The $15,000 DSCR Loan Mistake Real Estate Investors Must Avoid | MaryAnn Sigurdson

MaryAnn Sigurdson:

You just have to go into it knowing that’s what you’re gonna do. But a lot of people will say, “Yeah, let me give you—” and then the loan officer wants to give you, “I can beat that rate.” And the borrower is so interested in “I want to get the best rate.” Meanwhile, they don’t understand they’ve got a three-year or a five-year prepayment penalty. And then it’s a great big surprise when they go to sell it and realize five percent on three hundred thousand dollars is fifteen grand.

Dylan Silver:

Hey folks, welcome back to the show. Today we’re joined by MaryAnn Sigurdson. She’s a mortgage broker that investors call when a deal is messy. She’ll get a deal closed when two other lenders cannot, and she runs private money and her own rehab projects as well. Her style is plain English, straightforward advice before any paperwork. MaryAnn, thanks for joining us here today.

MaryAnn Sigurdson:

Thank you so much, Dylan. I appreciate it. That’s very nice of you, very nice intro. And it’s nice to be here with you.

Dylan Silver:

Great to have you on. What types of deals are coming across your desk these days?

MaryAnn Sigurdson:

Interesting. I think I get sort of two ends of a spectrum. I get the beloved wannabes, and they don’t know anything, don’t have a clue. I spend a lot of time with them explaining the rules of engagement when it comes to how they need to stack the deck and get themselves ready and all of that, and help them get there. Sometimes it’s a long path. And then I get those that are experienced; they have quite a few number of properties under their belt, but they have leveraged themselves into a corner for one reason or another, or they have a difficult deal that they couldn’t figure out for whatever reason. And once I get into it, I find out it’s the classic scenario of how they’ve structured their portfolio doesn’t match with lender standards.

Dylan Silver:

We were talking about that in the green room, and I’m a fish out of water in this space, but I certainly understand the concept. You need to have your deals structured and in general your momentum structured to look in a way that will be favorable to lenders. You want your portfolio to be almost through the lens of a lender if you want it to expand. Can you explain that to our audience?

MaryAnn Sigurdson:

Well, you hit the nail on the head. As a matter of fact, that’s why I wrote—I just recently published a book on that very topic, and I’ve got a lot of case studies in it. I can give you a couple of examples. One that I had, a lady who had a seven-door unit. She bought it on a Subject-To land contract. The seller carried a private note. Sounds good as an investor, right? It’s all musical chairs, that’s what y’all try to teach everybody to do, right? So all of that was fine and well and good, except here’s the problem: the lender, the seller carried a private note, never recorded that private note, never transferred the deed. She and her partner spent two years rehabbing the property; all seven doors needed to be rehabbed. They’d been paying on the note. They had invested all this money to invest, and it was a seven-door unit. Typical single-family units are one to four. Guidelines are a lot easier. When you start getting into five to ten units, that’s small commercial, and so the guidelines start to tighten. And since the seller had never transferred the deed, guess what we had? We had a seasoning issue. And here we had two owners investing interest payments and rehab money on a property technically they didn’t own.

Dylan Silver:

That’s a disaster. That is not good.

MaryAnn Sigurdson:

Uh-huh. And so I know.

Dylan Silver:

When there’s a seasoning issue like that, I’ve heard of this before and I’ve heard it in several different circumstances, and I know that there’s a different issue that comes up when people are buying from foreclosure that it can be reclaimed. But in this instance, when there was this seasoning issue here on this seven unit, how long did that investor have to wait? Holy cow.

MaryAnn Sigurdson:

Six months. And they could have done it—they had it for two years. The seller was perfectly willing to transfer it over. And the only reason it became such an issue on that one was because it was a seven-door. So you take where you have a hundred lenders that would do up to four doors, you might have ten that will do up to the five- to ten-door.

