Range of DSCR rates?

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Jake S.
Rental Property Investor · MN · Member since 2017 · 864 posts · 555 votes
3y

This is a good resource for you! https://myperfectmortgage.com/...

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  • Jake S.
    Rental Property Investor · MN · Member since 2017 · 864 posts · 555 votes
    3y

    This is a good resource for you! https://myperfectmortgage.com/...

    5Reply
  • Jack Tulloch
    Lender · Austin, TX · Member since 2022 · 473 posts · 586 votes
    3y

    Hey David. DSCR rates are currently in the 7.5% - 9.5% range right now. Will obviously depend on the deal specifics; property type, loan amount, cashflow, credit, leverage, prepay penalty.

    4Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    3y
    Quote from @David Cunha:

    Hello everyone I'm currently looking at properties to rent in Phoenix/Scottsdale area. Looking to use a DSCR loan and I'm curious of what rates are currently available?


     Rates are in the low 7s to high 9s. But besides the rate, the key here is working with a lender that has a smooth underwriting process. The lower the rate, the harder it is to qualify for these loans since they up the requirements. 

    Also is the goal to refinance in a couple years? If so, I would suggest getting a no prepay or reduced prepay. 

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  • Brandon BeardtPro Member
    Lender · La Crescenta, CA · Member since 2021 · 261 posts · 157 votes
    3y
    Quote from @David Cunha:

    Hello everyone I'm currently looking at properties to rent in Phoenix/Scottsdale area. Looking to use a DSCR loan and I'm curious of what rates are currently available?


     Hi David,

    Like the others have said, I'm seeing DSCR rates start in the low 7's and go up depending on the lender's specific loan level pricing adjusters. Every lender will have different pricing adjusters depending on the category, such as a lower or higher FICO score/LTV, so it's always a good idea to shop around.

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  • Javier Parra Garcia
    Wholesaler · Phoenix, AZ · Member since 2023 · 19 posts · 1 vote
    3y
    Quote from @David Cunha:

    Hello everyone I'm currently looking at properties to rent in Phoenix/Scottsdale area. Looking to use a DSCR loan and I'm curious of what rates are currently available?


    David, any updates on your DSCR search here in the valley? What kind of down payment options did you find along the way? The interest rates are what they are but the down payment is the kicker for easier entry into that market.

    0Reply
  • Jared RineBusiness Member
    Lender · Sacramento, CA · Member since 2009 · 1k+ posts · 277 votes
    3y

    @Javier Parra Garcia..not to hijack the thread, given the age of it, but wanted to respond here. Interest rates can still be pretty decent - in the 7s, which is right in line or even better when I'm pricing against Fannie/Freddie conventional investment. He should have been able to find at least 80% LTV. 80% LTV is still a norm on purchase, but it's about what can make the numbers work which many times these days constrains LTV.

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  • Javier Parra Garcia
    Wholesaler · Phoenix, AZ · Member since 2023 · 19 posts · 1 vote
    3y
    Quote from @Jared Rine:

    @Javier Parra Garcia..not to hijack the thread, given the age of it, but wanted to respond here. Interest rates can still be pretty decent - in the 7s, which is right in line or even better when I'm pricing against Fannie/Freddie conventional investment. He should have been able to find at least 80% LTV. 80% LTV is still a norm on purchase, but it's about what can make the numbers work which many times these days constrains LTV.


    Thanks for the info! And any insight on low down payment options with DSCR? Those have been buzzing around and I'm now looking for this option to get into the rental property game.

    0Reply
  • Jared RineBusiness Member
    Lender · Sacramento, CA · Member since 2009 · 1k+ posts · 277 votes
    3y

    @Javier Parra Garcia..there are no low down payment options with DSCR. You need to have 20% or better for down payment and then as mentioned, your LTV will also be constrained by your debt service numbers. Someone might see this and say hey you can get 15% down on DSCR which is true, but to make numbers work with that little down is almost impossible. I've never seen it, even for states that have high cashflow properties.

