DSCR Loans for Real Estate Investors: 40-Year Loans, Hard Money Exits & Deal-Saving Strategies

Liz Lopez (00:00)
Interest only, 40-year loans, we could do those. So a lot of times when I have negative DSCR ratios and you have to move lenders because you gotta think every DSCR lender has a different set of guidelines, they all have a different rate sheet, they all offer different programs. Just because I priced it out with one lender, say I have a six eighty nine credit score. One lender might not allow a forty-year interest-only because they require seven hundred, but another lender might only require six eighty. So trying different lenders. This is where experience counts.

Scott Bursey (02:01)
Welcome back to the Real Estate Pros Podcast Powered by Investor Fuel. I’m your host, Scott Bursey. Glad you’re with us. Today we’re joined by Liz Lopez, a true pro in the mortgage world with two decades of experience. Having spent twelve of those years as a dedicated underwriter for FHA, VA and conventional loans, she brings a level of expertise most loan officers simply don’t have. And also, since twenty eighteen, Liz has been in the real estate investment world, although she’s on hiatus right now, but she’s managed everything from fix-and-flips to short-term rentals all the while, specializing in creative financing for investors based out of Scottsdale, Arizona. Listeners, you can expect a master class today on how deals in this market are done right. Liz, welcome to the show.

Liz Lopez (02:52)
Thank you so much for having me.

Scott Bursey (02:54)
It is awesome having you here. And to help our listeners get up to speed, please give us the ninety-second highlight reel of how your career ignited and where you’re pouring your fuel now.

Liz Lopez (03:04)
Yeah, so I’ve been in the mortgage industry for twenty years. Got in it by happenstance and it’s been the best thing in the world. Started as a loan officer and then I got into underwriting, so I did that for 12 years, as you mentioned. And then after that I was a branch operations manager with Fairway Independent Mortgage, where I managed a pipeline of up to 200 loans, and I managed an income team where we underwrote income for every loan before it went to underwriting. Once they laid off our whole branch, I decided I’m done working for other people. I want to work for myself. I went and got my MLO license and now it’s hanging at NEXA Lending. I’ve been in NEXA for almost four years now and I love it. I specialize in DSCR loans, however I can originate any type of loan product.

Scott Bursey (03:48)
That’s incredible, Liz. Thank you for walking us through that journey. It really gives our listeners the background to understand how you got where you are today. And you know what really caught my attention about you was the way you’ve been able to bridge the gap between being a technical underwriter and an active investor. And right now having your portfolio on hiatus, but you certainly have been an active investor. That unique insider information perspective, if you will. Really kind of structures something special from your perspective. On that note, curious to know what do you consider your biggest strength as a loan officer given your extensive twelve-year background as an underwriter?

Liz Lopez (04:28)
Yeah, so that it highly helps me being a better underwriter, having that more that underwriting experience. So for me, I could look at a set of conditions and I know immediately if something is should be on there or shouldn’t. It doesn’t matter what loan product it is. A lot a lot of underwriters use what they call we call feel good conditions. You know, a lot of our loans get audited on the back end, so we have to be careful and especially if we’re new underwriter. We add extra stuff in there just to make sure in case it gets audited, that we won’t fail because if you have a couple fails, you could lose your job. So it’s a big deal. But I it’s easy for me to look at an approval letter, see if all those conditions need to be there. If they’re not, I’m an expert at fighting those conditions and getting them off of there. So I would definitely say that that’s where my expertise comes in. And I calculating income also.

Scott Bursey (05:16)
How does that specific background give you an edge when you’re looking at a complex deal?

Liz Lopez (05:21)
Bring any loan on. I have gotten some of the ugly ass loans approved. I will fight tooth and nail for that income. Not only will I look outside the box and see if there’s any other things we could do. I am also always looking for new lenders and new loan products. I’m always on the search. I was at the Mortgage Expo last week. I found two new loan products that I didn’t know about. One of them, let me just preface on it, it’s an FHA underlying lien. That has a financing contingency wrapped around it. It’s for people who have one year of employment history or one year self-employment history, low credit scores, 580, one day out of a bankruptcy. So yeah, it’s a 40-year amortization payment. And then after about a year, they just they do a streamline into an FHA loan. So it’s a unique product. I love that. So a lot of LOs, I don’t think they don’t know a lot of loan products. So if you don’t fit the box for one loan, you might fit the box for another loan. I don’t give up on my loans. That’s one thing. I fight tooth and nail. Yeah, if I think I’m gonna get that loan done, I’m gonna do everything I can to get that loan through.

Scott Bursey (07:09)
Liz, thank you for highlighting that. And wondering about from your experience in the trenches, what do you think is the biggest weakness or common pitfall investors run into when they try to structure creative financing deals in today’s tight market?