Dylan Silver:

I wanna get right into the weeds in DSCR. We’ve had a lot of folks on this show talk about DSCR, but from an investor lens—and you’ve done this yourself—DSCR allows folks to finance projects when they may write off on their taxes and not be able to show as much income, is my understanding, and also when they’ve reached their maximum capacity as far as in their traditional realm. But they do have to come out of pocket with, I’ve heard, twelve to twenty percent down. So in what circumstance is DSCR the right product for investors?

MaryAnn Sigurdson:

I think every investor that has the money, because you do make a good point: typically, on average, it does take 20% down. You do have to have that leverage, okay? And the reason why is because primarily DSCR stands for debt service coverage ratio. That means in simple math, easy terms—I’m a real simple kind of gal—does the rental income cover your mortgage payment? What’s that ratio? So, for example, if I’m collecting $3,000 in rent, that means that I can carry a mortgage—principal, interest, taxes, and insurance—that is no more than $3,000 a month rent. That gives you a 1.0 DSCR ratio. And the lender says, “Hey, this property is paying for itself.” Essentially, the rental income replaces the need for me to show you my personal income. So that’s what the rental income becomes.

Dylan Silver:

I’ve got a silly question here, right? If folks have multiple DSCR loans, will this show up on their credit report?

MaryAnn Sigurdson:

It should not. Typically, most investors sign in the name of an LLC. If they sign in the name of an LLC, it should not show up on their credit report. If they sign in their personal name, yes. Okay. However, I have had scenarios—and I just had it with one of my best customers, repeat customers, and he signed in the LLC and it started showing up on credit. And we went and fought it with the credit bureaus and proved vis-à-vis the warranty deed that this was in the name of a business, not in the name of his personal. So it got removed from his personal credit.

Dylan Silver:

Now, piggybacking off an earlier point, DSCR is looking at the rental income produced by a subject property. If someone’s got that down payment, let’s say they’ve got a good down payment, twenty percent, but they don’t have experience as an investor, this might be their first deal, would DSCR lenders evaluate them and underwrite them differently, even if they have good credit?

MaryAnn Sigurdson:

Yes and no. Some lenders do not allow what we call first-time investors, okay? Some lenders don’t care. That’s why, working with a broker, I manage to understand their whole profile upfront. And if I have that situation, then I make sure that I place them with a lender where a first-time investor is not a problem. However, there is one other little idiosyncrasy that is important to look at in that: if they are a first-time investor and they do not own their own primary home, that could be problematic. So basically, the only thing that we look at is credit score, DSCR ratio, and mortgage history on your primary home. The idea is that’s the indicator that if you pay your personal mortgage, then you likely will pay this mortgage, okay? So the other risk factor is if you don’t already own a primary home, I think, “Why are you buying an investment property?” But that’s a little aside. If you own your primary home and it’s paid for, we just prove that it’s paid for—easy thing to do in title, no harm, no foul, all good. Otherwise, your mortgage history shows up on your credit for your primary home.

Dylan Silver:

My immediate knee-jerk reaction is, well, these homes, depending on where you’re at, are five hundred, six hundred thousand dollars in some places on the low end, right? If you’re looking at the coasts, you won’t be able to find a home for that amount. And so there’s a lot of people who are throwing their hands up in the air and saying, “Okay, well, I’m just gonna get in as an investor, and I may rent somewhere else.” And to that, there’s some lenders that will say, “Okay, we’re okay with that,” and other lenders that say, “No, you gotta own your first primary before we give you a DSCR loan.”

MaryAnn Sigurdson:

Right. But there’s plenty enough. That’s why it’s really important when you’re an investor—it’s really, really important that you work with a broker. Let me back up: it’s really important that you work with a broker that has a lot of resources, that’s like a dog with a bone that doesn’t let it go, and is detailed enough to understand your whole scenario and ask all the right questions and place you with the right lenders. I could put 20 lenders in front of you that do DSCR loans, and I could show you little nuances between all 20 of those lenders, what they will and will not do. So it’s really important that you understand those things. I personally am not one that likes surprises, so I make sure I take everything down, go all the way to the end of the earth.