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  • Javier Parra Garcia
    Wholesaler · Phoenix, AZ · Member since 2023 · 19 posts · 1 vote
    3y

    @Jared Rine, thank you for the info!

    0Reply
  • Timothy Hero
    Lender · United States · Member since 2020 · 1k+ posts · 499 votes
    3y

    As a DSCR specialist, AZ is one of the 5 states that makes it strict for lenders, so less than 20% of DSCR lenders can touch it.

    Credit will play a factor, but assuming solid credit, 75% LTV at around 7.4% with no buy down.

    0Reply
  • Zach Wain
    Scottsdale, AZ · Member since 2019 · 434 posts · 248 votes
    3y

    Those rate ranges all sound fair. Something to consider for the average investor that is curious about DSCR, there are plenty of fine print items. Many lenders give better rates if the appraisers opinion of rents is 1.25%, 1.1% or 1% compared to the mortgage payment. This is hard to do in todays market. If you are below a 1% ratio of rents to payment, the rates get worse and worse.

    Also, the best rates for DSCR come with the longest Pre payment penalties. Some people do not care, but so do not want a 4-5 year PPP. Flexibility is an important consideration.

    If you hear 7.5% DSCR rates, that probably has 1%-2% in discount points (up front closing costs to buy the rate down), a 4-5 year PPP, and it probably assumes a perfect rents/payment ratio. Most scenarios do not end up looking like that.

    Find a lender that you really like and can honest and up front with, and have a good dialogue of your goals with the property besides hunting for the best rate, because that usually ends up poorly...

    2Reply
  • Javier Parra Garcia
    Wholesaler · Phoenix, AZ · Member since 2023 · 19 posts · 1 vote
    3y
    Quote from @Timothy Hero:

    As a DSCR specialist, AZ is one of the 5 states that makes it strict for lenders, so less than 20% of DSCR lenders can touch it.

    Credit will play a factor, but assuming solid credit, 75% LTV at around 7.4% with no buy down.


     Timothy,

    What types of down payments are we usually looking at for a DSCR with your offers? Assuming great credit even though I thought that the whole point of a DSCR was that the purchaser credit did not matter and it was all about the ratio of revenue to loan.

    0Reply
  • Timothy Hero
    Lender · United States · Member since 2020 · 1k+ posts · 499 votes
    3y
    Quote from @Javier Parra Garcia:
    Quote from @Timothy Hero:

    As a DSCR specialist, AZ is one of the 5 states that makes it strict for lenders, so less than 20% of DSCR lenders can touch it.

    Credit will play a factor, but assuming solid credit, 75% LTV at around 7.4% with no buy down.


     Timothy,

    What types of down payments are we usually looking at for a DSCR with your offers? Assuming great credit even though I thought that the whole point of a DSCR was that the purchaser credit did not matter and it was all about the ratio of revenue to loan.


    Credit will always matter with DSCR. It's the deciding factor. DSCR loans offer the following advantages over conventional:

    No income/dti/employment docs

    Not reported on credit

    Close in an entity

    Close quicker 

    As for LTV, generally 75% on cash-out refinances and up to 80% on purchases.



    1Reply
  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    3y

    Since this post has been bumped up, good news is that DSCR rates are now probably in the 6.5-8.5% range right now vs. the 7.5%-9.5% range from a couple months ago

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  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Robin Simon:

    Since this post has been bumped up, good news is that DSCR rates are now probably in the 6.5-8.5% range right now vs. the 7.5%-9.5% range from a couple months ago


     My question to you, to get the best rate 6.5%, is the following requirement to be met ?

    credit score: 740+ ; LTV: 60% ; PPP=5-4-3-2-1 , Loan >=$300K for rental. Do I miss anything ?

    Is the lender that could give best 6.5% now, the same as the one that could give 7.5% couple months ago ?

