Lending snobbery - DSCR loans
Most Popular Reply
Robin SimonBusiness Member
Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votesQuote from @Lisa H.:
Has anyone experienced a lender treat you differently after reviewing your financials? I am working with this lender who was so friendly and helpful. I was fist trying to qualify for a conventional but since I can't verify some of my income and my tax returns are a bit of a mess, I'm going down the DSCR loan path. But this lenders attitude shifted. He says I wouldn't have any issues with getting a DSCR loan but "good luck finding any deals that pass the 1%." And he supposedly works with investors.
The problem with "conventional" loans is that these are really government-subsidized product and they have to follow those rules exactly and have no flexibility to make things work (i.e. glorified rule checkers). That probably explains the frustration more than "snobbery"!
Harpoon Capital514 Reviews
40 Replies
- Lender · Member since 2019 · 250 posts · 219 votes2y
That is a strange situation, does this lender offer DSCR loans? It is true that getting a DSCR of 1 can be challenging in some markets, but there are a plethora of ways around that. Depending on your income scenario, you may be able to even utilize a different Non-Qm product besides DSCR.
I personally would not work with anyone who treats you less than ideal.
- 2yLisa H.Investor · Member since 2023 · 38 posts · 18 votesOP
Yes, he offers these loans. I just think it’s weird his abrupt shift. The first time talking with him he mentioned if I couldn’t get qualified for conventional that there were other paths. So here I am going down these other paths and he’s almost discouraging me because he’s saying I’ll likely never find a deal where the numbers work out.
I have cash on hand to buy the property outright. But….you know, I don’t want to use MY money. I want to leverage someone else’s. Do you think lenders get upset with this fact at all?!?!? I wouldn’t think so. I just dont know. I’m a newby.
- Lender · Member since 2019 · 250 posts · 219 votes2y
There is zero reason for an attitude shift. If you have plenty of assets, there are all kinds of way's to make the numbers work via sub 1 DSCR, STR data, ect. DSCR loans are often much easier to work with than conventional, my guess is he is just not comfortable with that loan product.
Best of luck!
- Investor · Akron, OH · Member since 2016 · 2k+ posts · 4k+ votes2yI have found that just because one lender isn't interested in a particular deal or type of deal doesn't mean that other's won't be. I had one deal get turned down twice before I found a lender that was interested. Also, ask for feedback, sometimes it has nothing to do with you-- I recently had a lender tell me they were overloaded on small multi fam loans and were only looking at SFR or larger deals so he gave me a referral. Perhaps your lender was just trying to commiserate...It really has gotten tough to find deals that work with today's high interest rates unless you plan to invest a significant down payment even in a cash flow market like Akron.
- Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes2y
Quote from @Lisa H.:
Has anyone experienced a lender treat you differently after reviewing your financials? I am working with this lender who was so friendly and helpful. I was fist trying to qualify for a conventional but since I can't verify some of my income and my tax returns are a bit of a mess, I'm going down the DSCR loan path. But this lenders attitude shifted. He says I wouldn't have any issues with getting a DSCR loan but "good luck finding any deals that pass the 1%." And he supposedly works with investors.
He was being nice to you at first because you represented a payday. After reviewing your finances all you represent to him is a waste of time. Is it polite? No. Is it the way it goes sometimes? Yes. It is what it is.
- 2yDevin PetersonBusiness MemberLender · Sarasota, FL · Member since 2022 · 2k+ posts · 664 votesHi Lisa,
Quote from @Lisa H.:
Has anyone experienced a lender treat you differently after reviewing your financials? I am working with this lender who was so friendly and helpful. I was fist trying to qualify for a conventional but since I can't verify some of my income and my tax returns are a bit of a mess, I'm going down the DSCR loan path. But this lenders attitude shifted. He says I wouldn't have any issues with getting a DSCR loan but "good luck finding any deals that pass the 1%." And he supposedly works with investors.
sorry to hear about that! Any lender or broker should be thankful to get business in these times. There’s a lot of ways to solve this problem. Sounds like the knowledge for creativity within DSCR may not be there. If you’d like to hear more creative options feel free to connect!