Dylan Silver:

I think we have to. And one of the things that I’ve noticed as well, a lot of first-time buyers—and this is a separate side of this, we’re not talking investors, we’re talking retail buyers—will have the experience trying to get approved for a home, right? They’ve got good credit, but there’s something off, right? Maybe they don’t have the cash reserves, maybe they don’t have the right income to show on their taxes, maybe they don’t have the right kind of debt. And it becomes frustrating. They feel like, “I’ve done all these things. Society is telling me I should be able to buy a home, and I can’t.” They go to one lender, they go to two lenders, and that lender doesn’t go to the mat for them, and then they can’t or they think they can’t buy a home. When if they had gone to maybe one or two other lenders, or one other lender, they might be able to. And that’s what we’re talking about. And what you’re saying speaks to that: whether you’re a retail buyer or an investor, the lender absolutely, absolutely can make or break a deal, but it can also make or break your career trajectory as an investor. Cause if you’re getting started now in 2026, it’s certainly different than getting started in 2018.

MaryAnn Sigurdson:

Mm-hmm. And I see that over and over and over again. And one of the things that I am diligent, prideful, dedicated—absolutely just dedicated to, it’s just something that drives me—is I’m an educator when it comes to this space. I think knowledge is power. And so my whole commitment is to make sure that I explain to people: where’s the obstacle? What is the lender looking at? What is the guideline that we’re running up against? I help them understand why that guideline is there and what do we need to do to rise above it. Sometimes it’s a simple thing and we could do that fairly easy, okay? Sometimes it might take them three, four, five—maybe their credit score is just not quite there, and all they got to do is pay down some credit cards and they got it, okay? But whatever that is, I always make sure that they understand that. It’s very important.

Dylan Silver:

There’s an element of this that is—and there’s no way around that, I think. You have to improve the score, you’ve gotta come up with the cash reserves, you need to file a tax return. There’s a time component of this. One of the things that I’ve noticed is that continuity of care on both sides can be challenging. And it’s not just lenders, or of course realtors face this. You might be working with someone for a long time, you don’t have them under a buyer’s rep—and you probably should at this point, I think you need to if you’re a realtor—but they go with someone else. Or they go with someone that they knew from a friend or what have you. And so on all sides, I think we need this continuity of care. We need that lender that’s gonna follow up with the client and see how things are going, even if they weren’t approved last year. And that sounds simple, but it doesn’t always happen.

MaryAnn Sigurdson:

No, that’s true. I think that in any industry what happens is when you have a professional who’s not always in it for the right reasons, over time that comes to light. And I think that there’s a natural cycle of those things. Right now, the industry is tight, and you get a lot of fall-off. And that’s not a bad thing. It’s not a bad thing for the consumer; it’s not a bad thing for any of us, really, okay? That weak link falls off. But I want to go back to the DSCR loans and who’s the other right person, why should they use it? The other side of that coin and point that I wanted to make is that when you have an investor that has a complicated portfolio, sometimes doing a full-doc loan is messy, time-consuming, and a pain in the neck. And you don’t have to do that with DSCR. And there’s one other very important thing: on a full-doc loan, meaning a conventional investor purchase, on paper they only give you 75% credit for your actual rental income or what the depreciated value that you claim on your tax returns, which could be even less than 75%, which means that you typically on paper have a negative cash flow very often. With the DSCR loan, you A, don’t have to show any of that paperwork; B, you get 100% of the rental income, either projected by the appraiser or actual.

Dylan Silver:

Big difference. Big difference. When you’re having these conversations initially with investors and they’re considering which products to use and they’re trying to understand what works for them, but also what works based on their strategy, is any component of that conversation also talking about the deals themselves and what their intended outcome is? Are they gonna flip this project? Are they gonna turn it into a short-term rental, a year-to-year lease, or something different?

MaryAnn Sigurdson:

That’s one of the biggest first questions I ask. And the reason for it is that DSCR loans often come with prepayment penalties. And as a loan officer, the very last thing that I’m ever going to do is to lock somebody into a long-term prepayment penalty when their intention is to sell it in a year or two. So that’s that long-term strategy as far as that’s concerned. My job is to position you for the loan that you want today, but to make sure that it also folds into what your long-term plans are and the next deal and the next deal.