    6.5% is def. super good number as it's below conventional.

    0Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Javier Parra Garcia:
    Quote from @David Cunha:

    Hello everyone I'm currently looking at properties to rent in Phoenix/Scottsdale area. Looking to use a DSCR loan and I'm curious of what rates are currently available?


    David, any updates on your DSCR search here in the valley? What kind of down payment options did you find along the way? The interest rates are what they are but the down payment is the kicker for easier entry into that market.

     You say you're a lender ? 

    For downpayment, it's simple math concept. In US MF def. cap rate is 4.5%
    To achieve DSCR 1.2 (best rate) with 4% cap one should give downpayment of 30-35%. In reality maybe even 40% after considering all costs.

    To get the best of the best rate, 40% down is required, which is fair if they give us the same rate as conventional.

    0Reply
  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @Robin Simon:

    Since this post has been bumped up, good news is that DSCR rates are now probably in the 6.5-8.5% range right now vs. the 7.5%-9.5% range from a couple months ago


     My question to you, to get the best rate 6.5%, is the following requirement to be met ?

    credit score: 740+ ; LTV: 60% ; PPP=5-4-3-2-1 , Loan >=$300K for rental. Do I miss anything ?

    Is the lender that could give best 6.5% now, the same as the one that could give 7.5% couple months ago ?

    6.5% is def. super good number as it's below conventional.


    Yes - this scenario could get you a 6.500% rate, probably would need a couple of points origination fee though. Would help if DSCR is >1.25x, a credit >760 and if willing to do a 5/5/5/5/5 prepay instead of 5/4/3/2/1

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    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Robin Simon:
    Quote from @Carlos Ptriawan:
    Quote from @Robin Simon:

    Since this post has been bumped up, good news is that DSCR rates are now probably in the 6.5-8.5% range right now vs. the 7.5%-9.5% range from a couple months ago


     My question to you, to get the best rate 6.5%, is the following requirement to be met ?

    credit score: 740+ ; LTV: 60% ; PPP=5-4-3-2-1 , Loan >=$300K for rental. Do I miss anything ?

    Is the lender that could give best 6.5% now, the same as the one that could give 7.5% couple months ago ?

    6.5% is def. super good number as it's below conventional.


    Yes - this scenario could get you a 6.500% rate, probably would need a couple of points origination fee though. Would help if DSCR is >1.25x, a credit >760 and if willing to do a 5/5/5/5/5 prepay instead of 5/4/3/2/1


    So basically any 50%LTV/DSCR 1.25 is sufficient to get the best rate.


    Don't you think with the rate this good , all MF syndication that near the 5 year balloon repayment from commercial loan , could just switch to 30 year fixed-rate HML loan ? What do I miss here …..

    0Reply
  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @Robin Simon:
    Quote from @Carlos Ptriawan:
    Quote from @Robin Simon:

    Since this post has been bumped up, good news is that DSCR rates are now probably in the 6.5-8.5% range right now vs. the 7.5%-9.5% range from a couple months ago


     My question to you, to get the best rate 6.5%, is the following requirement to be met ?

    credit score: 740+ ; LTV: 60% ; PPP=5-4-3-2-1 , Loan >=$300K for rental. Do I miss anything ?

    Is the lender that could give best 6.5% now, the same as the one that could give 7.5% couple months ago ?

    6.5% is def. super good number as it's below conventional.


    Yes - this scenario could get you a 6.500% rate, probably would need a couple of points origination fee though. Would help if DSCR is >1.25x, a credit >760 and if willing to do a 5/5/5/5/5 prepay instead of 5/4/3/2/1


    So basically any 50%LTV/DSCR 1.25 is sufficient to get the best rate.


    Don't you think with the rate this good , all MF syndication that near the 5 year balloon repayment from commercial loan , could just switch to 30 year fixed-rate HML loan ? What do I miss here …..


