How to find direct lender for DSCR?

[Lynne Burke]

Husband and I are looking to finance a single family home in Delaware. I got a couple of quotes for DSCR loans, but they seem high. 20% down on a $630k property, for $505k loan @ 7.5% (or buydown with 2 points to 5.5%, 1 point to 6.375). Husband and I are purchasing for AirBnb purposes. High seasonal rental deman (just the summer season will cover the annual PITI). Lowest credit scores for each of us are above 740, highest credit scores hover just under 800.

[Lori Williams]

Those definitely seem like high rates for those credit scores on a dscr loan.

you should be able to get in the 4.5 to 5% range I would think pretty easily, especially if you use the person with the 800 score to guarantee the loan

[Ryan Hehman]

Agreed with Lori - 20% down is normal, but you could likely find better rates shopping around.

[Jared Rine]

@Lynne Burke...I think whoever quoted you was trying to pull comp on the back...because baseline with what you commented for DSCR, just generally, should be in the high 5's to low 6's with maybe some lender discount (not what points mentioned), but you're being quoted too heavy (hopefully that makes sense). Most lenders out there (the better ones) don't really have a retail side for consumers - they're using wholesale brokers.

[Lynne Burke]

@Jared Rine thank you. I appreciate the guidance! From research, I felt that was the case, but I’m not an expert, so I figured I’d double check.

[Lynne Burke]

@Jared Rine thank you. I appreciate the guidance! From research, I felt that was the case, but I’m not an expert, so I figured I’d double check.

[Anthony King]

@Lynne Burke does the home qualify for a vacation/second home mortgage? I bought my STR in a beach town with 10% down and rates comparable to a primary residence.

[Lynne Burke]

 @Anthony King

It does, but then DTI is over 50% and they can't count rental income.

[Hoi L.]

I have done 3 rental properties under DSCR loans/refinance (LLC owned) with comparable rates but lower loan package (only about $160-180k each) during the past 2 months. It went from 4.5% 30yr fixed to almost 6% in the course of 2 weeks in mid-Feb. We also have comparable credit scores and such. Rates are about 1/2 point lower if you increase the down payment to 25% and larger loan size, like yours.

Are they able to show you the time to recoup the points paid to lower 2% interests?  7.5% is high, but 2 points to buy down 2% points are also not too bad (I know it is over $10k).  Another lender that I am no longer using offered me $4,900 (over 2.5 points for a $180k loan) to buy down from 5.9% to 5.5%.  I said no thank you.

[Stephanie P.]

@Lynne Burke

Short term rental is the problem here. The amount of lenders that will allow or qualify you off of STR is limited compared to LTR.

Rates have jumped significantly in the past month or 6 weeks, but seem to be calming down right now.  Most lenders raised their floor rates from the high 3's to 5 or so causing all rates in all ltv/FICO buckets to jump.

7.5% still seems high, but see if you can find LTR comparables that will get you to 1.0 DSCR or better. Might be tough at that price point. @Hoi L.  I think we looked at that 5 unit for you.  Rates were tough, but part of it was because it was a 5 unit.  4 units and below and you're correct, 75% and below is where the rates get good.

Stephanie 

[Lynne Burke]

@Stephanie P. Thank you! Really appreciate the feedback. 

[James Carlson]

@Lynne Burke

You might reach out to Visio Lending. They're a DSCR lender. I've got some STR clients who bought Airbnb properties in the past here in Colorado that used them, and it seems like they utilize short-term rental revenue, not LTR.

[Bobby Feinman]

Hi Lynne, rates are driven by credit score and LTV primarily. That 7.5% base rate does seem high. Base Rates for STR's should be in the high 4's to mid 5's. Hope this helps.

Bobby

[Nick Belsky]

@Lynne Burke

@James Carlson

Visio is a great lender for Short Term Rentals. Their rates are still higher than most I work with but they know STR and do them well.

IMO, Lynne, you should be falling in the mid-4's to 5% range based on what you are showing here.  I've got several investors who have opted for 5 or 10 year Interest Only fixed rate terms butted up to a 25 or 30 year fixed rate loan.  They are using the extra cash flows to justify buying the rates down to floor and recovering the costs in usually less than a year.  Then, if the market continues to go south, they've got a reasonable rate for up to the next 40 years... they can always refi out if they ever get low again.

Cheers!

[Lynne Burke]

Hi all! Wanted to update as I spoke with what feels like dozens of lenders and brokers and got dozens of rates and promises. I ended up starting with a few (lower rate!) who had massive increases in the interest rates (over 2 points!) in a weeks' time. Also during that time, started to lose confidence that those same mortgage brokers I had been speaking to could close the deal (terms kept changing). I had less than a month to get funding (was already under contract when my initial preapproval bank fell through). Several other lenders couldn't make it work as the rates started rising as it was based on LTR DSCR numbers. I ultimately went back to one of the initial quotes I got from this very board and post. @Jared Rine saved the deal. Literally, figuratively, you name it. The initial quote he gave me stayed true. He was able to fund in less than 2 weeks. I cannot stress this enough - his communication and competence were leaps and bounds above everyone else. He was not only a pleasure to work with, but he knows what he is doing and THIS MATTERS MORE THAN YOU THINK. The reason I was in such a tight spot in the first place is because my first broker didn't fully vet what he should have (despite my protestations). So, long story short - go with someone highly recommended.

Feel free to reach out with questions on my particular deal and why it was so tricky. Couldn't be happier with Jared.

[Lane C.]

@Lynne Burke out of curiosity where did you end up buying?

[Stephanie P.]

Quote from @Lynne Burke:

Hi all! Wanted to update as I spoke with what feels like dozens of lenders and brokers and got dozens of rates and promises. I ended up starting with a few (lower rate!) who had massive increases in the interest rates (over 2 points!) in a weeks' time. Also during that time, started to lose confidence that those same mortgage brokers I had been speaking to could close the deal (terms kept changing). I had less than a month to get funding (was already under contract when my initial preapproval bank fell through). Several other lenders couldn't make it work as the rates started rising as it was based on LTR DSCR numbers. I ultimately went back to one of the initial quotes I got from this very board and post. @Jared Rine saved the deal. Literally, figuratively, you name it. The initial quote he gave me stayed true. He was able to fund in less than 2 weeks. I cannot stress this enough - his communication and competence were leaps and bounds above everyone else. He was not only a pleasure to work with, but he knows what he is doing and THIS MATTERS MORE THAN YOU THINK. The reason I was in such a tight spot in the first place is because my first broker didn't fully vet what he should have (despite my protestations). So, long story short - go with someone highly recommended.

Feel free to reach out with questions on my particular deal and why it was so tricky. Couldn't be happier with Jared.

@Jared Rine is a good man and a professional.  @Lynne Burke  It was very nice of you to compliment him publicly.  Not enough of that these days.

All the best.

Stephanie

[Lynne Burke]

@Lane C. We purchased a SFH in Rehoboth Beach, DE.

[Robin Simon]

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https://www.biggerpockets.com/business/finder/lenders