Dylan Silver:

What’s particularly interesting about this conversation and then also what your book of business is: you’re involved in the traditional side, you have your license as a loan originator, and you’re also involved in hard money and you’re a rehabber yourself in fix-and-flip. And then this DSCR space, which is a little bit of a mix of both, if I’m not speaking out of pocket here. I see a lot of traditional, even brick-and-mortar banks going the DSCR route, but then you see the other side as well.

MaryAnn Sigurdson:

Right. Very much so. And it’s not the traditional banks that you and I think of—the Chase, the Bank of America, the Wells Fargo that you see on the corner. It’s banks that do commercial lending or wholesale lending, let’s call it. But yes, very much, you would be surprised how many lenders are in that space.

Dylan Silver:

It’s really been interesting because I’ve had some of them on the show, and one of the things that I thought initially, because I’d heard of DSCR and I’d heard about it from investors, was, well, this is along the lines—maybe not the same and could be entirely different, but I grouped it in the hard money category. But then I was having folks, and like you mentioned, maybe not the biggest banks that we would think of, but there were some big banks that were doing DSCR loans. And this got me thinking, okay, well, this is clearly catching on. Is there one thing about the DSCR loan which has made it so, I would say, popular, not just in that strictly off-market, so to speak, investor space, but also with folks who may be more prone to working with their bank?

MaryAnn Sigurdson:

I truly think ease of underwriting. I think it’s lack of paperwork. I think it’s clean, simple, easy. You don’t have to show your income documents in front of God and everybody, so to speak. It’s just very simple. We don’t care about that; it’s the simplicity of it.

Dylan Silver:

Yeah, I think a lot of people can relate to that, right? That idea of you need a blood sample in order to get a loan, right? We need the name of your next of kin. Does DSCR then provide a pathway for folks who are homeowners, especially, to become investors without having to meet that additional hurdle of the debt-to-income ratio and so forth, provided that they have the money down, because it is less intensive from an underwriting standpoint, if I’m not speaking out of pocket?

MaryAnn Sigurdson:

No, that’s the exact pathway, because their personal DTI matters not. We don’t care about your personal income; it’s not a factor in the loan scenario. The DTI is replaced by the DSCR ratio. So if you’re collecting enough rent and it covers your mortgage payment, we’re good. And that rent is either via the actual tenant that’s in there or what the appraiser says that unit should rent for in the case of a vacancy.

Dylan Silver:

Pivoting a bit here, MaryAnn, I know that you wrote a book, and we were talking about it in the green room and releasing it on digital platforms as we speak. What was the impetus for the book?

MaryAnn Sigurdson:

Truly, everything that I’ve—all of the conversations that rang in my ear over all the years. And listen, you can go out and you can find books about DSCR, okay? And they’re gonna tell you, “Well, there’s the ARV and there’s the this and there,” and all the standard. And I have that in there, okay. But I wanted to teach people about loan structuring with actual case studies, and to show how I see in my years of experience how investors manage to get themselves in a situation where their portfolio structure, just for many, many reasons—a host of many reasons—does not match the guidelines for lenders. They don’t have a clue what that is and why that is. And so, out of a burning desire and passion to try to help and educate the investor world, and to help find a way to bring those two communities together that we can both thrive, is just really where that whole thing came from.

Dylan Silver:

Do investors need to be thinking about the eyes of the lender from their first deal? Or can they sort of cowboy up and throw their boots on and figure it out as they go until they have a larger portfolio? When is the right time to start looking at it through the lender lens?

