What is DSCR Lender Really Looking For On My Bank Statements?
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Robin SimonBusiness Member
Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votesBank Statements will be needed to show "reserves" to show you have liquid assets to cover X amount of monthly PITIA payments, they will not be used to underwrite DSCR. Depending on the lender and some other factors like size of the loan, generally a DSCR loan will need to show 3-9 months of PITIA in liquid assets, whether that be cash, stocks/bonds account (typically haircut like 10%) or retirement assets (typically 20% haircut). The lender will also typically want 2 months of statements, but only count the ending balance of the more recent month (i.e. for loans closed this month, collect August and September bank statement, and count the 9/30/2022 balance towards your reserves). Lenders will differ, but deposits that are large should typically be sourced just to confirm borrower owns the funds and there is no money laundering going on
Harpoon Capital512 Reviews
15 Replies
- 3yPaul DefnginPro MemberLender · Rockville, MD · Member since 2008 · 498 posts · 199 votes
Quote from @Burt L.:
In seeking a DSCR cash-out loan, I've learned that lenders want to see bank statements. I had thought DSCR's were only property based, but lenders I've just begun to contact are saying I need to provide bank statements. I asked why and was told that they are just needed to see that I don't have NSF on my statements. I didn't fall off a turnip truck just last night and strongly suspect there is more to it.
This has been a long rehab and I"ve seen interest rates essentially double. My DCR has fallen from 1.7 to 1.25 in the process. At a closing as it is, I will still have approx $350K in equity with taking $100K in cash back.
My cash position has been squeezed as the scope of work expanded, reducing cash on hand. I"m told that I can use the cash-out proceeds for my 6 months escrow, which would be covered a few times over.
I"m thin on cash on bank statements from the rehab. What is a potential lender really looking for- and how much is low cash on hand going to hurt my lendability despite my equity/cash-out? I've got alot of personal funds tied up in this property, even with a rehab loan.
I really didn't think bank statements were a part of a DSCR loan, but it appears I'm dead wrong on this.
Thank you.
It depends on the final loan to value but it's pretty standard for DSCR to require 6 months PITIA for the subject property 2 months of additional reserves for each financed property that you own.
Funds must be seasoned for 60 days - 2 months bank statements or most recent quarterly statement. Retirement accounts can satisfy this, if you have them.
Must have 3 tradelines reporting for 12+ months or 2 tradelines reporting for 24+ months all with ACTIVITY in the last 12 months, and be certain that none of your tradelines show 60 days late in the past 12 months from when you apply.
- 3yBurt L.Real Estate Investor · Steamboat, CO · Member since 2010 · 295 posts · 34 votesOP
Thank you for the lender-based info.
My reserves are to come from the cash-out part of the refi and will well-exceed the amounts required. I have sufficient trade lines as well but little cash on hand as funds are tied up in the deal due to unexpected rehab costs outside the rehab loan.
Is that what a DSCR lender is really looking for on my bank statements? I will probably be down to a few thousand by closing to get my cash-out returned, and the monthly income from the property. Is that a show-stopper?
- 3yPaul DefnginPro MemberLender · Rockville, MD · Member since 2008 · 498 posts · 199 votes
Quote from @Burt L.:
Thank you for the lender-based info.
My reserves are to come from the cash-out part of the refi and will well-exceed the amounts required. I have sufficient trade lines as well but little cash on hand as funds are tied up in the deal due to unexpected rehab costs outside the rehab loan.
Is that what a DSCR lender is really looking for on my bank statements? I will probably be down to a few thousand by closing to get my cash-out returned, and the monthly income from the property. Is that a show-stopper?
I am only familiar with the investors that we deal with on DSCR loans and, "My reserves are to come from the cash-out part of the refi and will well-exceed the amounts required. I have sufficient trade lines as well but little cash on hand as funds are tied up in the deal due to unexpected rehab costs outside the rehab loan" DOES not work.
These investors would not count the net proceeds that you're pulling out as reserves, hence, the need for bank statements.
It's risk-based for the investor, they want to make sure that you have some ability to pay them back - not give you the money so you can pay them back. I know that may not seem right as that is why you are looking to borrow money.
That said, I can't speak for all investors and maybe there are some out there that do not care about reserves.
- 3yBurt L.Real Estate Investor · Steamboat, CO · Member since 2010 · 295 posts · 34 votesOP
It seems the thread has taken a turn that I don't understand and didn't intend.
When I say that the cash I get to take out at the time of refi covers the required 6 months reserves a couple of times over - 6 mos reserves is approx $30K and I can easily take cash out $100K on appraised ARV value of $1.0 M on total rehab loan/purchase loan of $540K at 70% LTV. All the lenders I have spoken to so far have said I can use the cash out for the 6 months reserves. I am more asking about having little other funds left and the same DSCR lenders to date have all wanted to have bank statements despite being a property based loan with a 705 FICO mid-score; good, not great.
