DSCR Loan Analysis

Private Lending & Conventional Mortgage Advice

DSCR Loan Analysis

Member since 2020 · 15 posts · 9 votes

Looking to add a 3rd SFR investment property to my portfolio. I tried to do a conventional 30yr fixed mortgage but was turned down by my normal lender due to the tax write offs over the last year with my other properties. Essentially I didn't make enough to qualify for this loan. I've heard some lenders will take 75% of future rental amount to help qualify. Is this true? I asked him about it and he said he didn't do that.

So I started looking at DSCR loans for this property in TN. The best quote I've gotten back is 7.25% 30yr, closing cost 5k, 25% DP requirement, 5 year Prepayment penalty. Credit is good at around 800. PP 350k, Estimated rent 3k, looking at PITI of $2150/month. Are these loan terms competitive? If not, who do I need to contact?

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AJ WongBusiness Member

Real Estate Broker · Oregon & California Coast · Member since 2022 · 834 posts · 696 votes

Hello...Assuming an ARM? The rate sounds low..conventional mortgage primary purchases are in the high 6%'s-low 7%'s..The 5 year PPP is a little heavy as usually declining..5%.4%.3%..can also consider 'buying out' of the PPP usually around 1-1.5% of the loan amount upfront.. Typically DSCR is minimum 20-25% down, they will utilize a proportion of the current or proposed rental income to qualify.

I'd have a second look at the income for full documentation qualification as well..there might be some other ways to qualify income..including asset depletion..

I would strongly recommend to connect with @Joseph Chiofalo they are a nationwide investor focused direct lender. Good luck!

541-800-0455

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AJ WongBusiness Member
Real Estate Broker · Oregon & California Coast · Member since 2022 · 834 posts · 696 votes
2y
Hello...Assuming an ARM? The rate sounds low..conventional mortgage primary purchases are in the high 6%'s-low 7%'s..The 5 year PPP is a little heavy as usually declining..5%.4%.3%..can also consider 'buying out' of the PPP usually around 1-1.5% of the loan amount upfront.. Typically DSCR is minimum 20-25% down, they will utilize a proportion of the current or proposed rental income to qualify.
I'd have a second look at the income for full documentation qualification as well..there might be some other ways to qualify income..including asset depletion..
I would strongly recommend to connect with @Joseph Chiofalo they are a nationwide investor focused direct lender. Good luck!

541-800-0455
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Robin SimonBusiness Member
Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
2y
Quote from @Gabe Bouldien:

Looking to add a 3rd SFR investment property to my portfolio. I tried to do a conventional 30yr fixed mortgage but was turned down by my normal lender due to the tax write offs over the last year with my other properties. Essentially I didn't make enough to qualify for this loan. I've heard some lenders will take 75% of future rental amount to help qualify. Is this true? I asked him about it and he said he didn't do that.
So I started looking at DSCR loans for this property in TN. The best quote I've gotten back is 7.25% 30yr, closing cost 5k, 25% DP requirement, 5 year Prepayment penalty. Credit is good at around 800. PP 350k, Estimated rent 3k, looking at PITI of $2150/month. Are these loan terms competitive? If not, who do I need to contact?

Short Term Rental property? Rates are competitive but you could potentially get better terms
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Joseph Chiofalo
Banker · Henderson, NV · Member since 2023 · 317 posts · 74 votes
2y
Hi Gabe,
If you have a history of receiving rental income on other investment properties then you would be able to use the projected rental income on the new subject property on a full documentation loan.
If not, then the 75% rule can apply but only to offset a maximum the housing expense for the subject property with no additional overage to help your debt to income ratio.
0 Reply
Brandon Croucier
Lender · Lake Havasu City, AZ · Member since 2024 · 700 posts · 285 votes
2y
Sounds about right, I'm right there on a DSCR 30 year fixed 7.249%, 5 year prepay with around $3000 lender closing costs.
0 Reply
Devin PetersonBusiness Member
Lender · Sarasota, FL · Member since 2022 · 2k+ posts · 682 votes
2y
Quote from @Gabe Bouldien:

