What are some current DSCR loan options?

Question

Hey guys, I'm looking for DSCR loans for propert in the great Tampa Bay Area. I'm looking for 2 or 3 4plexes or an 8-12 unit.

What are the going rates and terms?

What percentage of rents counts towards income?

All feedback is appreciated. Thanks.

Stephanie P. · Answer

Yes. Prepays on all of the DSCR loans. They can be bought down and in some instances, bought out, but they are standard.

Steven Goldman · Answer

Hi Joey, the two things that will determine your rate and the projects viability are your credit score and the debt service coverage ration on the proposed property or properties. The higher your credit score the lower the rate. The higher the DSCR the lower the rate. DSCR is calculated by taking the monthly rental income and dividing it by the projected principal, interest, taxes and insurance. The resulting number is the DSCR. You need a result of 1.2 or better to get the lower rates. Although 1.0-1.2 will qualify with most DSCR lenders.

The credit score to be used if you have a multimember LLC will be the best mid-score of a member who owns a minimum of 20 percent of the LLC. They will also be the sole guarantor unless you are dealing with a bank. Rates have been rising steadily over the past three weeks. Good luck!

Matthew Crivelli · Answer

@Joey Anderson

For 30 Year DSCR loans you will be required to bring 20% down yes. Also, the rates are no longer 5% - 6%... they are more like 6% - 7% currently and will soon be even higher. This product has been great over the last 5 years, just a few months ago rates were typically under 5% but times are changing. These loans can still be used, you just have to make sure that the property can cashflow at the high rates.

Jared Rine · Answer

@Joey Anderson...most lenders in the dscr space are all playing within the same sandbox, with a few caveats here and there at different lenders. The deal right now given that almost, if not all lenders in the space are what I think is overreaction to the market, rates have been eating sh*t for at least the last few weeks, in a very accelerated fashion. Most of your answers are in the ballpark, but some lenders are definitely better than others. I just recently saved a deal that should have easily been done anywhere, and the client had gone through 5 different brokers/lenders who all said they could do her deal and then didn't. To answer your question, 5-7% rates, 100% of rents count towards income (ratio is gross rents/PITIA needs to be more than 1.00, and there are lenders who can go less than 1.00), my clients like the 40 Year I/O (10 I/O, 30 year fixed, locked in NOW). Can get 85% max on purchase (it is out there) up to 4. 5-12 units is going to be different (I'd want to see details). Just my $0.02.

Alex Roter · Answer

Hey @Joey Anderson, typically I see 30-year fixed-rate options, with rates in the 5-6% range. Typically, lenders are okay with using 100% of the rents to qualify as income. Since DSCR loans are for business-purpose (not personal use), lenders will make sure there's no indication of you living (or planning to live) at the property in subject. You'll most likely have to own your primary residence and prove that you live there.

Hope this helps.

Erik Estrada · Answer

Hey Joey,

You can generally see rates in the 7s as of now for a 1-4 unit residential DSCR loan. You are able to finance up to 85% of the purchase price depending on the unit count and debt service.

On a 8-12 unit property, you will need to shop with local banks for optimal terms. CRE lending is different and the loan structures are usually adjustable or have a balloon at the end of the term. There are a few "DSCR" lenders that lend on 8-10 unit properties however their rates are very high.

Derek Nemec · Answer

Are there prepayment penalties?

Alex Hunt · Answer

There are many lenders and each may have their own criteria. A minimum of 1.10 DSCR, 30yr fixed with 80%LTV on purchase for 4 units or under and 5 or more units 75% LTV is what I am seeing. I am still seeing rates of high 5s to low 6s for these purchases. 100% of rents towards income, as this is a purchase it could be vacant and then fair market rent would be used.

Joey Anderson · Answer

Thanks Alex. What's typically the required down payment, 20%?

What are some current DSCR loan options?

What are some current DSCR loan options?

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