Competitive DSCR Loan terms

Investor · Los Angeles, CA · Member since 2024 · 5 posts · 6 votes

Hey everyone! I'm looking to close on a house in Birmingham, AL using a DSCR loan. I just got the terms from the lender and they're absolutely atrocious. Now with that said I totally understand that sub $100k DSCR loans typically come with really bad terms, but this just feels straight up abusive. Anybody know a lender who can compete with this?

My biggest issue is the $8100 closing costs, that just feels like highway robbery to me. The interest rate isn't great either, but I could potentially swallow that and refinance at a lower rate down the line. PP is $75,000.

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Chris SeveneyBusiness Member

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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

4 points is sometimes steep but the low loan value is thenissue

note that - it's really 4700 fees for closing as the rest are prepaids etc.

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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
1y
4 points is sometimes steep but the low loan value is thenissue

note that - it's really 4700 fees for closing as the rest are prepaids etc.
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Nate HerndonPro Member
Lender · Springfield, MO · Member since 2023 · 277 posts · 195 votes
1y
Hey @Eric Fernandez - honestly, these are pretty decent terms given the scenario! I've got a sub-$100k program that I use often and my clients would get something like what is shown below.

Rate isn't wildly important at these loan amounts, though. When you're talking about 0.50% at a $60k loan, that's about a $20.00 per month difference.

[email protected]417-605-2196
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Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
1y
This does not seem bad at all.
You have to consider the same amount of effort, energy and time invested on a sub $100k loan amount, is the same amount on a $1 million loan amount. Most brokers and lenders are incentivized to either close more loans and make money off the volume, or increase the average loan amount size. A sub $100k loan amount is in most cases, unprofitable for many nationwide DSCR lenders, hence why you will see very few offering loans under $100k.
It would be a different story if you are doing 6 of these micro loans. But if it's just a 1 off loan, this is honestly a fair price.
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Timothy Hero
Lender · United States · Member since 2020 · 1k+ posts · 499 votes
1y
Definitely horrible fees, but here's the reality: of all the lenders I broker DSCR with, none will go under a loan amount of $75k.
From a business perspective, there's no money made on those loans. It takes the same time to underwrite and work the file, but won't yield anywhere near the profit for them of a $300k loan. So they need to charge the points up front.
What's wild to me is to pay 4% origination and still be at a 7.6% rate, lol.
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Derek BrickleyBusiness Member
Lender · Ann Arbor, MI · Member since 2021 · 668 posts · 227 votes
1y
That's not too far off unfortunately, we wouldn't even be able to do that on DSCR. Though there is another option we actually just closed for someone in Montgomery with on Friday that gets rid of those costs. Not sure if it would work for you specifically or not but feel free to reach out if it might be useful.
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Doug SmithPro Member
Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
1y
That low loan amount is what is skewing your origination fee. That's really not bad...we wouldn't even do that low of a loan amount.
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Alex BekezaBusiness Member
Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
1y
@Ko Kashiwagi both lends and invests in Alabama. I'd make sure to run this by him too for a second opinion.
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Andrew Zamboroski
Lender · Member since 2021 · 495 posts · 130 votes
1y
Quote from @Eric Fernandez:

Hey everyone! I'm looking to close on a house in Birmingham, AL using a DSCR loan. I just got the terms from the lender and they're absolutely atrocious. Now with that said I totally understand that sub $100k DSCR loans typically come with really bad terms, but this just feels straight up abusive. Anybody know a lender who can compete with this?
My biggest issue is the $8100 closing costs, that just feels like highway robbery to me. The interest rate isn't great either, but I could potentially swallow that and refinance at a lower rate down the line. PP is $75,000.
Looks like okay terms. 4% is steep, but, every lender does have their minimum. Sometimes it pays to shop around to find someone with a lower minimum. However, if that’s at the expense of your trusted contact, that’s another story. We would be sharper than this by a bit for future projects.

cheers!
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