Looking to add a 3rd SFR investment property to my portfolio. I tried to do a conventional 30yr fixed mortgage but was turned down by my normal lender due to the tax write offs over the last year with my other properties. Essentially I didn't make enough to qualify for this loan. I've heard some lenders will take 75% of future rental amount to help qualify. Is this true? I asked him about it and he said he didn't do that.
So I started looking at DSCR loans for this property in TN. The best quote I've gotten back is 7.25% 30yr, closing cost 5k, 25% DP requirement, 5 year Prepayment penalty. Credit is good at around 800. PP 350k, Estimated rent 3k, looking at PITI of $2150/month. Are these loan terms competitive? If not, who do I need to contact?
Gabe, I would contact an experienced investment loan broker who can help you compare terms across a wide variety of vetted lenders and their platforms.
[email protected]860-538-3672
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River SavaPro Member
Lender · USA · Member since 2022 · 1k+ posts · 1k+ votes
2y
Hi Gabe,
Is this a long term rental? Rate sounds fair, however, I have seen rates in the mid 6's recently, but again it is subjective to the numbers. Sending you a dm to connect further on this.
[email protected]
1 Reply
Derek BrickleyBusiness Member
Lender · Ann Arbor, MI · Member since 2021 · 694 posts · 237 votes
2y
Hey Gabe,
The closing costs are fair, but was there a reason you might be considering a 5 year prepayment? It seems like most people we've been working with in a similar situation take a 3 year prepayment penalty or less. You will see less of a benefit to extending that penalty beyond that, and if rates drop before then you would be forced to pay that penalty to get a lower rate. Otherwise, I'd say it is fairly decent.
[email protected]734-645-7722
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Gabe Bouldien
OP
Member since 2020 · 15 posts · 9 votes
2y
Quote from @Derek Brickley:

Hey Gabe,
The closing costs are fair, but was there a reason you might be considering a 5 year prepayment? It seems like most people we've been working with in a similar situation take a 3 year prepayment penalty or less. You will see less of a benefit to extending that penalty beyond that, and if rates drop before then you would be forced to pay that penalty to get a lower rate. Otherwise, I'd say it is fairly decent.

I wasn’t given the option with the prepayment term. Of course I would like a shorter term (or none if possible)
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Derek BrickleyBusiness Member
Lender · Ann Arbor, MI · Member since 2021 · 694 posts · 237 votes
2y
Quote from @Gabe Bouldien:

Quote from @Derek Brickley:

Hey Gabe,
The closing costs are fair, but was there a reason you might be considering a 5 year prepayment? It seems like most people we've been working with in a similar situation take a 3 year prepayment penalty or less. You will see less of a benefit to extending that penalty beyond that, and if rates drop before then you would be forced to pay that penalty to get a lower rate. Otherwise, I'd say it is fairly decent.

I wasn’t given the option with the prepayment term. Of course I would like a shorter term (or none if possible)

Ah understood, I would ask them to show you other options. TN doesn't have the same restrictions some other states do so they should be able to provide you with a couple options at least.
[email protected]734-645-7722
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Jay HurstBusiness Member
Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
2y
Quote from @Gabe Bouldien:

Looking to add a 3rd SFR investment property to my portfolio. I tried to do a conventional 30yr fixed mortgage but was turned down by my normal lender due to the tax write offs over the last year with my other properties. Essentially I didn't make enough to qualify for this loan. I've heard some lenders will take 75% of future rental amount to help qualify. Is this true? I asked him about it and he said he didn't do that.
So I started looking at DSCR loans for this property in TN. The best quote I've gotten back is 7.25% 30yr, closing cost 5k, 25% DP requirement, 5 year Prepayment penalty. Credit is good at around 800. PP 350k, Estimated rent 3k, looking at PITI of $2150/month. Are these loan terms competitive? If not, who do I need to contact?

You need to speak with another lender who has experience with rental income. This LO does not sound like he does. As long as you have a primary housing expense (either renting or own) you will be able to use 75% of the appraisers opinion of the future rent.

and you will be able to add back a decent portion of your paper losses on your tax returns for the properties you already own using this form: https://content.enactmi.com/documents/calculators/Form1038.C...

It is amazing how many LO's have no idea how to do this.
Here ALL the guidelines regarding rental income if you need a nap: Fannie Mae rental income
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Jacob Sherman
12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes
2y
What is the property type ?
0 Reply
Luka Milicevic
Real Estate Agent · Nashville, TN · Member since 2015 · 2k+ posts · 2k+ votes
2y
@Gabe Bouldien
The rate you got is lower than I would expect on a DSCR.
Closing costs are a little high, but not unreasonable.
Down payment is expected
Prepayment penalty is a bit harsh at 5 years.
Overall, this is not a bad loan. Not even bad for a conventional loan honestly, especially for DSCR.
I would look into portfolio loans before jumping into DSCR.
1 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
2y
Quote from @Luka Milicevic:

@Gabe Bouldien
The rate you got is lower than I would expect on a DSCR.
Closing costs are a little high, but not unreasonable.
Down payment is expected
Prepayment penalty is a bit harsh at 5 years.
Overall, this is not a bad loan. Not even bad for a conventional loan honestly, especially for DSCR.
I would look into portfolio loans before jumping into DSCR.

