got a bit of sticker shock at 6.7% 30 year fixed with 5 year pre payment penalty. Prior loan was done literally a month ago at 5.5% and 3 year pre payment. Is 6.7% really market rate now? Plenty of experience already, great credit and property cash flows fantastically. I was hoping for like 6%.
Investor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes
4y
@Kevin O'Brien I work for a lender and best case scenario we're seeing is low 6%'s. You can consider an interest only option for even better cashflow. We offer a 10-year interest only option, amortized over 30 years.
Rental Property Investor · Missoula, MT · Member since 2019 · 8 posts · 3 votes
4y
I’m in the process of closing the same type of loan, same deal. Investment rates have always been higher now they are going up with the trend, mine jumped 2 percent from pre approval until I found a property. Do you have any experience with the servicer BSI? They are selling my loan to them and it looks like a nightmare company.
Lender · Winlock, WA · Member since 2013 · 1k+ posts · 1k+ votes
4y
Yes, DSCR was pricing out as low as low 6's the other day when I was looking for a client. A 5 year pre-pay is scary as hell, it shouldn't be any longer than 3 years.
I hope this helps? Also, what state are you doing this loan in? Just curious?
Austin, TX · Member since 2022 · 5 posts · 2 votes
4y
Unfortunately this is the case, and rates are continuing to rise. Tough blow for individuals looking to get into long term rentals or refinance into one, but being flexible with the market is key.
An alternative strategy that I've seen is going into a short term bridge loan for the time being, then refinance into a long-term loan down the road in efforts to chase possible interest rate drops. Might be an extra step, but could be beneficial in the long run financially.
Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
4y
@Kevin O'Brien Thats close to what I am seeing in this market but I encourage you to shop around. A slightly higher FICO, take a 5% LTV cut and rates could get you in the lower 6% range. This isnt a quote sicne I don't know the specifics of your deal but for the clients I've priced out this week, there are +/- .5% change when these factors are adjusted. The loans I'm submitting are 3 Yr PPP. Happy to take a look if you need a second opinion.
Investor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes
4y
@Kevin O'Brien I work for a lender and best case scenario we're seeing is low 6%'s. You can consider an interest only option for even better cashflow. We offer a 10-year interest only option, amortized over 30 years.
I’m in the process of closing the same type of loan, same deal. Investment rates have always been higher now they are going up with the trend, mine jumped 2 percent from pre approval until I found a property. Do you have any experience with the servicer BSI? They are selling my loan to them and it looks like a nightmare company.
I have a multi-family with BSI and haven't had any major problems with them. I had one hiccup with the renewal of my insurance but everything else has been smooth.
I’m in the process of closing the same type of loan, same deal. Investment rates have always been higher now they are going up with the trend, mine jumped 2 percent from pre approval until I found a property. Do you have any experience with the servicer BSI? They are selling my loan to them and it looks like a nightmare company.
I have a multi-family with BSI and haven't had any major problems with them. I had one hiccup with the renewal of my insurance but everything else has been smooth.
Thank you, it’s good to hear from people who deal with them.
Lender · Orange County, CA · Member since 2019 · 299 posts · 255 votes
4y
From what I've seen, bridge loan rates are about the same as DSCR rates. With the high fees associated with non-QM loans I don't think it would be worth it to do a bridge loan and refi later, even if the rate does go down.
Lender · Orange County, CA · Member since 2019 · 299 posts · 255 votes
4y
@Kevin O'Brien
Check around with some local community banks and ask about their commercial loans. Rate is usually fixed for 5 or 7 years then starts adjusting. They're usually amortized over 15 or 20 years, but I've spoken with several banks that will do up to 25 year am. The rates seem to be quite a bit lower than DSCR rates right now so even though they have a lower am you might still cash flow close to the same.
I just had 4 refis in process with a DSCR lender, my rates started at 4.125% and ended up at 5.625% by last month (now over 6%). I was told I was locked in multiple times throughout the process, but never really was. I checked around with some local community banks and found one with a portfolio commercial loan at 4.75% that's amortized over 30 years and fixed for the first 15 years. 
I was lucky, I don’t know if you’ll be able to find that but I think you can definitely find something reasonable with a 20 or 25 year am.
Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes
4y
Gotta plead ignorance here.
I know Debt Service Coverage Ratio is a criterion to meet that lenders use to determine if the applicant's deal meets the lender's loan criteria. I've heard that most lenders prefer a 1.2 DSCR or better. It usually refers to commercial deals (5+ units for residential).
Not familiar with "DSCR" as a type of lender / loan. What's a "DSCR" lender / loan?
Lender · UT · Member since 2022 · 28 posts · 13 votes
4y
Several good responses in here. I'll echo: Rates have jumped drastically! That rate sounds fair. Rates change daily, and based on over 20 factors which will often vary from one address to another.
Lender · UT · Member since 2022 · 28 posts · 13 votes
4y
@David Dachtera The DSCR's that I'm familiar running actually allow a ratio all the way down to .75% with certain criteria. Which is negative cashflow vs mortgage payment by 25%. But generally 1.0 or better is good to go. And DSCR is not specific to commercial deals, I actually only run 1-4 unit properties through, and have to broker to another lending source for 5+units so I don't run them as often. DSCR loan is a loan that qualifies for the payment based on the property without any consideration of the borrower's income.
Lender · Orange County, CA · Member since 2019 · 299 posts · 255 votes
4y
@David Dachtera
It's a relatively new type of residential loan that non-QM lenders started offering, obviously using DSCR to qualify. One of the few ways to get a 30yr loan for a residential property with the mortgage in your LLC.
@David Dachtera The DSCR's that I'm familiar running actually allow a ratio all the way down to .75% with certain criteria. Which is negative cashflow vs mortgage payment by 25%. But generally 1.0 or better is good to go. And DSCR is not specific to commercial deals, I actually only run 1-4 unit properties through, and have to broker to another lending source for 5+units so I don't run them as often. DSCR loan is a loan that qualifies for the payment based on the property without any consideration of the borrower's income.
Thanx for that. So, "DSCR" is, in some cases, another way of saying "asset based" rather than a person qualifying. Got it.
got a bit of sticker shock at 6.7% 30 year fixed with 5 year pre payment penalty. Prior loan was done literally a month ago at 5.5% and 3 year pre payment. Is 6.7% really market rate now? Plenty of experience already, great credit and property cash flows fantastically. I was hoping for like 6%.
The rates are really in flux, closed on a 30-year 3.85% in February and yes I'm looking at high 5's now as well. Just put it into your underwriting and realize that your tenants will most likely be seeing an increase in rent next year to cover the 8-10% inflation rate.
It's a relatively new type of residential loan that non-QM lenders started offering, obviously using DSCR to qualify. One of the few ways to get a 30yr loan for a residential property with the mortgage in your LLC.
Kevin,
We're starting to underwrite our buys using straight DSCR. We know that at a 1.25 or better, we'll be looking good. The lenders we use are starting to buy-in. I have one that even now provides a copy of their underwriting highlighting CoC return and the DSCR.
got a bit of sticker shock at 6.7% 30 year fixed with 5 year pre payment penalty. Prior loan was done literally a month ago at 5.5% and 3 year pre payment. Is 6.7% really market rate now? Plenty of experience already, great credit and property cash flows fantastically. I was hoping for like 6%.
Hi Kevin, can you provide more feedback on the loan to value, if the property is expected to actually debt flow or if it's a no ratio (meaning no cash flow) loan. With our products, we base the best rates which are in the mid/high 6's with low LTVs, a 3 year pre-pay and 1 point. If the property debt flows, the rate is typically improved by another 0.25%.