    I think what you are missing is that DSCR Loans are still a very small option for multifamily. DSCR Loans limited to 10 units max, and the rates for anything over 1 unit will be a bit higher. Also, DSCR Loans only for stabilized/turnkey, so MF syndications are likely going to not be eligible (if over 10 units) or any value-add/bridge

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  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Robin Simon:
    Quote from @Carlos Ptriawan:
    Quote from @Robin Simon:
    Quote from @Carlos Ptriawan:
    Quote from @Robin Simon:

    Since this post has been bumped up, good news is that DSCR rates are now probably in the 6.5-8.5% range right now vs. the 7.5%-9.5% range from a couple months ago


     My question to you, to get the best rate 6.5%, is the following requirement to be met ?

    credit score: 740+ ; LTV: 60% ; PPP=5-4-3-2-1 , Loan >=$300K for rental. Do I miss anything ?

    Is the lender that could give best 6.5% now, the same as the one that could give 7.5% couple months ago ?

    6.5% is def. super good number as it's below conventional.


    Yes - this scenario could get you a 6.500% rate, probably would need a couple of points origination fee though. Would help if DSCR is >1.25x, a credit >760 and if willing to do a 5/5/5/5/5 prepay instead of 5/4/3/2/1


    So basically any 50%LTV/DSCR 1.25 is sufficient to get the best rate.


    Don't you think with the rate this good , all MF syndication that near the 5 year balloon repayment from commercial loan , could just switch to 30 year fixed-rate HML loan ? What do I miss here …..


    I think what you are missing is that DSCR Loans are still a very small option for multifamily. DSCR Loans limited to 10 units max, and the rates for anything over 1 unit will be a bit higher. Also, DSCR Loans only for stabilized/turnkey, so MF syndications are likely going to not be eligible (if over 10 units) or any value-add/bridge


     Thanks this is very helpful information.

    0Reply
  • Zach Wain
    Scottsdale, AZ · Member since 2019 · 434 posts · 248 votes
    3y

    To review - DSCR rates of sub 7% are available, but with VERY large downpayments and max Pre payment penalties duration and cost. For people that might be looking at 25% down and only a 1-2 yr PPP, you will still be looking at the 7.5%-8.5% range. 20% down, and the rates go higher

    0Reply
  • David Cunha
    OP
    Member since 2022 · 19 posts · 5 votes
    3y

    So if I want to refi when rates drop. I'm better off putting as little down as possible. Are there prepayment penalties for most DSCR loans?

    1Reply
  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    3y

    @Carlos Ptriawan impossible to get a pricing sheet that tells you what every deal will cost. Each piece is a pricing add.

    Location, unit type/number/style/mid rise/single story, mortgage middle FICO, Down payment percent, prepay type, 3 points - no points, market rents, property good to perfect condition, rented at close with verification, reserves, vesting is real person or single LLC are the pieces that deliver a rate at a moment in time. Rates good in increments of 15 and 30 days.

    high six to low nine is correct for 30 year fixed DSCR

    No: syndications, property needs work to rent, ARV, cap rate doesn't matter, no STR rents, no bad credit history such as modification or covid excuse... and a list of outs.

    The number of players decreased and their rules continue tightening, though rates are better than a month ago.

    0Reply
  • Joshua Parpia
    Rental Property Investor · Orlando, FL · Member since 2019 · 3 posts · 0 votes
    3y

    I was quoted a 7.3 DSCR last week for a <200k Multifamily property. There were also pre-payment penalties that were associated with that loan product.

    0Reply
  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    3y
    Quote from @David Cunha:

    So if I want to refi when rates drop. I'm better off putting as little down as possible. Are there prepayment penalties for most DSCR loans?


     Yes typically, but generally should be possible to do one with no prepay or very light (say 1% if you prepay in the first year).  The tradeoff will be a somewhat higher rate and/or origination points

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