: on this type of paper, if you're doing non-traditional financing
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  Speaker 1: like bank statement loans, light doc loans, P & L loans,
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  Speaker 1: things of that nature where you're not showing traditional documentation,
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  Speaker 1: you're going to pay a premium for it, but you're
• 4:40
  Speaker 1: going to get into the house. That's most important for
• 4:44
  Speaker 1: these self-employed borrowers because they can afford that payment if
• 4:48
  Speaker 1: they're buying at that level. They're not really too concerned
• 4:51
  Speaker 1: about that payment shot because they'd rather have a payment
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  Speaker 1: that's $ 500 or $ 1, 000 higher. So that way they don't
• 4:58
  Speaker 1: have to pay $ 100, 000, $ 200, 000 in taxes. So it balances
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  Speaker 1: itself out. So the interest rate is important, but it's
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  Speaker 1: not as equally as important in looking at the full
• 5:10
  Speaker 1: spectrum from a holistic point of view of where you stand.
• 5:13
  Speaker 1: Appreciate it. So, all right. So let's get into this
• 5:17
  Speaker 1: investing before we leave. So now let's talk about the other,
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  Speaker 1: what was it? It was the DSCR loan. Yeah. So
• 5:25
  Speaker 1: the DSCR loan. So the DSCR loan stands for debt
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  Speaker 1: service coverage ratio. So commercial loans, commercial loans. So, all right,
• 5:38
  Speaker 1: let me start off like this. So in residential, we
• 5:42
  Speaker 1: have DTI, right? Your debt to income ratio. When you're
• 5:46
  Speaker 1: dealing with commercial lending, we have DSCR, debt service coverage ratio.
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  Speaker 1: That is the DTI of the property, right? Now, lenders
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  Speaker 1: have now started allowing over the past couple of years,
• 6:01
  Speaker 1: investors who want to buy residential real estate use the
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  Speaker 1: same formula and calculation to how we underwrite investment commercial properties.
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  Speaker 1: We can now use it in the residential investment space
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  Speaker 1: as well. So when you're looking to do a true
• 6:19
  Speaker 1: investment property, now this is when you use your LLC.
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  Speaker 1: We're not looking at your W-2s, your tax returns, your
• 6:27
  Speaker 1: pay stubs. We don't want to know where your large
• 6:30
  Speaker 1: deposits came from. All of that stuff is irrelevant. The
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  Speaker 1: only thing the lender is really going to do from
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  Speaker 1: your personal side is run your credit to make sure
• 6:37
  Speaker 1: your credit is above a 620 credit score. And as
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  Speaker 1: long as you're above a 620 credit score, depending on
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  Speaker 1: how big the deal is, In most cases, you should
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  Speaker 1: be okay. Now we're looking at the property itself and
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  Speaker 1: we're looking at DSCRs. So the bottom line is, is
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  Speaker 1: the property cash flowing? If the property is cash flowing,
• 7:01
  Speaker 1: then the lender will lend on this property. So when
• 7:06
  Speaker 1: you're looking at an investment property, you need to know
• 7:09
  Speaker 1: how to analyze that property, underwrite it, not just as
• 7:12
  Speaker 1: an investor, but also from a funding perspective, because we
• 7:17
  Speaker 1: need to know what your operating costs are. What are
• 7:20
  Speaker 1: the expenses of the property, right? We already know property
• 7:24
  Speaker 1: taxes and insurance, but what other expenses are there? Do
• 7:28
  Speaker 1: you have to pay for your utilities? Do you have
• 7:32
  Speaker 1: to pay the light bill, the gas, the water, the sewage, right?
