Difference Between Loan types pt2

[Peyton LaBarbera]

What is the difference between portfolio loans and DSCR loans? Or are they the exact same thing?

[Varinder Kumar]

To answer your whole question:

1. Purpose:

• Portfolio Loans: A portfolio loan refers to a mortgage loan that is originated and held by the lender in its own investment portfolio rather than being sold on the secondary mortgage market. These loans are often used for residential or commercial properties and can have various terms and features. The primary focus of a portfolio loan is not necessarily the property's cash flow but rather the lender's strategy to hold the loan in their portfolio.
• DSCR Loans: DSCR loans, on the other hand, are typically commercial real estate loans used for income-producing properties such as apartment buildings, office complexes, or shopping centers. The primary purpose of a DSCR loan is to evaluate the property's ability to generate sufficient income to cover the debt service (principal and interest payments) on the loan. DSCR loans are specifically designed to assess and ensure the property's cash flow.

2. Underwriting Criteria:

• Portfolio Loans: The underwriting criteria for portfolio loans can vary significantly depending on the lender's policies and objectives. While creditworthiness and property value are considered, other factors like the borrower's relationship with the lender and the lender's risk appetite can also influence the approval process.
• DSCR Loans: DSCR loans have a specific underwriting focus on the property's cash flow. Lenders offering DSCR loans primarily evaluate the property's income, expenses, and the resulting Debt Service Coverage Ratio (DSCR). A minimum DSCR requirement is often a key criterion for approval, ensuring that the property generates enough income to service the debt.

3. Property Types:

• Portfolio Loans: Portfolio loans can be used for various types of properties, including residential homes, commercial properties, and even non-traditional real estate investments. The property type and borrower's profile may vary widely.
• DSCR Loans: DSCR loans are typically used for commercial income-producing properties. These properties are expected to generate rental income or cash flow to support the loan repayment.