MaryAnn Sigurdson:

I see so many investors that cowboy up. And that’s when those problem childs come to me, okay? And I speak to many investors that want to get in the game; they’re not in a position yet to do that for some reason. And so, for example, that’s really the best way: if you’re a first-time investor, you need to look in the terms of a lender because you’ve got a lot of hurdles, okay? So look at it from that position, from the eyes of the lender. If they’ve already gotten to the point where they’ve been ponying up, then they can jumble through, and then they may have a little bit of a wait time. They may not get as much cash out as they want; it may be a lot of things, but it’s not going to be a deal-breaker. For that first-time investor, I teach them how to get money out of their home—primary home if they already own that, or if they don’t already own a primary home, I say, “Look, well, let’s talk about you. Let’s do FHA. Let’s get you three and a half percent down. Now you don’t have to do 20% down, but guess what? Let’s buy a duplex or a four-plex or a condo that’s great for renting, or a single-family that would ultimately be a good rental. Let’s get you in that first. And you can keep that for a year or two, build some equity, and then pull that equity out. And then let’s go into your next investment property.”

Dylan Silver:

That’s huge. That’s huge.

MaryAnn Sigurdson:

I have some borrowers that bought a property with an ADU in the back and they were veterans, both of them. And so we did a hundred percent VA financing, and that’s exactly what they’re doing. There’s always a way. I believe that with my heart: there’s always a way, and it’s a matter of giving them the plan. Otherwise that person is deflated: “I’m never gonna get there.” Okay? It’s just not true. There’s always a way.

Dylan Silver:

I want to stress too to our audience: your clients have the ability to go to you for feedback and advice if they’re looking for their first home, if they’re looking for an investment property, if they’re trying to discuss strategy. They may even get your feedback on, “Hey, what’s the process here for me flipping this property? I’ve not done this before. What would you recommend?” And that is a very rare set of skills to coalesce like that. Do you find that when talking with other lenders that is becoming more common, or is this still somewhat maybe—I don’t want to say underappreciated because I certainly appreciate it, but not as well known that this can help so many people?

MaryAnn Sigurdson:

It breaks my heart to say I feel like the odd man out. In other words, I don’t run into a lot of people like me. And it’s sad, and I hate to say that. And then on my Google reviews, I’ve got five-star Google reviews—makes me want to blush, okay? Because I do spend that time and I’m very genuine with people because I’m passionate about it. But I have many a time run into people who had loan officers telling them to do a DSCR loan when it was never a DSCR loan to begin with, kind of thing. I think this is true in any industry, okay: people are willing, when there’s a lot of money on the table, they want to just throw a whole bunch of stuff on the wall and just worry about what sticks. I don’t play that way, because if for no other reason, you’ve got people’s lives in your hands. And it’s not just the person that wants to buy; it’s the seller, it’s the realtor, it’s the title company, it’s the appraiser, it’s all of these ancillary people. You’ve got a lot of people’s lives in your hands and careers in your hands, and you have a responsibility—a professional and just ethical responsibility.

Dylan Silver:

Yeah, I think there’s a lot of folks who might stay away from certain strategies because they would feel badly. And certainly as realtors, we have a fiduciary responsibility. And I’m speaking from firsthand experience now. A lot of people will say if you’re gonna get a real estate license, maybe it’s gonna be more challenging. And there’s some debate there because then you have to have the fiduciary to the client before you’re thinking about this as an investor. When we look at flipping, if we can look at flipping specifically, there’s so many ways where these deals go wrong. And honestly, sometimes they go wrong before they even close, right? And that’s where everybody feels burnt. The buyer thinks everything’s locked up, they say our lender’s good, the seller thinks, “Okay, everything’s good,” and then it falls apart almost at the finish line. Where do you see things go wrong the most, especially with newer flippers?

MaryAnn Sigurdson:

Underestimating their budget is probably the single biggest thing. And missing the mark when it comes to their exit strategy. So for example, as I told you, I’ve got a property in Atlanta, Georgia, that I have a flip—we have a short-term fix-and-flip loan. And we have a deadline; we have some pretty serious interest payments that we have to pay. And so our exit strategy is to resell the property, but we know that this flip is going to be done right in February, March—maybe not the best time, right, to be selling. And so one of the things that I did was I ran the numbers to do a DSCR loan and did all of that investigation upfront, knowing that worst-case scenario, if I can’t sell it quickly, I can flip it into a DSCR loan. So plan A, plan B. You just have to have that—you have to live with plan, especially in the rehab environment, plan A, B, C, and D up your sleeve and be nimble, and really make sure that you watch your budget.

