loan without impacting credit score/history (DSCR loan)

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loan without impacting credit score/history (DSCR loan)

Praveen Van
Member since 2024 · 2 posts · 1 vote

Hello BPs, 
I am newbie here and have a question related to DSCR loan. I own multiple rentals (with conventional loan types) and its getting tougher for my next big rental ($2M property) which I am going to purchase through a partnership LLC. I heard about DSCR loan where it looks at the property rental income to purchase value ration and not your credit history. Is this true? Would this new DSCR loan be still reported/shown on all of the LLC partners credit history? I dont want it to be impacting all of our credit score.

Appreciate any response in advance. 

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Robin SimonBusiness Member
Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
2y
Quote from @Praveen Van:

Hello BPs, 
I am newbie here and have a question related to DSCR loan. I own multiple rentals (with conventional loan types) and its getting tougher for my next big rental ($2M property) which I am going to purchase through a partnership LLC. I heard about DSCR loan where it looks at the property rental income to purchase value ration and not your credit history. Is this true? Would this new DSCR loan be still reported/shown on all of the LLC partners credit history? I dont want it to be impacting all of our credit score.

Appreciate any response in advance. 


Yes - DSCR Loans can go through LLCs and these will typically not be reported on personal credit (unless it goes 90+ delinquent if you are the personal guarantor). There is some repeated confusion around this topic because pretty much all of the main servicing companies that service DSCR Loans are prone to mistakes - and sometimes accidentally report it. However, if you have a good and responsive lender - if this happens to you, you can typically get it removed from the credit report pretty quickly/easily if the error occurs.

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  • Tom S.
    Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
    2y

    @Praveen Van Not sure on a DSCR loan specifically but I have similar commercial loans, that are based off the rental income of the property. They don't reflect on personal credit. However, if applying for a new conventional loan, it's supposed to be disclosed. Also note the loan will show on your tax returns.

    0Reply
  • Praveen Van
    OP
    Member since 2024 · 2 posts · 1 vote
    2y

    Thanks for your response Tom! Appreciate it. Could you please share info on the commercial loans that you mentioned?

    0Reply
  • Jacob Sherman
    12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes
    2y

    Hey ! yes it is true . The DSCR loan is underwritten solely based on the income of the property . It is no income no doc from the borrower . Can have one guarantor and use one partners credit and all others can be on the operating agreement . what is the full scenario looking like ?

    0Reply
  • Jude Benett
    Member since 2024 · 2 posts · 0 votes
    2y

    Yeah, DSCR loans can be a game-changer for property investors like yourself. They mainly focus on the property's income rather than your credit history, which is pretty sweet. As for impacting your credit scores, it shouldn't show up on your personal credit reports since it's through your LLC. However, always double-check with your lender to be sure. Good luck with snagging that $2M property!

    0Reply
  • Andrew Zamboroski
    Lender · Member since 2021 · 495 posts · 130 votes
    2y
    Quote from @Praveen Van:

    Hello BPs, 
    I am newbie here and have a question related to DSCR loan. I own multiple rentals (with conventional loan types) and its getting tougher for my next big rental ($2M property) which I am going to purchase through a partnership LLC. I heard about DSCR loan where it looks at the property rental income to purchase value ration and not your credit history. Is this true? Would this new DSCR loan be still reported/shown on all of the LLC partners credit history? I dont want it to be impacting all of our credit score.

    Appreciate any response in advance. 

    It depends, certain lenders and/or servicers will report the loan to a personal credit. It is an important thing to ask the originator you use. 

    in general though, a DSCR loan will take into account your personal credit score and the rental income of the property covering the expenses. Happy to chat further if I can be helpful.
    0Reply
  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    2y
    Quote from @Praveen Van:

    Hello BPs, 
    I am newbie here and have a question related to DSCR loan. I own multiple rentals (with conventional loan types) and its getting tougher for my next big rental ($2M property) which I am going to purchase through a partnership LLC. I heard about DSCR loan where it looks at the property rental income to purchase value ration and not your credit history. Is this true? Would this new DSCR loan be still reported/shown on all of the LLC partners credit history? I dont want it to be impacting all of our credit score.

    Appreciate any response in advance. 


    Yes - DSCR Loans can go through LLCs and these will typically not be reported on personal credit (unless it goes 90+ delinquent if you are the personal guarantor). There is some repeated confusion around this topic because pretty much all of the main servicing companies that service DSCR Loans are prone to mistakes - and sometimes accidentally report it. However, if you have a good and responsive lender - if this happens to you, you can typically get it removed from the credit report pretty quickly/easily if the error occurs.

    [email protected]
    Harpoon Capital514 Reviews
    WebsiteView Page
    10Reply
  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    2y
    Quote from @Jacob Sherman:

    Hey ! yes it is true . The DSCR loan is underwritten solely based on the income of the property . It is no income no doc from the borrower . Can have one guarantor and use one partners credit and all others can be on the operating agreement . what is the full scenario looking like ?


     I would always specify that is primarily not "solely" based on the property - Credit and liquid reserves are still a significant part of the underwrite

    [email protected]
    Harpoon Capital514 Reviews
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    3Reply
  • Trey Belmore
    Lender · Dallas, TX · Member since 2023 · 21 posts · 8 votes
    2y

    Is this a 1-4 unit property? if you're looking to get a DSCR loan for a residential 1-4 unit property then the primary borrower/guarantor will be on the loan thus the loan will report on their personal credit report. If this is a commercial property then that is a different story. Technically, all commercial loans are DSCR loans. In the commercial world they always look at the NOI compared to the cost to service the debt and those type of loans typically do not report on your personal credit report. Shoot me a message if you would like to discuss further.

    0Reply
  • Jacob Sherman
    12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes
    2y
    Quote from @Robin Simon:
    Quote from @Jacob Sherman:

    Hey ! yes it is true . The DSCR loan is underwritten solely based on the income of the property . It is no income no doc from the borrower . Can have one guarantor and use one partners credit and all others can be on the operating agreement . what is the full scenario looking like ?


     I would always specify that is primarily not "solely" based on the property - Credit and liquid reserves are still a significant part of the underwrite

    Ofcourse credit and technically with commercial DSCR there are no reserves required but yes as minimum as 3 months :) upto 80% cashout with no seasoning too which is wild . I know yall at easy street like to see 6 months reserves on a fix and flip and even 20% liquidity of the construction budget . we're just different lenders

    0Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    2y

    DSCR lenders will look at your personal credit to qualify. The minimum credit score to qualify is 620.

    [email protected]818-269-7983
    LuxePrivate Investments LLC 572 Reviews
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    0Reply
  • Stacy RaskinBusiness Member
    Lender · Member since 2022 · 1k+ posts · 505 votes
    2y

    @Praveen Van, sometimes loans that are in an LLC name is reported on your personal credit if you're the guarantor on the loan. It depends on who the initial lender sells and services the loan after funding (most DSCR lenders sell off the loans at the end of the process). The big difference between conventional and DSCR property financing is that the lender is looking at the rental income and not the borrower's individual income / DTI ratio (income is only looked at for reserves and cash to close).

    More info on DSCR loans in case helpful:

    As mentioned above, 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.

    Happy to connect to discuss further.

    [email protected]818-770-0340
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    0Reply
  • Jacob Sherman
    12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes
    2y

    DSCR will use both the rental and credit . What is the scenario looking like ?

    0Reply
  • Simmy AhluwaliaPro Member
    Lender · Atlanta, GA · Member since 2015 · 1k+ posts · 200 votes
    2y

    Praveen, reach out if/when you want a quote and/or discuss strategies.

    0Reply
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