Now, Jon Dages from First Community Mortgage knows his stuff when it comes to lending to investors and that’s a rarity in our business. He’s helped us out with a couple of deals, and let me tell you, it’s been smooth sailing. Jon gets things done and doesn’t waste time with unnecessary chatter. He’s got his act together which is something we appreciate in this wild world of real estate.
Jon joins us to discuss the two main loan options that investors love. First is the traditional conventional loan, backed by Fannie Mae or Freddie Mac. It’s the go-to for most folks because it offers competitive rates and fees. Secondly is the DSCR loan, which stands for Debt Service Coverage Ratio. It’s holds a unique blend of benefits but it comes with a higher interest rate and fees. It’s mainly for situations where traditional loans won’t work, like when you’re self-employed and can’t show enough income on paper or when you have more than 10 financed properties. The DSCR loan is all about the cash flow of the property. As long as the rental income covers the mortgage payment, taxes, and insurance, you’re good to go. However, the interest rate on this one can be a percent or two higher than the market rate. So unless you’re in a unique situation where a conventional loan won’t cut it, Jon recommends sticking with the tried and true. Now, if you’re self-employed and have a gazillion write-offs, the DSCR loan might be your only choice. It doesn’t require income verification, unlike conventional loans, but for most investors conventional loans are the way to go if you can prove your income.
Oh, and for those who want to buy more than four units or have mixed-use properties, there are options available too. Just keep in mind that the down payment will be higher, usually around 30%, and it’s all about the cash flow of the property. First Community Mortgage handles everything in-house, except for the DSCR loans, which they broker out – with many different outlets for those. DSCR loans often come with prepayment penalties, typically 3 years, but it can be reduced to one year or extended to five years with different terms.
Here’s the bottom line folks: Jon is your go-to guy for loans. He keeps things simple and hassle-free, and that’s a godsend in this business. Whether you’re a new or seasoned investor, reach out to him at First Community Mortgage. You can find his contact info on First Community Mortgage website or give him a call at 317-439-7313. Jon operates in multiple states, except for the Pacific Northwest and New England. Trust us, he’s got your back. So go ahead and make your real estate dreams a reality with Jon (oh yes, and us) by your side.
Brett Bernard
0:00:43 – Today we have Jon Dages with First Community Mortgage. He’s a lender that I’ve had the privilege of working with on two or three of our latest deals. Jon has, in my book, we’ve dealt with a lot of lenders for our investors, and let’s face it, it’s hard to find a good lender that can do what we need to do and can close it quickly. On the first deal I did with Jon, it went smoothly. I never heard from Jon until he was ready to close the deal, and to me, that shows that Jon has his crap together, because he pushes things through and gets everything handled, and this is probably one of the smoothest closings I’ve ever been through and you know, Glenn, we’ve been through some nightmare closings. So Jon, what I want to do today is for our listeners, a lot of them are newer investors. They’re always seeking lending products for their plan to expand or start investing in real estate. So I want to discuss just briefly the kinds of products that you can provide. For instance, I don’t want to use his name because he probably didn’t give me, but we have one client in particular that you’re working on. What program did you put together for him? We’ll use his first name, Kevin.
Jon Dages
0:01:44 – Yep.
Brett Bernard
0:01:45 – What did you put together for him that made it successful for him to buy these properties and actually take out a mortgage on them?
Jon Dages
0:01:51 – Really for investors today, there’s two main products, two main loan programs that are being used. Your traditional conventional loan backed by a Fannie Mae or Freddie Mac. The other one’s a DSCR loan or a debt service coverage ratio loan. Think of it more kind of a hybrid between a residential loan and a commercial loan. For Kevin, I mean, for that initial transaction and the subsequent ones we’ve done, we’ve used just a normal conventional loan. Follow those guidelines. So my advice to investors because there’s hype around this DSCR loan and it’s a really good program in certain situations, but with regards to like fees and interest rates and things of that nature, it’s just it’s not as competitive, it’s not as attractive as if you can use a normal or conventional loan. So it’s kind of a backup loan program for me and in my, you know, toolbox.
Brett Bernard
0:02:39 – You broke up for a second there, you’re talking about more using more conventional over the other loan that you mentioned. What was those, what was the acronym? DSCR, Debt Service Coverage Ratio. Okay, I want to talk about that type of loan. So other than the conventional avenues that you’re using, let’s talk about that particular type of loan product. I don’t know if investors, some of our investors may know what that is. I know what that is, but some may not. So explain what that type of a loan is and why you chose to use conventional over that for Kevin in this instance.
