Tag Archive for: Credit Score

How to Get a Mortgage When You’re Self-Employed

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Today we are sharing an article that discusses how to get a mortgage when you’re self-employed. Here are 8 key steps to help prepare for the process in order to get the best deal on your home loan:

1. Check if You’re Considered “Self-Employed”

To clarify, in the mortgage world, self-employed means you don’t get a W-2 from an employer. 

  • A small business owner, freelancer, contractor, or gig worker
  • Receiving income primarily through 1099 forms

2. Calculate Income and Affordability

Lenders will look at tax returns, bank statements, as well as business profit-and-loss reports to determine your income. Next, lenders will calculate your debt-to-income (DTI) ratio. 

3. Prep Credit and Savings

Boosting your credit score, as well as saving up a bigger down payment, can improve your chances of qualifying for a loan. It also can result in getting better rates. Therefore having at least a 620 credit score, or higher is ideal. A down payment of 20% is a good target.

4. Find the Right Lender and Loan Program

You have several loan options, including:

  • Conventional loans: Low down payment, but stricter income verification.
  • FHA loans: Good for lower credit scores, require 3.5% down.
  • Non-QM loans: For those who take significant tax write-offs or have fluctuating income. Examples include Bank Statement Loans and DSCR Loans.

5. Gather Documents

Self-employed borrowers need more paperwork than W-2 earners. Be ready with:

  • 2-3 years of tax returns and business statements
  • Bank statements (personal and business)
  • Profit and loss reports
  • Business licenses, credit card and loan statements

6. Get Pre-approved

This gives you an idea of how much you can borrow and shows sellers you’re serious.

7. Lock in Your Rate

After finding a home and signing a contract, apply for your mortgage in order to lock in your rate to protect against increases during the underwriting process.

8. Close on Your Loan

At closing, you’ll sign your paperwork, pay your down payment, and receive the keys to your home.

 

Click here to read the rest of the article.

We are here to help you! Contact us today to see if a DSCR loan is best for you!

 

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How to Get a Business Loan in 6 Steps

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Today we are going to discuss an article that shows you how to get a business loan in 6 steps. Getting a business loan starts with picking the right loan for your needs. Whether you’re looking to buy equipment, restock inventory, or cover a gap in revenue, there’s a loan out there for you. Take time to compare different options, like long-term loans, SBA loans, or lines of credit.

Next, figure out how much you can afford. A good rule of thumb is to make sure your business’s cash flow can comfortably handle loan repayments. Lenders often use a formula called DSCR to see if your business is in good shape to repay the loan. A DSCR of 1.25 or higher shows strength.

After that, check if you qualify. Lenders look at factors like time in business, credit score, and annual revenue. For instance, many banks want businesses with two years of operations and a strong credit score. However, some online lenders are more flexible.

Once you’ve gathered your required documents—like financial statements, business plans, and legal paperwork—it’s time to apply. Some lenders have quick online applications, while others might ask for more detailed information.

Finally, after applying, be prepared to wait. Online lenders might fund you within a few days, while SBA loans can take much longer. If you’re denied, don’t get discouraged—find out why, make improvements, and try again.

With these six steps, you’re ready to confidently apply for a loan that best suits your business.

Click here to read the entire article.

Contact us today if you have more questions regarding how to get a business loan in 6 steps.

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Keep an Eye Out: DSCR Loan under an LLC

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How to Get Better Rates and Terms with Your DSCR Loan

Today we are going to discuss some things to keep an eye out for when applying for a DSCR loan under and LLC. Plus, we’ll share some tips on avoiding common pitfalls investors face when dealing with DSCR loans and LLCs. When you’re looking into a DSCR loan for your investment property, there are a few things you need to watch out for, especially if you’re holding the property under an LLC. Even small details, like who’s involved in your LLC, can make a big difference in your loan’s rate and terms. 

The Importance of LLC Ownership and DSCR Loans

Owning your property under an LLC is great for DSCR loans, but you must be mindful of who is involved. In one case, a client who thought he was all set to get a great loan suddenly hit a major roadblock.

It turned out his partner owned 40% of the LLC, and the lender needed to consider the partner’s credit. Unfortunately, the partner’s score was even lower than the client’s, causing the rate to increase again.

Why does this happen? Lenders often require the credit checks of all LLC owners who hold a certain percentage of the company. In many cases, anyone owning 5% or more will have their credit checked. That means if someone in your LLC has a low score, it can drag down your chances of securing good loan terms.

