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

0:00 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 Mae, Freddie Mac will purchase from a lender, right? So And loan limits are about to go up anyway. There's a couple of lenders that's already increased their loan limits for 2025. So a single family in 2025, Fannie Mae will go up to 802,000.

0:39 It's not official yet, but several lenders have already put it out there because we anticipate that they will in November raise the loan limits again. So any loan amount that is that exceeds the threshold that Fannie Mae and Freddie Mac will buy. These loans are typically portfolio loans because the government is not backing them. The lender is lending pretty much their own money on this one. The requirements to get qualified for this jumbo mortgage is going to be It's going to be a lot tougher, especially if you're going full documentation. Full documentation, ladies and gentlemen, is when you're providing your W-2s, pay stubs, bank statements, tax returns. That's a full documentation loan. So your debt

1:27 to income ratio will have to be 43% or below, as some jumbo lenders want to see 40% or below. And you can get loan amounts up to $ 3 million, $ 4 million, $ 5 million, just depend on on that lender. So this is when you're trying to buy that mega mansion, that big old dream 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 $ 2 million, $ 2. 5 million, and you don't file your taxes properly and you write off everything, no worry. There are loans out there that can help you without providing all this information like bank statement loans, where we're using the deposits that you're receiving in your

2:17 business bank statements over a 12-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 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 2% margin higher, 2.5% margin higher rate than paying probably a couple hundred thousand in taxes. So again, that's when you need to mortgage plan if you are self-employed and you're looking to buy this luxury home. You need to have a mortgage plan in place so you know

3:07 you can weigh out all the pros and cons ahead of time. But there are definitely options out there for all buyers in this jumbo market, whether you're full documentation, whether you're going non-traditional and you want to get that luxurious dream home of yours. So just really quick on the jumbo loan, it's usually a high interest rate. Prime example, if the interest rates are at 7%, you could typically see it at 9% to 10%. So, 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.

3:46 Like a mortgage company, a mortgage broker cannot compete with a retail bank, like a JP Morgan, because they know you got money. So if you go over there and you bring over 250,000, 300,000 deposit that they go and give you a great, a great deal, right? So their rates right now might be in the fives for a $ 2 million loan on a 30-year fix right now because they're making their own rules, so to speak, right? It's their portfolio money. Now, if you are a non-traditional buyer, then that rate today might be somewhere around 7.5% to 8% on this type of paper, if you're doing non-traditional financing like bank statement loans, light doc loans, P & L loans, things of that nature where you're not showing traditional documentation,

4:37 you're going to pay a premium for it, but you're going to get into the house. That's most important for these self-employed borrowers 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 $ 500 or $ 1, 000 higher. So that way they don't have to pay $ 100, 000, $ 200, 000 in taxes. So it balances itself out. So the interest rate is important, but it's not as equally as important in looking at the full spectrum from a holistic point of view of where you stand.

5:13 Appreciate it. So, all right. So let's get into this investing before we leave. So now let's talk about the other, what was it? It was the DSCR loan. Yeah. So the DSCR loan. So the DSCR 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 DSCR, debt service coverage ratio.

5:52 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 it in the residential investment space as well. So when you're looking to do a true investment property, now this is when you use your LLC.

6:23 We're not looking at your W-2s, your tax returns, 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 lender is really going to do from your personal side is run your credit to make sure your credit is above a 620 credit score. And as long as you're above a 620 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, 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, you need to know how to analyze that property, underwrite it, not just as

7:12 an investor, but also from a funding perspective, because we need to know what your operating costs are. What are the expenses of the property, right? We already know property taxes and insurance, but what other expenses are there? Do you have to pay for your utilities? Do you have to pay the light bill, the gas, the water, the sewage, right?

7:35 What is all these expenses? And then also we're going to look at property management, right? How much is that percentage that you have to save for your cap X 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 a long story short and to put this all in layman's terms, because I don't want to go in nobody's head. We want to make sure that the property is paying for itself. And the owners of that LLC are making at least a 20% profit after all the expenses. That is a 1.2 debt DSCR ratio that the lender is looking for. And if

8:19 it does meet this requirement, 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 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, it is going to close. Now, typically when you're doing a DSCR loan, this is going to require at a very minimum, a minimum down payment of 20%. if it meets the DSCR

9:10 requirement of 1.20%. If it doesn't meet that requirement, then the lender 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 no. Because they're going to want their money rain, sleep, hell, snow. That's a fact. Rest in peace. It's all these rules, man.

9:33 It's a biggie. Okay. Refinancing. Want to talk about that? Yeah, I mean, we could talk about that or we can... You want to take some questions about this? Because I saw a thousand and one questions in here. Yeah, yeah, yeah. I mean, you saw some if you want. Yeah, go ahead, man. All right. Questions, please. So, I already answered. Somebody asked, Rashida says the minimum down payment of 20%. Yes. it's 20%.

10:01 And I want to be clear again on that only if it meets the 1.2 DSCR requirement. So just because the minimum down payment is there, it doesn't mean, um, that that property will cash flow out of it. Right. So you might have to put 25%. You might have to put 30%. Whatever it takes to get that property to DSCR and the cash flow, then you have to do it. Now, another thing I want to talk about DSCR, because I saw this question come up earlier, is about the LLC. The LLC does not have to be established for two years. The LLC does not need business credit.

10:40 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 use multiple different LLCs for each investment property they buy. So you have to understand that you do not need a status 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.

11:20 What else? You said something about refinancing, right, Shadi? Real quick, 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, can we draw a... Similar. Yeah. It's a big difference. It's nothing. It's, it's separate and apart from hard money, right? Hard money is one thing.

11:45 DSCR is one thing, right? DSCR loans doesn't have rehab money attached to it. The DSCR loan is for rental, stable rental properties. It's not for rehabbing. When you want to buy a rehab and you do your birth strategy, right? Buy, renovate, refinance, rent, repeat, right? The DSCR loan is used to refinance out of your hard money loan. The hard money loan, and again, that's different formulas and calculations. You need to be at 65, 70% max ARV. ARV is your after renovated value, but I would recommend if you can get 55, 60% ARV 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 a DSCR loan, your loan to value, your loan

12:43 to value, your LTV drops to 70%. In some cases, maybe 75% LTV, but most of the time I tell my people, my mentees use 70% ARV because you need to be able to, I mean, 70% as your max, period. Because if you're at 75, you only have a 5% cushion to get out of that hard money to refinance. So if you start off at 55, 60% ARV on your rehab project, now you have a 10 to 15% margin buffer that you can now refinance, maybe pull a little capital out of it too, and now go into your permanent financing with the DSCR law. So your hard money loan is going to be used to buy the property and fix it up. But remember, hard money, the terms are going to be typically 12 months. You can get past 12 months, but then it's going to get

13:39 more expensive, which you have to pay to keep extending that hard money loan, right? But again, this 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. Flips flop every day. Flips flop every day, B.

14:11 You said one earlier. You said it's definitely look-up-able. Everything is figure-out-able. Figure-out-able, that's what it was.