That is more my question- am I DOA because of little other cash on hand and what else are they seeking to find on the bank statements? I really thought a lack of financial documents is why people use DSCR loans in the first place.
- 3yStephanie P.Pro MemberWashington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votesYou shouldn't be DOA.
Quote from @Burt L.:
It seems the thread has taken a turn that I don't understand and didn't intend.
When I say that the cash I get to take out at the time of refi covers the required 6 months reserves a couple of times over - 6 mos reserves is approx $30K and I can easily take cash out $100K on appraised ARV value of $1.0 M on total rehab loan/purchase loan of $540K at 70% LTV. All the lenders I have spoken to so far have said I can use the cash out for the 6 months reserves. I am more asking about having little other funds left and the same DSCR lenders to date have all wanted to have bank statements despite being a property based loan with a 705 FICO mid-score; good, not great.
That is more my question- am I DOA because of little other cash on hand and what else are they seeking to find on the bank statements? I really thought a lack of financial documents is why people use DSCR loans in the first place.
Many documents tell stories about the borrowers. Bank statements can tell whether the borrower is bouncing checks or if they're thin on cash. The DSCR lender you're with is looking for NSF's and reserves and since CASH OUT CAN BE USED FOR RESERVES for many DSCR borrowers you need to be submitted by the broker to one of them. Once there, if you're getting that much cash out, you should be fine if you're not bouncing checks.
To go a little deeper, many DSCR lenders only care about the mortgage history on the subject property and your primary residence so unless your credit report shows that you don't pay your mortgages on other properties, you should be fine there too. - Lender · Member since 2020 · 331 posts · 209 votes3y
Quote from @Burt L.:
In seeking a DSCR cash-out loan, I've learned that lenders want to see bank statements. I had thought DSCR's were only property based, but lenders I've just begun to contact are saying I need to provide bank statements. I asked why and was told that they are just needed to see that I don't have NSF on my statements. I didn't fall off a turnip truck just last night and strongly suspect there is more to it.
This has been a long rehab and I"ve seen interest rates essentially double. My DCR has fallen from 1.7 to 1.25 in the process. At a closing as it is, I will still have approx $350K in equity with taking $100K in cash back.
My cash position has been squeezed as the scope of work expanded, reducing cash on hand. I"m told that I can use the cash-out proceeds for my 6 months escrow, which would be covered a few times over.
I"m thin on cash on bank statements from the rehab. What is a potential lender really looking for- and how much is low cash on hand going to hurt my lendability despite my equity/cash-out? I've got alot of personal funds tied up in this property, even with a rehab loan.
I really didn't think bank statements were a part of a DSCR loan, but it appears I'm dead wrong on this.
Thank you.
As a broker, I work with over a dozen DSCR lenders and everyone has different guidelines. In terms of assets, some only require a VOD (verification of deposit) a few days before closing which is solely to demonstrate sufficient funds for down payment/closing costs (purchase) and reserves (both purchase and refi). However, some DSCR lenders follow some Fannie Mae guidelines. Fannie Mae requires 2 months of bank statements for seasoning and to source funds (large deposits). Even though you're doing a refinance, a lender will still require 2 months simply because it's part of their guidelines.
Based on your situation as you described it, I don't see any concerns nor a lender digging for anything more. Has anyone given you pushback?
- 3yRobin SimonBusiness MemberLender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
Bank Statements will be needed to show "reserves" to show you have liquid assets to cover X amount of monthly PITIA payments, they will not be used to underwrite DSCR. Depending on the lender and some other factors like size of the loan, generally a DSCR loan will need to show 3-9 months of PITIA in liquid assets, whether that be cash, stocks/bonds account (typically haircut like 10%) or retirement assets (typically 20% haircut). The lender will also typically want 2 months of statements, but only count the ending balance of the more recent month (i.e. for loans closed this month, collect August and September bank statement, and count the 9/30/2022 balance towards your reserves). Lenders will differ, but deposits that are large should typically be sourced just to confirm borrower owns the funds and there is no money laundering going on
Harpoon Capital512 Reviews - 3yBurt L.Real Estate Investor · Steamboat, CO · Member since 2010 · 295 posts · 34 votesOP
I certainly appreciate the replies. Each few years when I wade into the mortgage markets it is dramatically different and it helps so much to hear from those in the business on a daily basis.
Each of the lenders I've spoken to say these are 'tumultuous times" or very similar language. Not the ideal time to be loan shopping but still being in a rehab loan is even worse and has a definite end-point. A home run deal at purchase with those now-deceased rates has dropped to a double- not even a stand-up double but a headfirst slide being required.
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
That you're not buying bottles and tables at the club every weekend
- 3yNick HierscheBusiness MemberLender · Miami, FL · Member since 2020 · 27 posts · 17 votes
Should be for reserves only!
