DSCR Loans for Beginners: Buy Rentals Using Cash Flow Instead of Income

Yvonne Ochoa-Pena (00:00)

Exactly. And that’s the one product I was actually going to really talk about with your investors. Investors, of course, if you’re able to prove your income with a down payment and you know trying to get a fixed term, Fannie Mae, Freddie Mac, but most investors have multiple properties or they may be business owners. And that’s one of the tough things is they really hate to

provide the returns to show their income with a lot of the write-offs that they put in there for these properties or their business. So DSCR is amazing. We are not using, we do not show any income on the application. On the mortgage side that I handle, it’s one to four unit for residential. We have a business side, a business banking group at Happy State Bank. Anything over four units would be commercial and they can still do that DSCR with the

commercial group or different options with the business banking. So basically no income provided on the application.

Dylan Silver (02:45)

Hey folks, welcome back to the show. Today’s guest Yvonne Ochoa-Pena is a senior loan officer with Happy State Bank. She has over 26 years in real estate mortgage field and a previous 10 years as a realtor. She’s based out of San Antonio. Yvonne, welcome to the show.

Yvonne Ochoa-Pena (03:03)

Thank you. I’m happy to be here.

Dylan Silver (03:04)

It’s great to meet you, Yvonne. Great to have you on the show here. I lived in San Antonio for about four or five years. So it’s always nice to connect with folks in San Antonio. I’d like to ask you, going all the way back to the beginning, just getting started in real estate, time as a realtor, how did you get into the real estate space? What were those first couple of years like for you?

Yvonne Ochoa-Pena (03:26)

Yeah, actually the reason I did become a gut, well I actually has been doing both for a while, but now I just do, I’m just mortgage, but reason why is because at that time there was less rules going on. Mortgage loan officers weren’t setting expectations or providing all the details of a mortgage loan, switching them on some people near the end. And I had a lot of upset buyers that you have to deal with.

And I’m like, how hard is it to be to set expectations, let them know what’s going on. If they need to bring so much money, they should be able to know not be not at closing, you know, time to get a gift or whichever they need to do to take care of it. And it was just happening over and over. I know there was a lot more rules coming out with mortgage, but it was for the good, actually, in some cases, because a lot of people were.

You know, they felt like they were bamboozled at the end, you know, not knowing the right terms. And now we have a lot of buyers that are happy that you can set expectations way ahead. And they’re like, so happy everything came out the way that they were expecting it to come out.

Dylan Silver (04:28)

Sure.

That’s a great point. And I got licensed earlier this year as a realtor, so I’m a baby realtor, I say. But also, while I was going through real estate school, and then my first couple of months as a realtor, I started to realize that the old way before the rules changed, people would sometimes see their like loan docs, like very close to closing, they wouldn’t have a chance to review everything.

in a way is was that accurate? Was that like the old way of doing things before things changed?

Yvonne Ochoa-Pena (05:09)

Yeah,

literally they got the closing docs like literally maybe the day before sometimes or the day of and now there’s a three-day rule that they receive those documents three day three business days before closing that’s a requirement that they must be able to see what they’re expecting to close with or

Dylan Silver (05:29)

I can hardly manage a Google calendar one day in advance, let alone closing on a home. So I can understand the massive burden there. Now, when we talk about getting involved in the mortgage side, I find this interesting that you went that route because I’ve been thinking about this as a newer realtor, recognizing that the transactions really start and end with the lender, right? So if you’re not pre-approved,

Realtors are going to say you got to go get pre approved. And so I almost feel like I got into this. Maybe on the side that I should be looking at later on down the line, but I should have got in first as a loan officer being able, especially right now to help folks and investors get into homes, I think is super important both to help people get into homes, but then also to kind of level the playing field because

especially for younger investors, younger buyers, when you’re going out and maybe you get turned away for one reason or another, you might think, okay, well, that’s it for me. When in actuality, you just need to go talk to another lender.

Yvonne Ochoa-Pena (07:23)

Right and you’re correct and even if I just if you’re working closely with realtor part mortgage partners like myself I keep my realtors like in constant education training on my part so that way they can ask like those important questions to figure out what direction this person might need to go. So you know just some ABCs of mortgage lending does help you with your clients and and you can you know you know.

