Lending snobbery - DSCR loans

Atlanta, Georgia
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Lending snobbery - DSCR loans

Lisa H.
Investor · Member since 2023 · 38 posts · 18 votes

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.

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Robin SimonBusiness Member
Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
2y
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"!

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  • Lisa H.
    OP
    Investor · Member since 2023 · 38 posts · 18 votes
    2y
    Quote from @Mark Mazzucco:

    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!

    Thank you! This is encouraging. 
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  • Stacy RaskinBusiness Member
    Lender · Member since 2022 · 1k+ posts · 501 votes
    2y
    Quote from @Lisa H.:
    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.

    Thank you! This was helpful. 

     You're welcome! Happy you found it helpful. 

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  • Joe S.Pro Member
    Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
    2y
    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.


    It sounds like the lender simply told you the truth. I wasn't there, so I don't know what tone of voice the Lender used or if his facial expression was not to your liking. There are many seasoned investors that get DSCR loans that this lender was referring to.

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  • Shiloh LundahlPro Member
    Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
    2y

    @Lisa H. this is what I would say, “hmmm… that’s interesting. NEXT!” I wouldn’t take it personal. I’ve worked with seven or eight banks in getting loans. Sometimes a bank does a good job or there’s a banker there that works well with me. Sometimes there isn’t. I look for 20 percenters they get 80% of the work done. And I don’t work with 80 percenters they only get 20% of the work done. 

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  • Lisa H.
    OP
    Investor · Member since 2023 · 38 posts · 18 votes
    2y

    @Shiloh Lundahl great advice!  I guess I am always curious why people behave the way they do but you're right, "NEXT"!

    0Reply
  • Nick BelskyBusiness Member
    Residential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
    2y

    @Lisa H.

    Strictly an LO issue.  As an LO/Broker, I can easily tell you there are plenty of us out there that offer exceptional services to any borrower.  Unfortunately, there are also the opposite that give us a bad representation.  If you are unhappy with whom you are working with, switch to someone else. I am sure there are plenty you can find on BP who would be happy to assist you.

    Cheers!

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

    @Lisa H.- the lender you describe likley has the DSCR program to offer but I bet they dont do many of these loans ( hence the attitude you describe ) ...trust your gut and consider finding a lender thats happy to help with your needs

    0Reply
  • Sasha MohammedPro Member
    Lender · Costa Mesa, CA · Member since 2018 · 337 posts · 245 votes
    2y

    i suspect the hurdle may also have been that the LO wasn't ABLE to provide you a loan, and maybe a little ego sprinkled in. If you're looking in the $100k acquisition range, most lenders have a $100k minimum loan amount if not traditional financing (fannie/ freddie/ FHA). As opposed to just being honest, he may have just not wanted to say "its us that can't do it."

    certainly not to make excuses for poor behavior; we as brokers and loan originators live and die by our customer service and referral business. but we are imperfect human beings. it could have been any number of things: personal reasons, immaturity, inexperience, ego... the list goes on. 

    But i think the takeaway is that he was not the right fit for your needs, and that's okay as well. There are plenty of pros out there who would be ecstatic to work with you, and would work hard to make your deal work... or at the very least, kindly inform you if/when they can't help. 

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  • Caleb Sonneman
    Real Estate Agent · Tampa, FL · Member since 2020 · 21 posts · 9 votes
    2y

    Mortgage brokers are salesmen. A good salesman will treat the high-end buyer the same as the low-end. You never know what treating someone right will produce (referrals, repeat customers). If he is making you feel second rate, move on to someone else who will treat you exceptionally.

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  • Lisa H.
    OP
    Investor · Member since 2023 · 38 posts · 18 votes
    2y

    @Caleb Sonneman I agree! I moved on. Found someone more top tier (from here). So far, so good! Now I’m just trying to find those deals!!!!

    2Reply
  • Lucas Thomas
    Member since 2023 · 111 posts · 70 votes
    2y

    Hello!

    I am a Licensed Mortgage Broker who specializes in DSCR.

    The guy doesn't understand the product and probably isn't a landlord. 

    I'm a Landlord and use DSCRs exclusively in my business!

    Their are lenders who will go under the 1%, but usually the investment isn't good as then you are barely breaking even on the rent vs. mortgage. 

    The best thing to do is start looking into multifamily 1-12 units and to look out of state if your current market isn't accommodating you. I'm personally buying in 6-7 different states due to this issue. 

    What are you looking for in your investment? 

    0Reply
  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    2y

    @Stephanie P. good ole days ~ rep from Fremont Bank and (can't put his name here he's still working) was at New Century would close the hardest deal. I didn't broker but was so grateful they got people closed.  

    @Lisa H.  $100000 sale price equals $500 commission for the dude. He counted the minutes that he worked hourly. This is NO Excuse. Your guy is lazy. I love doing small deals for the joy of getting people through the gateway.  

    1Reply
  • Caleb Sonneman
    Real Estate Agent · Tampa, FL · Member since 2020 · 21 posts · 9 votes
    2y
    Quote from @Lisa H.:

    @Caleb Sonneman I agree! I moved on. Found someone more top tier (from here). So far, so good! Now I’m just trying to find those deals!!!!


     Awesome! Glad to hear that. Good luck, Lisa!

    1Reply
  • Wyatt WolffPro Member
    Lender · Charlotte, NC · Member since 2019 · 467 posts · 279 votes
    2y
    Quote from @Lisa H.:

    @Caleb Sonneman I agree! I moved on. Found someone more top tier (from here). So far, so good! Now I’m just trying to find those deals!!!!


     There you go!! Thats the way to do it 

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