Jon Dages
0:03:09 – Yeah. So the DSCR loan, it’s a layman’s term investor cash loan. So we don’t have to verify income. It’s based on the cash flow of the property. So, essentially, high level of rental income on a property at least meets what the new mortgage payment is going to be. Now, there are some scenarios where it doesn’t have to. But for easy math, if your new payment is going to be $1,500 and the rental income is going to be $1,500, I mean, effectively, that loan is approved. I mean, obviously, there’s other guidelines and parameters that we have to stick with them, but from an income side of things, that’s all that it looks at. The biggest differences between that program compared to a normal conventional loan, I mentioned kind of briefly, interest rate is going to be higher. The fees associated with that loan is a little bit higher because it truly is more of a…
Brett Bernard
0:03:59 – Let me ask you this. I don’t mean to interrupt, but how much higher is that interest rate versus a conventional rate?
Jon Dages
0:04:04 – You’re probably looking, depending on credit profile, anywhere from a percent to, I would say, max high end, 2% higher than going kind of market rate for an investor.
Brett Bernard
0:04:16 – So it could be significant cost-wise, and it could heavily hit your rate of return on your investment. So you’re saying basically, in simplistic terms, that loan is pretty much almost 100% LTV. I say loan to value, I don’t know how to put it, but as long as your cash flow, gross cash flow is 100% of your mortgage payment, taxes, insurance, and all that, then that’s approvable. Granted, you’ve got a decent credit score. Now, what do you put down on a loan like that?
Jon Dages
0:04:47 – Yeah, it’ll be very similar to a conventional loan. So, you know, most single-family home, 20% down, multi-family, so two to four units, you’re looking at 25% down, but that’s going to be in line with your conventional financing as well. You know, so down payment-wise, you’re going to be in a similar spot.
Brett Bernard
0:05:03 – Gotcha. Gotcha. Okay. Well, that makes sense. So, really, the only difference is the interest rate.
Jon Dages
0:05:06 – We’re a non-bank lender, but we are a subsidiary of a state-chartered bank out of Tennessee. We handle everything internally. So, underwriting, processing, closing, all of that, we’re going to handle on our end by first community mortgage employees. With these DSCR loans, the way our relationships are set up, we broker those out. So we’ve got a handful of outlets that we can use for that. And I just, you know, I pretty much shop them and say, okay, who’s given the best terms? You know, if that’s the route we’re going to go. The standard with all of our outlets, and I would venture to say this is probably true for the market in general, is unlike a conventional loan that has no prepayment penalty, these come standard with three-year prepay.
Brett Bernard
0:05:45 – On the DSCR loan?
Jon Dages
0:05:47 – On the DSCR loan. So that can be bought down to one year. You can get improved pricing by increasing it to five years. But that’s one of the other reasons, especially now in this higher interest rate environment, where I’m hesitant to use that program unless it’s our only option. Because most people, whether you’re buying a house to live in, you’re buying a rental property are most likely going to have an opportunity to refinance within the next 12 to 18 months as inflation continues to come down and rates follow suit. I just try to keep people from being locked in for a period of time just given the nature of the market that we’re in right now.
Brett Bernard
0:06:26 – So my question would be, and I’ll ask this question because I’m sure there are some investors listening right now or potential investors, that there’s really no advantage to DSCR loan except one scenario I can think of, let’s say you’re self-employed, right? And all of us that are self-employed, we know that your income that you end up paying tax on is far less than what you actually make because you’re able to write off a lot. In that scenario, they may not show the income. They don’t have to verify income on that DSCR loan. But in conventional, if they can verify their income, then conventional is the best way to go. But for those self-employed people, DSCR may be the only route to go because they don’t show enough income to qualify conventionally.
Jon Dages
0:07:07 – Yep, that’s one scenario. I’ve got I’m working one right now. That’s the exact scenario. The borrower, they left a W-2 job last year, they’re now self-employed, income can’t be documented or used from a conventional standpoint, so we’re using the DSCR loan. Another scenario where that comes into play is with the number of finance properties. So, 10 properties you can finance before you’re ineligible for Fannie Mae or Freddie Mac financing. DSCR, there is no limit. So, if someone’s got over 10 finance properties, then the DSCR is a very valid and viable option to use.