Liz Lopez (07:24)
Creative financing is very hard when it comes to mortgages. A lot of our lenders do not allow second lien positions, which I think is the what most people are trying to do. They’re trying to have the seller help pay for their down payment or pay for the full down payment. What we call the Morby Method is what some people call it. They’re putting on silent seconds after closing. They are putting that the seller in their LLC and then structuring a second lien. So there’s a lot of illegal stuff that goes on with creative finance that is not allowable a mortgage and is considered fraud. However, I do have one lender, a DSCR lender, that does allow a second lien position. You know, they only require 10% down payment and they don’t source excuse me, they don’t season the funds. So it just needs to be in the bank account. They don’t care where it came from. They don’t care about large deposits. So that is my only that’s my only creative lender that allows a second lien position. But I would say, a lot of investors what they are struggling with from what I see on my end is some of my investors are spot on with that ARV. We they tell it they think it’s gonna be up front, I get the appraisal back and it’s even higher or right on. There’s other investors who are way off on their ARV. So, just because you think you put so much money in your property and it looks so much nicer than the other properties around you does not mean you’re gonna get that higher value. You gotta look at what the other properties are selling for around. Most appraisers are not gonna give you a higher value than what the other houses are selling for in the area. So if investors can dial in, comping a little better, I think they would do a better job with that. There’s one other thing that I find a lot of investors are running into lately. There’s a guideline with DSCR lenders, 99% of lenders, that if you have your property listed for sale, they’re gonna use the lower of the list price or the appraised value, whichever’s lower over the last six months. So it hurts a lot of investors. They’re renovating their home, they’re putting it on the market, they can’t sell it, so they’re dropping the list price. And then they come to me to get out of that hard money loan. Well, ninety nine percent of my lenders are gonna use that list price even if your appraisal comes in higher. I do have a lender though that’s still using the appraisal. So as long as you can we can go to that lender, I’d send all my loans there if they’re in that circumstance.

Scott Bursey (09:38)
Appreciate you pointing that out. And digging into regarding opportunities, Liz. What are you seeing in the Scottsdale and Arizona market specifically that an investor should be jumping on right now in your view?

Liz Lopez (09:50)
Well, values have decreased over here. I didn’t I look it ’cause I’m looking to buy a house in the next year. I sh—had to short sale my house when I first became a loan officer. I was my first year and a half of a loan officer was a very challenging time period financially for me. I had to short sale my house out here and so yes, I’m looking to buy another house. So I’m looking at constantly at the house and housing market, especially in Scottsdale and what’s going on and I’m seeing prices drop all over the place. So I think investors need to look at that. They need to look at foreclosures. I think foreclosures are gonna start popping up a lot more. I went to a buy-and-hold meeting last night and we were talking about there was a foreclosure specialist there and he was talking about foreclosures and how he definitely thinks that there’s gonna be a lot more foreclosures coming on the market soon.

Scott Bursey (10:37)
Thinking about in terms of threats, how are you coaching your clients to navigate the current volatility in interest rates and market shifts?

Liz Lopez (10:46)
As long as the property cash flows, a lot of my investors aren’t concerned about the interest rate. And I talked to them up about up front about what type of prepayment penalty they want to lock in. So something that comes along with DSCR loans is prepayment penalties. What does that mean? That means if you sell or you refinance the property within a certain time period, you’ll be assessed a fee. The most prevalent prepayment penalty I would say is a three-year step down. That means, the first year you’ll pay three percent of the outstanding balance, second year two percent, third year one percent. So I always go into it. What do you what does my client want? I could care less what type of prepayment penalty they have. I don’t make more money or less money, depending on that. But you will get a slightly higher interest rate when you lower the prepayment penalty. It’s pretty much like an eighth of a point if you lower or increase the prepay, where the rate will move. So I just want to find out what you plan to do with the property up front. Do you plan to hold it for a year? A lot of investors don’t care. Give me a five-year prepay. They don’t wanna they don’t wanna touch it. As long as it has a nice cash flow on there, they don’t wanna touch it. So always wanna find out what you what you anticipate to do and then we’ll figure out the pricing on the back end.

Scott Bursey (11:53)
What’s your go to strategy to keep the deal alive when the numbers look tight?

Liz Lopez (11:58)
Interest only, 40-year loans, we could do those. So a lot of times when I have negative DSCR ratios and you have to move lenders because you gotta think every DSCR lender has a different set of guidelines, they all have a different rate sheet, they all offer different programs. Just because I priced it out with one lender, say I have a six eighty nine credit score. One lender might not allow a forty-year interest-only because they require seven hundred, but another lender might only require six eighty. So trying different lenders. This is where experience counts. I have a spreadsheet with over a hundred lenders, all different tabs, my former underwriting background. I have minimum credit score, minimum loan amount, you know, what’s your cash-out refi seasoning? Do you use value if it’s been recently listed? Anything you can think of I have on this spreadsheet. So loan officers just need to be highly informed of what lenders are offering what so they know where to take their clients. So that when you do have a challenging loan, which I’ve had plenty of those challenging loans, one recently is a condo. It was a 0.4 DSCR ratio. It was really under the cash flow. So when you’re a negative ratio, you’re not gonna get max financing. So when you normally can get, you know, 75% on a cash-out, now you’re gonna get 70 if you’re on a negative ratio. So it’s always five percent less on the LTV, the loan to value. So that loan didn’t work with one lender, so I took it to another one. I got her in a 40-year amortization interest-only loan. I found a lender that if she only had a six eighty credit score, I found a lender that would do it. On a 0.4 DSCR ratio. I mean, it was unheard of. I’m surprised I got that loan done. But then what you’re asking me, why would she want to get into that loan? Well, she was in hard money. And her interest-only hard money loan was higher than the payment I was gonna get her into. And DSCR loans are typically principal interest, but this was a 40-year interest-only. So it my payment was lower than the hard money. She could always pay it down. I gave her a low a one-year prepayment penalty so she could rebound her credit. We can get her out of that loan once it’s rebounded and get her into something better. She also has plans to bring in more income than she’s currently making. So you got gotta look at the whole big picture to figure out how we’re gonna structure it.