I know you want to come in with this low of a down payment, but your scores are not there. You know, but there’s alternatives. There’s this, there’s that, you know, you might need a gift. however, there’s still ways to make it happen. But getting with your mortgage partner and your realtor on that same base, you know, with those little investigative questions help us to figure out which direction we’re probably going to help them go through a lot easier.

Just because sometimes clients like to talk to their realtor more than their mortgage lender until everything comes out. So it helps that you have that knowledge with your client, like what how they like things, what they like to do, how they like to be contacted, all of that stuff. And then and then besides that, the mortgage products. Well, there’s a lot of different options.

Dylan Silver (08:42)

Now, when we talk about the retail side, but then also working with investors, two different spaces in the investor world, there’s so many different options, not just real estate strategies, right? Single family, multifamily storage facilities, you know, RV parks, but then you’ve also got how you’re going to finance these. And so people are looking at creative financing, seller financing, you know, private money lending, and then, you know, traditional

mortgage as well. But there’s now I would say, at least from my 1000 foot view looking down, there’s now I would say some some changes in the the mortgage field that have brought some investor products really to the mainstream like DSCR.

Yvonne Ochoa-Pena (09:28)

Exactly. And that’s the one product I was actually going to really talk about with your investors. Investors, of course, if you’re able to prove your income with a down payment and you know trying to get a fixed term, Fannie Mae, Freddie Mac, but most investors have multiple properties or they may be business owners. And that’s one of the tough things is they really hate to

provide the returns to show their income with a lot of the write-offs that they put in there for these properties or their business. So DSCR is amazing. We are not using, we do not show any income on the application. On the mortgage side that I handle, it’s one to four unit for residential. We have a business side, a business banking group at Happy State Bank. Anything over four units would be commercial and they can still do that DSCR with the

commercial group or different options with the business banking. So basically no income provided on the application.

We are using the rental income that comes out on the appraisal for the property when they do a market appraisal. We ask them to do market rental appraisal. And I’ll say this property for this area can rent between $2,000 to $2,500. However,

So the appraiser will give the estimated amount that he feels that the rental income can maximize by. As long as that rental income can pay the mortgage that you’re attempting with. Normally I’m gonna say 20 % down. There are options of higher rates with 15 % down, but 20 % down is a sweet spot for the DSCR. If put more, that’s fine as well.

basically the rate is very similar to the market rates, a little bit higher, but it’s very, very similar. And there’s 30 year fixed opportunities for those. So not only can you purchase with the DSCR, not showing income using the rental income to pay your mortgage, they do wanna verify that you do have higher credit scores. I’m gonna say 680 and higher is the sweet spot for the DSCR and the

that you have the reserves and can be gifted by whoever for your down payment and closing costs. And they do like to see some reserves. They like to see, you know, up to six months of rental payment or reserves for the house that you’re purchasing. So there are some little requirements, but all of that can be met. Just say you have a partner and you all want, just say you have the credit card and they don’t.

However you all want to make it happen, you can do it with an LLC to purchase them. But there’s different ways to make the DSCR work for a lot of the borrowers. And they can also do cash out refinances. So once again, they have a lot of equity on a property and they want to do a cash out and they don’t want to show their income to get the cash out to buy another property. That DSCR is great and you can get the cash out you know up to like, I think it’s like 70%.

ballparkish on the loan to value and you can, you know, as long as that rental value is there for that appraisal. Lastly, the DSCR, we now do second liens because a lot of people don’t want to touch their first lien if they got it at a great rate. So if they have usually about 75 to $100,000 of equity in a property, if they were to do a 70 % LTV or 65 % LTV, you can take out that.

equity on the second lane only on a DSCR to get the cash out as long as the first was not a cash out. The first was just like the purchase loan.

Dylan Silver (13:51)

Now, when we talk about DSCR and being able to take into account the ability for the property itself to cash flow, if folks are looking at duplexes, triplexes and quadplexes,

Would it make sense for them to go straight to a quadplex if they have that opportunity to make an offer on a quadplex because it’s going to have four units. So there’s more cashflow there. Would that be just as easy and feasible as a duplex?