The Mortgage Calculator4.9277 Reviews - 3yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Quote from @Burt L.:
In seeking a DSCR cash-out loan, I've learned that lenders want to see bank statements. I had thought DSCR's were only property based, but lenders I've just begun to contact are saying I need to provide bank statements. I asked why and was told that they are just needed to see that I don't have NSF on my statements. I didn't fall off a turnip truck just last night and strongly suspect there is more to it.
This has been a long rehab and I"ve seen interest rates essentially double. My DCR has fallen from 1.7 to 1.25 in the process. At a closing as it is, I will still have approx $350K in equity with taking $100K in cash back.
My cash position has been squeezed as the scope of work expanded, reducing cash on hand. I"m told that I can use the cash-out proceeds for my 6 months escrow, which would be covered a few times over.
I"m thin on cash on bank statements from the rehab. What is a potential lender really looking for- and how much is low cash on hand going to hurt my lendability despite my equity/cash-out? I've got alot of personal funds tied up in this property, even with a rehab loan.
I really didn't think bank statements were a part of a DSCR loan, but it appears I'm dead wrong on this.
Thank you.
Most likely they are looking to see if you have reserves. Although if you don't have reserves there are several lenders that do not have this requirement.
LuxePrivate Investments LLC 572 Reviews - 3yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Quote from @Erik Estrada:
Quote from @Burt L.:
In seeking a DSCR cash-out loan, I've learned that lenders want to see bank statements. I had thought DSCR's were only property based, but lenders I've just begun to contact are saying I need to provide bank statements. I asked why and was told that they are just needed to see that I don't have NSF on my statements. I didn't fall off a turnip truck just last night and strongly suspect there is more to it.
This has been a long rehab and I"ve seen interest rates essentially double. My DCR has fallen from 1.7 to 1.25 in the process. At a closing as it is, I will still have approx $350K in equity with taking $100K in cash back.
My cash position has been squeezed as the scope of work expanded, reducing cash on hand. I"m told that I can use the cash-out proceeds for my 6 months escrow, which would be covered a few times over.
I"m thin on cash on bank statements from the rehab. What is a potential lender really looking for- and how much is low cash on hand going to hurt my lendability despite my equity/cash-out? I've got alot of personal funds tied up in this property, even with a rehab loan.
I really didn't think bank statements were a part of a DSCR loan, but it appears I'm dead wrong on this.
Thank you.
Most likely they are looking to see if you have reserves. Although if you don't have reserves there are several lenders that do not have this requirement.
Most brokers want to see a complete story which is why they would request these documents. You might be costing yourself a better loan option shopping multiple lenders without giving them full details.
LuxePrivate Investments LLC 572 Reviews - Member since 2022 · 142 posts · 61 votes3y
Quote from @Burt L.:
It seems the thread has taken a turn that I don't understand and didn't intend.
When I say that the cash I get to take out at the time of refi covers the required 6 months reserves a couple of times over - 6 mos reserves is approx $30K and I can easily take cash out $100K on appraised ARV value of $1.0 M on total rehab loan/purchase loan of $540K at 70% LTV. All the lenders I have spoken to so far have said I can use the cash out for the 6 months reserves. I am more asking about having little other funds left and the same DSCR lenders to date have all wanted to have bank statements despite being a property based loan with a 705 FICO mid-score; good, not great.
That is more my question- am I DOA because of little other cash on hand and what else are they seeking to find on the bank statements? I really thought a lack of financial documents is why people use DSCR loans in the first place.
Hi there. The DSCR loan (Debt Service Coverage Ratio) is a loan where the lender does not verify your income in the traditional way or require tax returns. This simplifies the process for many investors and commercial buyers. The bank statement has to show that you are able to cover your monthly debt. That is why they want to look at your bank statements. There is a formula they use for this. It's basically your net operating income divided by your debt service. You need to show a lender that you have enough cashflow each month to cover your debts. If the lender is asking that you have 6 months reserves they do not want the cash out refinance to part of that because you should be able to show the lender that you have enough money in the bank should an emergency arise to cover 6 months of mortgage payments. That is what is expected on a day to day basis, not after you cash out from a refinance. They expect you to always have that money as a matter of course.
- 3yJared RineBusiness MemberLender · Sacramento, CA · Member since 2009 · 1k+ posts · 277 votes
@Burt L....On a cashout refinance, there really should be no reason to see bank statement or any type of asset statements unless the cash-out is not enough to cover the reserves requirement of the lender. If the cash-out is minimal or short, then there's a reason. I do cash-out refinances for investors all the time and never ask for bank statements assuming the cash out is a decent amount of funds. I don't know who you're using, but I feel like I'm missing parts of the story as if your cash out is more than 6 months PITIA, you shouldn't need any asset statements (based on lenders I work with - I'm a broker) and your DSCR should never be falling during process, assuming you have a locked rate in place.
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