ProAlpha Capital56 Reviews - Lender · Warwick Rhode Island · Member since 2023 · 37 posts · 20 votes2y
The loan officer may no longer believe in the deal and perceives a lot of work on his end for something that may not close. Or it could be structuring a file in a way they aren't familiar with doing and they'd rather spend their time on the easy stuff.
In today's environment, a loan office should be happy with any loan opportunity they get.
No matter the reason, you deserve to be treated well and they should be thankful they have a deal to work on.
Jason
- 2yRobin SimonBusiness MemberLender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
Quote from @Lisa H.:
Has anyone experienced a lender treat you differently after reviewing your financials? I am working with this lender who was so friendly and helpful. I was fist trying to qualify for a conventional but since I can't verify some of my income and my tax returns are a bit of a mess, I'm going down the DSCR loan path. But this lenders attitude shifted. He says I wouldn't have any issues with getting a DSCR loan but "good luck finding any deals that pass the 1%." And he supposedly works with investors.
The problem with "conventional" loans is that these are really government-subsidized product and they have to follow those rules exactly and have no flexibility to make things work (i.e. glorified rule checkers). That probably explains the frustration more than "snobbery"!
Harpoon Capital514 Reviews - 2yDerek BrickleyBusiness MemberLender · Ann Arbor, MI · Member since 2021 · 664 posts · 226 votes
It sounds like they don't work with investors much. If you have the funds and the means, then there is no reason for that. Yes, your pricing may be better with a DSCR ratio above 1, but you can go below that at least with some lenders. Being in this business as an investor is about finding and building a team that supports you and your goals, and if that means giving one of those people the boot then I'd say you're better off elsewhere.
Gold Star Mortgage Financial Group548 Reviews - 2yBrittany MinocchiBusiness MemberLender · Massillon, OH · Member since 2022 · 1k+ posts · 486 votes
Gross. Sorry that happened to you! Not sure what reason there would be for a poor attitude just because you needed to switch loan types. At least he showed his true character at the beginning, I'd take that as a win. It's not up to us as loan officers to tell you what you will or won't find, it's our job to help navigate the numbers. If they work, cool, if not, on to the next. Not all lenders require a 1.00 ratio, but less than that usually has garbage terms...and there are ways to get the ratio to work outside of just looking at market rents if you're close enough.
Anyways, if you want to chat without needing to worry about judgement and arrogance, feel free to reach out!
Brittany Minocchi - Barrett Financial Group, LLC522 Reviews - 2yWyatt WolffPro MemberLender · Charlotte, NC · Member since 2019 · 467 posts · 279 votes
Ultimately, you can geta loan with similar terms to whatever he is offering through most brokers. Shop for the relationship and the customer service. Always.
- 2yStacy RaskinBusiness MemberLender · Member since 2022 · 1k+ posts · 501 votes
@Lisa H., some lenders don't feel comfortable with DSCR loans as they don't specialize in them and they don't understand really how they work. It's best to work with a friendly, honest, experienced lender who specializes in DSCR loans. Also many lenders who offer great terms for conventional don't have great DSCR programs and vice versa. It goes back to how the lender is structured and who they sell their loans to on the back end after they fund your loan.
You will have a lot more lending options if the loan amount is $100K or over as many lenders don't do under $100K loans or if they do, they will be very fee heavy for the loan amount. It's the same work to do a $50K loan compared to a $500K loan so the lender will make sure the fees are there to compensate their team including underwriters, etc.
In case helpful more info on DSCR loans:
DSCR loans won't use your income to underwrite the loan.
DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.
Here's a bit more in detail about how rates are calculated for DSCR loans:
1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders
2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.
3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.
4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.
I've included an example below to help illustrate this.
So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.
See example below:
DSCR < 1
Principal + Interest = $1,700
Taxes = $350, Insurance = $100, Association Dues = $50
Total PITIA = $2200
Rent = $2000
DSCR = Rent/PITIA = 2000/2200 = 0.91
Since the DSCR is 0.91, we know the expenses are greater than the income of the property.