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  Speaker 1: What is all these expenses? And then also we're going
• 7:40
  Speaker 1: to look at property management, right? How much is that
• 7:43
  Speaker 1: percentage that you have to save for your cap X expenses,
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  Speaker 1: which is your capital expenditures if anything breaks, right? We're
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  Speaker 1: going to put all of this into the calculator to
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  Speaker 1: see exactly what those expenses come up and then also
• 7:55
  Speaker 1: what's the gross income. So at the bottom line is
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  Speaker 1: we're looking at, to make a long story short and
• 8:01
  Speaker 1: to put this all in layman's terms, because I don't
• 8:03
  Speaker 1: want to go in nobody's head. We want to make
• 8:05
  Speaker 1: sure that the property is paying for itself. And the
• 8:08
  Speaker 1: owners of that LLC are making at least a 20%
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  Speaker 1: profit after all the expenses. That is a 1.2 debt
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  Speaker 1: DSCR ratio that the lender is looking for. And if
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  Speaker 1: it does meet this requirement, then the lender will lend
• 8:24
  Speaker 1: on that property, right? So lenders, and let's be, I'm
• 8:27
  Speaker 1: going to be very clear right now. It is much
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  Speaker 1: easier to get approved and get funding for investment properties
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  Speaker 1: than it is for your first home. much easier. There's
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  Speaker 1: not as much paperwork. There's not a lot of hassle
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  Speaker 1: with it. As long as you know how to present
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  Speaker 1: the numbers to the lender properly and not over-exaggerating them
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  Speaker 1: to try to make the deal work, because we're going
• 8:53
  Speaker 1: to do our own due diligence. And if that deal
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  Speaker 1: cash flows and a cash flows property, it is going
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  Speaker 1: to close. Now, typically when you're doing a DSCR loan,
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  Speaker 1: this is going to require at a very minimum, a
• 9:05
  Speaker 1: minimum down payment of 20%. if it meets the DSCR
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  Speaker 1: requirement of 1.20%. If it doesn't meet that requirement, then
• 9:14
  Speaker 1: the lender will require you to put more money down.
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  Speaker 1: So this type of loan is strictly for live men,
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  Speaker 1: not for freshmen. If you ain't got the money, say
• 9:25
  Speaker 1: hell no. Because they're going to want their money rain, sleep, hell, snow.
• 9:30
  Speaker 1: That's a fact. Rest in peace. It's all these rules, man.
• 9:33
  Speaker 1: It's a biggie. Okay. Refinancing. Want to talk about that? Yeah,
• 9:39
  Speaker 1: I mean, we could talk about that or we can...
• 9:43
  Speaker 1: You want to take some questions about this? Because I
• 9:45
  Speaker 1: saw a thousand and one questions in here. Yeah, yeah, yeah.
• 9:47
  Speaker 1: I mean, you saw some if you want. Yeah, go ahead, man.
• 9:50
  Speaker 1: All right. Questions, please. So, I already answered. Somebody asked,
• 9:55
  Speaker 1: Rashida says the minimum down payment of 20%. Yes. it's 20%.
• 10:01
  Speaker 1: And I want to be clear again on that only
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  Speaker 1: if it meets the 1.2 DSCR requirement. So just because
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  Speaker 1: the minimum down payment is there, it doesn't mean, um,
• 10:14
  Speaker 1: that that property will cash flow out of it. Right.
• 10:19
  Speaker 1: So you might have to put 25%. You might have
• 10:21
  Speaker 1: to put 30%. Whatever it takes to get that property
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  Speaker 1: to DSCR and the cash flow, then you have to
• 10:29
  Speaker 1: do it. Now, another thing I want to talk about DSCR,
• 10:31
  Speaker 1: because I saw this question come up earlier, is about
• 10:34
  Speaker 1: the LLC. The LLC does not have to be established
• 10:37
  Speaker 1: for two years. The LLC does not need business credit.