Scott Bursey (14:39)
Liz, if you could tell us what does your professional network look like right now?

Liz Lopez (14:43)
I love networking. I I’m always trying to go to different events. Like I mentioned, I went to a buy-and-hold event here last night in Scottsdale. So any chance I can get, I try to get out there, try to meet people. I just shaking hands, knowing what you look like face to face, feeling that energy between us. I it’s just I love that part. I love to create relationships. I go out to L.A., so I don’t know if you know JJ Azizian, but he’s in the Pace Morby SubTo group and he has a lot of events out there so I’ll fly out to L.A., go to his networking events and I do fly around and I teach DSCR loans to investors. So I will couple times a year fly to different areas in the U.S. and host a meetup and teach DSCR loans to investors.

Scott Bursey (15:24)
A solid crew is everything. And Liz, interested in if you could give our listeners one piece of advice that you’ve learned from your twenty years in the industry. What is the one thing they should focus on to level up their investing game this year?

Liz Lopez (15:41)
Always be learning. I think you always have to build your brain, learn something new every day. Always be networking. You never know who you’re gonna run into, what that person can do for you, how they can help you. Ask how you can provide value to everybody around you, everybody you meet. We’re providing value to each other. For so in twenty years, I mean it all comes down to you gotta keep persevering. I know that seems to be a common theme when I when I talk about these things, but whether it’s real estate or mortgage, you’re gonna have to have thick skin because stuff is gonna go wrong. Things are gonna go bad. People aren’t gonna pay their rent. Something’s gonna happen with the house. Something’s always going wrong with mortgages. And you just have to, have thick skin and keep going. Put one foot in front of the other and keep going. Make as many contacts as you can, network as much as you can. Make as many friends as you can. You don’t want to make enemies. That can travel far. Especially if you if I do a bad loan for somebody, they’re gonna tell twenty people. So I try to do the best for a client. Not every loan is smooth. Some loans, you know, have to get declined. It’s a very it’s a rarity, but it happens and the best way to deal with that stuff is just to get it get it tell the client, get it done. Don’t hold it back. But same with real estate. I would just say you gotta persevere, gotta always be learning, get a mentor, definitely get a mentor at real estate. That should hopefully help you from making some mistakes.

Scott Bursey (17:01)
That is great insight. And Liz, you have given us a tremendous amount of insight here today. But is there any additional words, golden nugget or two, that you could leave with our listeners?

Liz Lopez (17:13)
Hmm. As far as investing goes, just like I mentioned, I would definitely find a group and somebody who can help you. You when you’re new in this business, it is extremely challenging, whether it’s real estate or mortgage. Just know that it’s gonna take you years to get good at this business. And you’re gonna have bumps and you’re gonna fall. But it can be extremely both of these businesses can be extremely lucrative in the end if you can if you can just hang on. So many people are right up at the edge and they’re almost there and they just stop and they change ways and they you know you could have just kept going if you would have just seen what’s on the other side of that.

Scott Bursey (17:49)
Stay proactive. That’s powerful. And Liz, for those of our listeners that want to keep this conversation moving, stay in your lane or collaborate with you. What’s the best way for them to reach you?

Liz Lopez (18:00)
I’m all over social media. My one of my handles is DSCR Mortgage Gal. I’m also under Liz Lopez Loans. And but Facebook I’d say is where I’m I have most of my social media presence. However, I’m on all of social media. You can reach me at my phone number, (602) 410-0995. I’m also gonna be hosting a live event every Wednesday. Right now it’s at 3 PM. It’s gonna be at Facebook and YouTube, but I’m gonna be going over one loan product and one unique scenario that I was able to get financed and then answer some questions. So it’ll be a short live, but you can jump in there, ask me whatever you want and learn a little. So yeah, would love to chat with you. If anybody has any questions, please reach out.

Scott Bursey (18:43)
Liz, thank you so much for joining us today on the Real Estate Pros Podcast.

Liz Lopez (18:47)
Thank you so much.

Scott Bursey (18:48)
And to our listeners, we appreciate you. If you receive value from today’s episode, please subscribe. We’ll be filling your tanks with a lineup of elite guests, just like Liz Lopez, who are accelerating and setting the pace for the rest of the industry. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.