DSCR >1
Principal + Interest = $1,500
Taxes = $250, Insurance = $100, Association Dues = $25
Total PITIA = $1875 Rent = $2300
DSCR = Rent/PITIA = 2300/1875 = 1.23
DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.
Bright Skyline518 Reviews - Lender · San Diego, CA · Member since 2022 · 130 posts · 75 votes2y
Hey Lisa! A lender should be able to structure the loan to reflect at least a 1.00 DSCR. It's possible that due to your desired LTV and the property's costs (such as taxes, insurance, and management), your lender couldn't find an option for you. But, that creates an opportunity for you guys to brainstorm how to make the deal work. I want to hope that your lender didn't mean to be sarcastic, but, maybe their products aren't a good fit for your investing preference. I hope this helps!
- 2yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Quote from @Lisa H.:
Has anyone experienced a lender treat you differently after reviewing your financials? I am working with this lender who was so friendly and helpful. I was fist trying to qualify for a conventional but since I can't verify some of my income and my tax returns are a bit of a mess, I'm going down the DSCR loan path. But this lenders attitude shifted. He says I wouldn't have any issues with getting a DSCR loan but "good luck finding any deals that pass the 1%." And he supposedly works with investors.
Hey Lisa,
Sounds like this lender actually had to do some work.
There is a lot of lenders that just want quick and easy money. Good FICO, good income, and assets for a guaranteed close. You are better off going to Chase or BofA if you fit in that category.
You are better off pairing yourself with a broker. Preferably one that has the desire to win your business. There are many out there that just see you as another number,
LuxePrivate Investments LLC 572 Reviews - Lender · Orlando, FL · Member since 2016 · 340 posts · 115 votes2y
@Lisa H.
There's no excuse for any vendor / lender agent to be rude. Any investor with one home has a major leg up on the average American household. There are plenty of U.S. Lender's out there and many offer DSCR at similar terms nationwide. Their loss.
- Lender · Orlando, FL · Member since 2016 · 340 posts · 115 votes2y
@Jill F. Love Akron! Wish everyone loved small loans. Institutional investors like to stay over $100k some $75k. You just have to keep calling submitting to find them for markets like Akron for DSCR. PS public records tells all.
- 2yStephanie P.Pro MemberWashington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
Quote from @Lisa H.:
Has anyone experienced a lender treat you differently after reviewing your financials? I am working with this lender who was so friendly and helpful. I was fist trying to qualify for a conventional but since I can't verify some of my income and my tax returns are a bit of a mess, I'm going down the DSCR loan path. But this lenders attitude shifted. He says I wouldn't have any issues with getting a DSCR loan but "good luck finding any deals that pass the 1%." And he supposedly works with investors.
This reminded me of an old boss I had (feels like a hundred years ago).
Back in the early 90's when subprime loans were just getting started, I had this borrower that I got from a Pennysaver ad that I ran (some of you may remember them). The nice lady didn't qualify for a conventional loan because her taxes were a mess (she had a few properties and wrote everything and its mother off). As it happened, a wholesale rep from Unicor Mortgage came into the office and asked to look at turn downs to see if he could do something with them. I had the file in the bottom of my desk drawer (paper files back then) and I showed it to him. He wrote up the prequal, told me to fax the submission form in, send over the few documents they needed and the closed the loan in 2 weeks. My boss was furious because the borrower "didn't deserve a loan" and "if they can't go conventional or government, we don't lend to them." Well I left a couple weeks later and never looked back. That kind of mentality is still alive and well in many lending institutions; even those that offer DSCR loans. Many LO's don't know how to structure them, they don't know the pieces of an LLC that they may or may not need to collect and some don't even know the difference between a hazard policy and a homeowner's policy.
Sorry you got a bad LO.
Stephanie
- 2yLisa H.Investor · Member since 2023 · 38 posts · 18 votesOP
Yes!!!! This is what it feels like. I relate to the pennysaver woman—-and I remember pennysaver!!!! Thanks for responding. I’ll be sure to steer clear away from jerks like the one I was dealing with.