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  Speaker 1: The LLC could be a brand new LLC. You can
• 10:43
  Speaker 1: open up the LLC on Monday and get into a
• 10:46
  Speaker 1: contract on Friday with that brand new LLC. Okay. Let's
• 10:51
  Speaker 1: be very clear. It could be a brand new LLC
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  Speaker 1: because lenders know investors will use multiple different LLCs for
• 11:03
  Speaker 1: each investment property they buy. So you have to understand
• 11:08
  Speaker 1: that you do not need a status business credit. It
• 11:10
  Speaker 1: doesn't need to be something that's been in the long
• 11:12
  Speaker 1: standard because I get that question all the time. So
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  Speaker 1: I just want to throw that out there real quick.
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  Speaker 1: What else? You said something about refinancing, right, Shadi? Real quick,
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  Speaker 1: before we go to refinance, somebody was asking, is there
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  Speaker 1: a difference between this and a hard money loan? Because
• 11:32
  Speaker 1: it sounds like the similarities, can we draw a... Similar. Yeah.
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  Speaker 1: It's a big difference. It's nothing. It's, it's separate and
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  Speaker 1: apart from hard money, right? Hard money is one thing.
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  Speaker 1: DSCR is one thing, right? DSCR loans doesn't have rehab
• 11:49
  Speaker 1: money attached to it. The DSCR loan is for rental,
• 11:55
  Speaker 1: stable rental properties. It's not for rehabbing. When you want
• 11:58
  Speaker 1: to buy a rehab and you do your birth strategy, right? Buy, renovate, refinance, rent, repeat, right?
• 12:08
  Speaker 1: The DSCR loan is used to refinance out of your
• 12:13
  Speaker 1: hard money loan. The hard money loan, and again, that's
• 12:17
  Speaker 1: different formulas and calculations. You need to be at 65, 70%
• 12:22
  Speaker 1: max ARV. ARV is your after renovated value, but I
• 12:26
  Speaker 1: would recommend if you can get 55, 60% ARV on
• 12:30
  Speaker 1: your hard money deal, it's going to make it easier
• 12:33
  Speaker 1: for you to exit out of that hard money and
• 12:35
  Speaker 1: go into your refinance, because when you're doing a refinance
• 12:39
  Speaker 1: on a DSCR loan, your loan to value, your loan
• 12:43
  Speaker 1: to value, your LTV drops to 70%. In some cases,
• 12:48
  Speaker 1: maybe 75% LTV, but most of the time I tell
• 12:54
  Speaker 1: my people, my mentees use 70% ARV because you need
• 13:01
  Speaker 1: to be able to, I mean, 70% as your max, period.
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  Speaker 1: Because if you're at 75, you only have a 5%
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  Speaker 1: cushion to get out of that hard money to refinance.
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  Speaker 1: So if you start off at 55, 60% ARV on
• 13:15
  Speaker 1: your rehab project, now you have a 10 to 15%
• 13:19
  Speaker 1: margin buffer that you can now refinance, maybe pull a
• 13:23
  Speaker 1: little capital out of it too, and now go into
• 13:25
  Speaker 1: your permanent financing with the DSCR law. So your hard
• 13:29
  Speaker 1: money loan is going to be used to buy the
• 13:31
  Speaker 1: property and fix it up. But remember, hard money, the
• 13:33
  Speaker 1: terms are going to be typically 12 months. You can
• 13:37
  Speaker 1: get past 12 months, but then it's going to get
• 13:39
  Speaker 1: more expensive, which you have to pay to keep extending
• 13:42
  Speaker 1: that hard money loan, right? But again, this is strictly
• 13:46
  Speaker 1: for live men, not for freshmen. Flips flop every day, B,
• 13:51
  Speaker 1: every single day. So it's very important that you know
• 13:54
  Speaker 1: your numbers. You know exactly what the hell you're doing.
• 13:57
  Speaker 1: Because these construction costs can add up quickly, fast, in
• 14:03
  Speaker 1: a hurry. Flips flop every day. Flips flop every day, B.
• 14:11
  Speaker 1: You said one earlier. You said it's definitely look-up-able. Everything
• 14:18
  Speaker 1: is figure-out-able. Figure-out-able, that's what it was.