How to Improve Your LLC for Better Rates and Terms

To avoid these issues, you need to carefully consider who is part of your LLC. Here are a few tips:

  • Check everyone’s credit before applying for a DSCR loan. If someone has a low score, it could hurt your chances.
  • Talk to your lender upfront. They can let you know if you’ll need to provide credit checks for all LLC members.
  • Consider adjusting ownership. If one member’s credit is a problem, you could temporarily remove them from the LLC while securing the loan. This process can take time, but it may help you secure a better deal.

In Conclusion

Securing a DSCR loan while using an LLC can offer great benefits, but it’s important to pay attention to the details, especially when it comes to ownership and credit scores. By keeping an eye on your credit usage, checking your LLC partners’ credit, and talking to your lender upfront, you can avoid surprises and get the best possible rates and terms. With the right approach, you’ll set yourself up for success on your investment journey! If you have any questions, we’re here to help!

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What is a DSCR Loan and What Can You Do With It?

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What is a DSCR Loan and What Can You Do With It?

If you’re a real estate investor, you’ve probably heard about DSCR loans. But what is a DSCR loan, and how can it help you? Let’s dive in.

What is a DSCR Loan?

A DSCR loan, which stands for Debt Service Coverage Ratio loan, is designed specifically for real estate investors. This loan is never used for owner-occupied properties—only for investment properties.

The best feature of a DSCR loan is that it doesn’t rely on your personal income. That’s right, no tax returns, no W-2s, and no need to show any personal income. The focus is entirely on the property you’re buying. The lender looks at the income generated by the property, not your personal financials.

How Does a DSCR Loan Work?

The key to understanding a DSCR loan is knowing how the lender evaluates the property. They look at the rental income from that property to determine if it covers the expenses, including the mortgage, taxes, insurance, and any HOA fees.

A key term here is the DSCR ratio. This ratio compares the property’s income to its expenses. For example, if your property’s rent exactly matches your expenses, you have a DSCR ratio of 1. Lenders prefer a higher ratio, meaning the property brings in more income than it costs to operate.

Benefits of a DSCR Loan

There are several benefits to using a DSCR loan:

  1. No Personal Income Requirements: 

This loan type doesn’t care if you write everything off on your taxes or if you don’t have a steady job. It’s all about the property’s income.

  1. Flexibility: 

Whether you’ve just started your business or have been around for years, it doesn’t matter. DSCR loans are available even if you don’t have an established business.

  1. Variety of Options: 

DSCR loans come with many options, including three-year, five-year, 30-year, and even 40-year terms. There are also interest-only options to help keep payments low.

  1. LLC Friendly: 

You can purchase properties under an LLC, which can provide additional protection.

  1. Works Well with BRRR: 

If you’re using the Buy, Rehab, Rent, Refinance, Repeat (BRRR) strategy, DSCR loans are a perfect fit for transitioning to long-term financing.

Where a DSCR Loan Falls Short

While DSCR loans offer many advantages, they aren’t perfect for every situation:

  1. Higher Interest Rates: 

DSCR loans often have interest rates 1% to 3% higher than conventional loans. The market for these loans is more segmented, so shopping around is essential.

  1. Prepayment Penalties: 

Many DSCR loans come with prepayment penalties. If you sell the property within the first few years, you might face additional fees.

  1. Not for Owner-Occupied Properties: 

These loans are strictly for investment properties, so if you’re looking to finance a home you’ll live in, this isn’t the right choice.

  1. Credit Score Sensitivity: 

You need a decent credit score to qualify. Typically, lenders look for a score of at least 660, but higher scores can get you better rates and terms.

  1. Location Limitations: 

DSCR loans are often restricted to properties in larger communities. Smaller towns, especially those with populations under 25,000, may have fewer DSCR loan options.

Other Things to Know About DSCR Loans

  • Suitable for Short-Term and Long-Term Rentals: 

Whether you’re renting out a property long-term or using it as a short-term rental like an Airbnb, DSCR loans can be a good fit.

  • Not Dependent on Current Rent: 

You don’t need to have the property rented out to qualify. As long as you have a lease in place or are working on getting it rented, you can use a DSCR loan.

  • Covers Various Financing Needs: 

DSCR loans are available for purchases, rate and term refinances, and cash-out refinances.

Conclusion

DSCR loans are a powerful tool for real estate investors. They offer flexibility, don’t rely on personal income, and provide a range of options to suit different investment strategies. However, they do come with higher interest rates and other considerations, so it’s crucial to shop around and understand all the terms before committing.

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