Yvonne Ochoa-Pena (15:01)

Yes, most people do. The only difference is the sales price. So the sales price is a lot higher. So they have to come in with the down payment ⁓ for that. That would be the only hurdle that I get I would see on these DSCR loans. Unlike an investment purchase on a Fannie Mae Freddie Mac, you can ask up to 6%.

seller concessions, which is awesome. So in other words, a seller could actually pay all your closing costs. You’re just worried about the down payment for this DSCR loan. So on Freddie Mac, Fannie Mae, they only allow 2 % as for seller concession.

Dylan Silver (15:33)

Hmm.

Now, for folks who are looking at DSCR as a way to have an investment vehicle, but also as a way for them to potentially house hack, is that a viable option for newer investors or do you really need to be more of an established investor in order to take advantage of DSCR?

Yvonne Ochoa-Pena (16:00)

No, they just have to have the credit scores. They do want to see, there are some, I guess, investors that might offer a little bit of a better interest rate if they do have the investment property management experience. But in all that’s basically if they have the scores and they have the, there’s an opportunity for them to

go in this direction. We have a lot of new investors now hitting the bus on picking up their investment property for multiple reasons. Some of these DSER loans do give a better option on the rate if they do a prepayment penalty. So that’s another thing that you have to think about like, okay, how long do I feel like I’m going to be?

keeping this investment property one year, two years, three years. And if you’re planning to keep it for the long run, you might be able to get a better interest rate altogether with a longer prepayment penalty on those. But yes, I see a lot of new people jumping on to pick it up to start their investment. And then there’s just a flip on that. Just say there’s a first time home buyer and they have their home for a year and then they’re thinking about

picking up an investment property, well, they can actually keep that house that they have, you know, they’re buying another home and make, turn that into an investment property and purchase the next home. And then here we go, they get a year of experience or however, and then they can use the DSCR loan when they purchase an investment property. So in other words, a person that has a property and looking to buy another home that’s not an investment, primary home,

They could turn their property into an investment as opposed to selling, get that rental experience for a year, and then pick up another property with a DSCR loan, and they’ve now given themselves a year of investment, property management experience. So different ways to kind of build your property or portfolio.

Dylan Silver (18:20)

Yeah, I mean, there’s the ability to get in and these get to your self experience, as you mentioned, and then it builds on itself because you got the track record while it’s also, you know, an educational opportunity, frankly, and I think a lot of real estate is that way when people talk about flipping or wholesaling. So much of it is a paid education. And so DSCR is an interesting one, because I don’t know exactly.

how long it’s been around as a whole, but it does seem to be a trend that there’s more interest from the traditional segment in DSCR as well. Now, Yvonne, we are coming up on time here. Where can folks go if they’re interested in reaching out to you? Maybe they have a property that they’re looking for lending on, or maybe they are in the greater San Antonio area and would like to reach out to you about DSCR questions in general.

Yvonne Ochoa-Pena (19:09)

Yes, and I just want to let you know I can do DSCR loans in any state. I’m Happy State Bank here in Texas. We have 67 branches in Texas. I do all of Texas, but we’re also part of Centennial Mortgage. So we actually have like a large corporate bank backing for our bank. So I am able to do the DSCR in any state. So my phone number is (210)363-5167

(210)363-5167. ⁓ And they can also look me up on the Happy State Bank website. So happy, like a happy mortgage. And most people are really happy with their mortgages. Happy State Bank. And they’ll look for my name. My name is with a Y. So it’s Yvonne Ochoa-Pena, but you’ll find me with the Y on that website.

Dylan Silver (20:06)

Yvonne, thank you so much for coming on the show today.

Yvonne Ochoa-Pena (20:10)

Yes, and thank you Dylan and hopefully you come visit your old stomping ground at the room and I may well meet you in person. Yes.

Dylan Silver (20:19)

I’ll try it when I’m coming out there. I’ll reach out to you. Thank you, Yvonne.

Yvonne Ochoa-Pena (20:23)

All right, have a great year, Dylan.