DSCR Question- Are Rates Unreasonable?

Question

Hi All- I've got a couple multi's in my portfolio that I've been fortunate enough to buy in cash. But I'm looking at a 5 unit that I'd buy under my LLC and I'm getting rates from a broker between 7.5-8% on 30 yr fixed debt for a $250k loan (35% down).

with the 10 yr at 4%, those rates seem high. Maybe I'm working with the wrong broker? Also, points are between 1-2% and one quote has a$1500 lender fee. Appreciate any insights from someone who has experience in this lower end DSCR loan. Thanks!

Austin Clarence · Answer

Hi Tim,

I recommend working with a mortgage broker who has a large list of lenders as DSCR 5+ unit can vary quite a bit. IF there is a prepayment penalty, that definitely sounds on the higher side. Feel free to send me the credit score and details and I can see what I can find

Erik Estrada · Answer

That being said,

at 35% down, with a reputable lender you should be able to find 6.9-7.375%. DSCR rates for 1-4 Units are hovering in the low 6s.

Erik Estrada · Answer

That does not seem too far off. You have to consider the fact that most Multi-Family loans are NOT 30 year fixed. They are usually fixed for 5-10 years and have a ballon or Arm at the end with a 25 year amortization instead of 30. Additionally it is a smaller loan, so lenders will price based on the asset size and loan amount. There are not too many investors on the secondary markets buying loans for multi-family under $500k. Hence the higher rate.

The BIGGEST challenge however, is finding a lender that can actually perform on 5-10 Unit MFH. Many will say they can offer you the moon and the stars, but it usually does not turn out to be the case. If your current lender is offering you a reasonable rate AND is able to perform, I think you are safe sticking to a lender with a proven track record.

It would suck for you to fork out $1500-$3000 on an appraisal, pay some deposit for inspections and legal fees, all for it not to work out. A lot of the times commercial lenders will not refund you the full deposit...

Frankie Vozzi · Answer

Good point, @Chris Seveney I agree. For a solid DSCR on a stabilized 5-unit, today’s market average is sitting more in that 6.75–7.25% range depending on leverage, prepay, and whether the loan is purchase or cash-out.

@Tim W., you might just be talking to lenders who specialize in larger balance loans they often price higher on smaller multifamily or LLC-held assets. It’s worth getting a quote from a DSCR-focused lender who handles these deal sizes regularly.

Chris Seveney · Answer

That is super high. We would be around 6.75-7% on that type of deal assuming it has decent DSCR and 1-2points.