Brett Bernard
0:07:43 – That’s pretty big. Yeah. Well, let me ask you this. On DSCR, can you do one loan on a package purchase of 20 single families or does it have to be 20 separate loans?
Jon Dages
0:07:53 – It would be 20 separate loans. Yeah. It’s going to operate, even though it’s kind of a hybrid between a residential and a commercial loan, it holds more true to the residential side of financing than on the commercial side.
Brett Bernard
0:08:04 – Gotcha. Okay. Well, that makes sense. That’s the biggest difference is if you’re a self-employed individual, you’re probably going to look at something like a DSCR. Yeah, you’re going to pay a little bit higher interest rate, a little bit higher fees, but that’s the trade-off you get because you’ve written off half your income with a bunch of ridiculous stuff that normally the IRS won’t let you write off, but we do it anyway. Look, I’m as guilty as the rest of them. If I can write off a stick of gum, I’m going to write it off. Every dime counts. Now, is there any other products out there for unique situations other than those two? So you get an investor. I don’t even know what a unique situation would be, but in my conversations with investors, and I’m sure your conversation with investors, there are unique scenarios that come up. Are there any other off-the-wall products that you all put out? Is something a little off the beaten path?
Jon Dages
0:08:48 – The only other one that really comes to mind is if it’s more than four units. So we do have a couple of outlets for five plus units that could be used. The other, you know, potential weird scenario is if it’s like a hybrid property. So it’s got some commercial, some residential. There are some instances where mixed use, yep, we would have a possible option with that type of property as well.
Brett Bernard
0:09:13 – Okay. And is that also a higher interest rate, larger down payment? But what are the income qualifications? Is that one where you verify income or do you base cash flow on approval?
Jon Dages
0:09:24 – Yes. The five unit and up will be based on cash flow. So they’re going to be a little bit higher down payment, most of the time 30%, depending on credit score. But yes, it’s solely going to be focused on cash flow of the property.
Brett Bernard
0:09:37 – Gotcha, okay. All right, well, Jon, I appreciate you getting on today because we get these calls all the time, people asking us questions about loans. I’m not a loan officer. I’ve dealt with a lot of loans, and in my opinion, they’re a real pain in the ass, but you’ve made it very simple for Kevin and for a couple of other guys that we’re dealing with, and I appreciate that. So I wanna give everybody your information, if you don’t mind. You want me to give them your personal cell number as your contact?
Jon Dages
0:10:00 – That’s pretty much much like you, that’s how I operate. So yeah, personal cell phone number is fine, email address that we’ve been communicating with that’s perfectly fine as well. Obviously if they want to Google me, they’ll find me on Facebook and Google and all that, you know, the online sources as well.
Brett Bernard
0:10:18 – So it’s Jon Degas, he’s with First Community Mortgage, that’s FirstCommunityMortgage.com, his direct number is 317. Don’t sue me if your phone blows up because I’m not responsible or if you get any weird calls. Area code 317-439-7313. If you have any questions about getting a loan to buy real estate, whether you’re here or… Let me ask you this last question, Jon. Are you only operable in purchases in Tennessee?
Jon Dages
0:10:45 – No. No. So I physically sit in Indianapolis, Indiana. Our corporate office is just outside of Nashville, Tennessee in Murfreesboro. But because of our bank relationship, it actually allows me to lend personally in over 40 states. The only states I am currently unable to lend in, Pacific Northwest and the New England states. Everywhere else is fair game.
Brett Bernard
0:11:07 – Yeah, who wants to be in the Pacific Northwest and New England anyway? I mean, come on. That’s probably it. That was probably by design. So again, it’s Jon Dages, FirstCommunityMortgage.com, area code 317-439-7313. Again, I appreciate you greatly. And like I said, Jon has been one of the smoothest loan closings I’ve ever had. And I’m not just blowing smoke, Jon. That is the absolute truth because we deal with unfortunate nightmares over and over and it’s always something stupid that drags things out and puts a monkey wrench in the system. So I do appreciate you taking the time to do it right.
Jon Dages
0:11:42 – Hey, absolutely, and I would say that’s how we like them to go. They’re not always going to go that way. If something’s starting to go sideways, the communication’s key. I think everyone would agree with that. So more times than not, they go as they’re supposed to. So that’s always a plus.
Brett Bernard
0:11:55 – Well, keep up the good work, Jon. Thank you for your time, man. I appreciate you coming on today.
Jon Dages
0:11:58 – Appreciate it. Thanks for having me.