Dylan Silver:

Yeah. I’ve heard this term recently: slow flip. And I like the sound of it, honestly, right? It’s this idea that you’re gonna rent it out, stabilize it, put it in an equitable position, and then sell it. And it gives you a little bit more wiggle room than saying, “Okay, I’ve gotta really time the market here,” which in many cases is what it is, right? If you are thinking that you’re going to force-rehab this property and then sell it within sixty days, it may very well be worth that amount, but at the end of the day, you still need a buyer pool there. And that could come in six months, right?

MaryAnn Sigurdson:

So on that single flip, okay, if you flip that into a DSCR loan, unlike conventional loans, okay, they typically come with a prepayment penalty. So again, from a lender perspective, if you’re going to turn it into a slow flip, you’ve got to keep it at least six months. That’s the first thing, okay. But the second thing is you’re gonna lose a huge margin if you’re up with a three percent, three-year prepayment penalty and you sell it in a year or 18 months.

Dylan Silver:

What should people do in that situation?

MaryAnn Sigurdson:

In that case, if they really think that’s what they’re going to do, they need to not complain about the rate. In our industry, we have a little saying: “We date the rate and marry the home,” or something like that, right? So if you need to then go into that loan with no prepayment penalty or maybe a one-year prepayment penalty, you will pay a higher interest rate, period, full stop. But it might be a half a point higher, okay. And everybody’s so focused on the rate. The rate is not what’s important. The payment is what’s important: Is it in my budget, right? And on a two-hundred, three-hundred-thousand-dollar loan, a half a point of the actual amount of money per month is insignificant compared to a five percent prepayment penalty, okay?

So you just have to go into it knowing that’s what you’re gonna do. But a lot of people will say, “Yeah, let me give you—” and the loan officer wants to give you, “I can beat that rate.” And the borrower is so interested in “I want to get the best rate.” Meanwhile, they don’t understand they’ve got a three-year or a five-year prepayment penalty. And then it’s a great big surprise when they go to sell it and realize five percent on three hundred thousand dollars is fifteen grand.

Dylan Silver:

Yeah.

MaryAnn Sigurdson:

That’s a big number.

Dylan Silver:

Yeah, if you’re looking at a flip with a profit of thirty, and now you’re looking at fifteen after, that’s like, “Well, why wouldn’t—I could have just assigned this deal and done the same thing.”

MaryAnn Sigurdson:

Right. Meanwhile, over that, let’s say, twelve to eighteen months that you carried it to do the slow flip, you would have paid fifty to a hundred dollars a month more on the payment.

Dylan Silver:

Yeah. Yeah, a lot to think about there. And I know the wheels are turning in my brain; I can imagine our audience feels the same way. If folks are interested in learning more about what you’re doing these days, where can they go to find ya? And then also anything that you’d like to mention directly to our audience.

MaryAnn Sigurdson:

Okay, well, my website is themortgagebrokerpro.com. It has a lot of information on my website about that. Also, you can contact me there through my website. But for your audience, I would happily like to provide a free copy of my ebook, DSCR Loans by Design. I think that it has so many great case studies and a lot of education in there that is something that I would love to gift your audience with. So catch me on my website, themortgagebrokerpro.com, and send me an email, MaryAnn at themortgagebrokerpro.com—it’s M-A-R-Y-A-N-N, maryann@themortgagebrokerpro.com—and just request a copy of my ebook, which is DSCR Loans by Design. And I’ll be happy to send you the ebook version.

Dylan Silver:

MaryAnn Sigurdson, thank you so much for your time today. Thanks for joining.

MaryAnn Sigurdson:

Dylan, you’re awesome. Thank you so much for your time. I really appreciate it.