- 2yLisa H.Investor · Member since 2023 · 38 posts · 18 votesOPWhen working with a broker/lender specifically with a DSCR loan, is it common to give the lender all the details of the property you’re about to make an offer on so they can run numbers—making sure it passes the 1%. I can crunch numbers on my own but what involvement and support do brokers provide? I think I need to get educated more on these loans and the process. You can dm me if easier.
Quote from @Brittany Minocchi:
Gross. Sorry that happened to you! Not sure what reason there would be for a poor attitude just because you needed to switch loan types. At least he showed his true character at the beginning, I'd take that as a win. It's not up to us as loan officers to tell you what you will or won't find, it's our job to help navigate the numbers. If they work, cool, if not, on to the next. Not all lenders require a 1.00 ratio, but less than that usually has garbage terms...and there are ways to get the ratio to work outside of just looking at market rents if you're close enough.
Anyways, if you want to chat without needing to worry about judgement and arrogance, feel free to reach out!
- Lender · Mesa, AZ · Member since 2016 · 61 posts · 29 votes2y
Hi Lisa - to echo what alot of others have mentioned, there's even DSCR products that can go to 75% of what the PITI is, so I wouldn't listen to a lender that's telling you its not possible, just closed 3 for my clients this past month....there's still plenty of deals everywhere.
The other thing to keep in mind, is if you find a good lender, they'll even have hard money lenders that would happily do something at almost the same rates. I know I have my private investors that will do investments all the time, way less paperwork, more non conventional financing and just better options available. So like everyone mentioned, find someone you can trust but also not just stuck with the normal conventional options. Most banks like a Bank of America and big box companies can't do out of box loan programs. Hope this helps!
- Member since 2023 · 4 posts · 1 vote2y
Sorry to hear how that lender is treating you. That’s kind of ridiculous if you ask me! I work with top providers that offer no down collateral and is promissory. Although you do have to prove you’re a small business and that you have revenue to show for the loan amount you’re after.
Your Credit score is a very low factor and will work with under 600 fico scores. I will say the interest rates are higher than bank loans but is an overall quick and easy approval process.
- Specialist · NJ · Member since 2022 · 1k+ posts · 650 votes2y
The 1% rule is getting harder to find. There are markets you can still find it, but in a SFH these days it will be rough. I usually see the 1% rule in 2 - 4 unit buildings.
No one should treat you differently, ever. I've seen bank statements with millions in the account and I've seen statements that have been in the negative and I've never treated anyone differently cause one day those two investors may switch places, you never know.
- 2yLisa H.Investor · Member since 2023 · 38 posts · 18 votesOPThank you! This was helpful.
Quote from @Stacy Raskin:
@Lisa H., some lenders don't feel comfortable with DSCR loans as they don't specialize in them and they don't understand really how they work. It's best to work with a friendly, honest, experienced lender who specializes in DSCR loans. Also many lenders who offer great terms for conventional don't have great DSCR programs and vice versa. It goes back to how the lender is structured and who they sell their loans to on the back end after they fund your loan.
You will have a lot more lending options if the loan amount is $100K or over as many lenders don't do under $100K loans or if they do, they will be very fee heavy for the loan amount. It's the same work to do a $50K loan compared to a $500K loan so the lender will make sure the fees are there to compensate their team including underwriters, etc.
In case helpful more info on DSCR loans:
DSCR loans won't use your income to underwrite the loan.
DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.
Here's a bit more in detail about how rates are calculated for DSCR loans:
1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders
2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.
3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.
4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.
I've included an example below to help illustrate this.
So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.
See example below:
DSCR < 1
Principal + Interest = $1,700
Taxes = $350, Insurance = $100, Association Dues = $50
Total PITIA = $2200
Rent = $2000
DSCR = Rent/PITIA = 2000/2200 = 0.91
Since the DSCR is 0.91, we know the expenses are greater than the income of the property.
DSCR >1
Principal + Interest = $1,500
Taxes = $250, Insurance = $100, Association Dues = $25
Total PITIA = $1875 Rent = $2300
DSCR = Rent/PITIA = 2300/1875 = 1.23
DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.
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