Getting confused about DSCR & commercial loans

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Getting confused about DSCR & commercial loans

Annette Barnett
Member since 2023 · 52 posts · 45 votes

Hi again,

Under contract to sell SF home - closing on Sept 7th, 1031 clocks start ticking to identify and purchase multi-family property.   

I'm starting to reach out to a number of you (lenders) who have responded to my posts, thank you!  I've got some potential properties that you can run numbers on.  

MY CONFUSION: I have seen/read that if I get a DSCR commercial multifamily loan (5 units or more), I can get rates in the 5s or 6s??  Such as here:

https://trussfinancialgroup.com/debt-service-coverage-ratio-...

Where it shows the starting rate of 5.97%.  Yes, this could be bait and switch.  Called and left a message. 

I've also heard that I can get a lower DSCR rate if I work with a lender who requires my taxes? Everywhere I look online I read that DSCR loans don't require taxes. Seems like this is not always the case?

Little help please . . 

~Annette

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Devin PetersonBusiness Member
Lender · Sarasota, FL · Member since 2022 · 2k+ posts · 667 votes
3y

I dont know who you spoke to but I can assure you there are no DSCR loans for 5+ units out there less than 6%.. Even 7% is skeptical. I have seen the products and priced scenarios out with almost evey dscr lender on BP and beyond. This is fishy. The only time commercial rates are sub DSCR is when you shop a LOCAL strict commercial bank that uses their own index like FLB rate and ads almost nothing into their yield spread. 5yr spread today is roughly 4.5 ... even with commercial institutions and no broker involved for additional hits in rate, you would be around 7.00%

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  • Devin PetersonBusiness Member
    Lender · Sarasota, FL · Member since 2022 · 2k+ posts · 667 votes
    3y

    I dont know who you spoke to but I can assure you there are no DSCR loans for 5+ units out there less than 6%.. Even 7% is skeptical. I have seen the products and priced scenarios out with almost evey dscr lender on BP and beyond. This is fishy. The only time commercial rates are sub DSCR is when you shop a LOCAL strict commercial bank that uses their own index like FLB rate and ads almost nothing into their yield spread. 5yr spread today is roughly 4.5 ... even with commercial institutions and no broker involved for additional hits in rate, you would be around 7.00%

    [email protected]860-538-3672
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    2Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    3y
    Quote from @Annette Barnett:

    Hi again,

    Under contract to sell SF home - closing on Sept 7th, 1031 clocks start ticking to identify and purchase multi-family property.   

    I'm starting to reach out to a number of you (lenders) who have responded to my posts, thank you!  I've got some potential properties that you can run numbers on.  

    MY CONFUSION: I have seen/read that if I get a DSCR commercial multifamily loan (5 units or more), I can get rates in the 5s or 6s??  Such as here:

    https://trussfinancialgroup.com/debt-service-coverage-ratio-...

    Where it shows the starting rate of 5.97%.  Yes, this could be bait and switch.  Called and left a message. 

    I've also heard that I can get a lower DSCR rate if I work with a lender who requires my taxes? Everywhere I look online I read that DSCR loans don't require taxes. Seems like this is not always the case?

    Little help please . . 

    ~Annette


    You won't be able to get 5.97% on a 30 year fixed DSCR loan. 5 units or more, the rate starts at 8.99% and above. LTV is going to be about 75%.

    You may be able to get rates in the 5s on a 5 year fixed commercial full doc loan. LTVs are somewhere around 65-70% depending on DSCR, personal income and net worth.

    [email protected]818-269-7983
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  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    3y
    Quote from @Annette Barnett:

    Hi again,

    Under contract to sell SF home - closing on Sept 7th, 1031 clocks start ticking to identify and purchase multi-family property.   

    I'm starting to reach out to a number of you (lenders) who have responded to my posts, thank you!  I've got some potential properties that you can run numbers on.  

    MY CONFUSION: I have seen/read that if I get a DSCR commercial multifamily loan (5 units or more), I can get rates in the 5s or 6s??  Such as here:

    https://trussfinancialgroup.com/debt-service-coverage-ratio-...

    Where it shows the starting rate of 5.97%.  Yes, this could be bait and switch.  Called and left a message. 

    I've also heard that I can get a lower DSCR rate if I work with a lender who requires my taxes? Everywhere I look online I read that DSCR loans don't require taxes. Seems like this is not always the case?

    Little help please . . 

    ~Annette


    Its bad marketing and misleading broker - DSCR Loans need to be crisply defined as residential investment property loans (traditionally 1-4 unit, recently expanded just a touch to 10) as distinct from Multifamily or Commercial Loans which generally are for larger properties or multifamily

    tried to do so in this article

    https://www.biggerpockets.com/blog/what-documents-do-you-nee...

    Multifamily Loans which traditionally are anything over 5 units and/or over 3 million loans are not "DSCR Loans" these are a totally different loan product. If someone is advertising "DSCR" loans up to $30M its wrong and a misnomer

    So if you see that, thats more for large, more institutional multifamily properties (typically 10+ units) and yes, those loans will generally have lower rates BUT are a completely different product (typically nonrecourse, typically 5 or 10 year balloons, typically shorter amort schedule, much higher underwriting and qualification requirements etc.)

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  • Jonathan Taylor
    Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
    3y

    @Annette Barnett From loans that are strictly based on DSCR (no other documents required) to the commercial loans backed by the US Government, they each use some variety of debt service calculation. I have seen lenders advertise DSCR loans in the low 6s but the reality is its probably a governement loan that incorporates a DS calc.

    Rate is relative to risk, the less documents (tax returns, PFS, SREO, bank statements, income, etc) the higher the rate ie risk, the more documentation, the lower the risk and in turn, rate. We all want to believe there is a secret lair of low rates and high leverage hiding in the market somewhere but its not true. If thats being advertised, its probably too good to be accurate.  

    1Reply
  • Nick BelskyBusiness Member
    Residential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
    3y

    @Annette Barnett

    I agree with @Jonathan Taylor, I think you've come across a govey program that is using DSC as a factor. As others have pointed out, 7.5-10% is pretty common right now. Not to say there isn't a local bank or CU running a special somewhere, but in general, that's were we are for now. I can say that I have done true DSCR loans with well over 5-units on 30 year fixed. Light doc, no tax returns, etc... they did look at income, but do not use a DTI. Even then, the rates were still in line with most other lenders.

    Cheers!

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    1Reply
  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    3y

    @Annette Barnett- thanks ...very unlikely that you will be able to get any loan with a rate in the  5-6% range on a  commercial loan ....you will likely  find that a commercial loan will be  7% + rate /   2% + in fees  and  loan to value  75% or less ...if the property is a 4 unit or smaller - pricing options will be better 

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