Isn't portfolio a hard lift until >$2m? And even then, luke-warm interest until touching into that $4m/$5m+ mark?
0 Reply
Colin McMahon
Lender · Miami · Member since 2022 · 99 posts · 18 votes
2y
Hi Gabe,
These numbers and terms seem fair and competitive. The only element I'd reconsider is the 5-year pre-payment penalty. I'd be happy to run the numbers and cross-check for you. I'll send you a DM to connect!
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Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
2y
Quote from @Gabe Bouldien:

Looking to add a 3rd SFR investment property to my portfolio. I tried to do a conventional 30yr fixed mortgage but was turned down by my normal lender due to the tax write offs over the last year with my other properties. Essentially I didn't make enough to qualify for this loan. I've heard some lenders will take 75% of future rental amount to help qualify. Is this true? I asked him about it and he said he didn't do that.
So I started looking at DSCR loans for this property in TN. The best quote I've gotten back is 7.25% 30yr, closing cost 5k, 25% DP requirement, 5 year Prepayment penalty. Credit is good at around 800. PP 350k, Estimated rent 3k, looking at PITI of $2150/month. Are these loan terms competitive? If not, who do I need to contact?

75% LTV at a low 7% rate is definitely possible with a good FICO score, and high PPP penalty. The rate is competitive but just keep in mind that you will be hit with 5% to 1% of the loan amount if for whatever reason you refinance on year 1, 2, 3, 4, and 5. The rate is fair and so are the closing costs.
Make sure to get an official term sheet and so not fall for the bait and switch. It is very common in this space
[email protected]818-269-7983
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Colin Faux
Lender · Austin, TX · Member since 2024 · 6 posts · 2 votes
2y
Quote from @Gabe Bouldien:

Looking to add a 3rd SFR investment property to my portfolio. I tried to do a conventional 30yr fixed mortgage but was turned down by my normal lender due to the tax write offs over the last year with my other properties. Essentially I didn't make enough to qualify for this loan. I've heard some lenders will take 75% of future rental amount to help qualify. Is this true? I asked him about it and he said he didn't do that.
So I started looking at DSCR loans for this property in TN. The best quote I've gotten back is 7.25% 30yr, closing cost 5k, 25% DP requirement, 5 year Prepayment penalty. Credit is good at around 800. PP 350k, Estimated rent 3k, looking at PITI of $2150/month. Are these loan terms competitive? If not, who do I need to contact?

Well Gabe, if you didn't have plenty of options before. You do now! My company offers a price beat guarantee. So if you already have terms, my company will give you something better. Reach out if you want to discuss more.
0 Reply
Andres Garcia
FL · Member since 2024 · 17 posts · 5 votes
2y
Quote from @Luka Milicevic:

@Gabe Bouldien
The rate you got is lower than I would expect on a DSCR.
Closing costs are a little high, but not unreasonable.
Down payment is expected
Prepayment penalty is a bit harsh at 5 years.
Overall, this is not a bad loan. Not even bad for a conventional loan honestly, especially for DSCR.
I would look into portfolio loans before jumping into DSCR.

With good credit and a low enough LTV DSCR Loans can price the same or a bit better than conventional loans.
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Tom Thomson
Member since 2019 · 57 posts · 34 votes
2y
What DSCR Lender did you get that rate from?
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Andres Garcia
FL · Member since 2024 · 17 posts · 5 votes
2y
We're correspondents with dozens of DSCR Lenders I'll leave a few quotes here.

I shop the entire industry and usually find the rock bottom best pricing.... I am very tough to compete with.

I'm matching the terms you have above... it may make sense to look at a 3 year Prepay instead because the adjustment is minimal usually.

Lender 1: 7.25% With 2 Points Up Front or 7.99% if you want to do a 0 Point Loan. (This is probably the lender hes using)

Let's see if we can find something better...

Lender 2: 7.999% with 2.25 Points Upfront... that's expensive, these guys are usually more competitive

Lender 3: 7.124% with 2 points up front or we can buy the rate down more with these guys.

If you pay an additional 2 points upfront we can bring it down to 6.499%, which looks pretty these days...

but let's see what that translates to payment wise....

Fron $1,768 to $1657... $111 per month savings or $6,660 over the term of the pre pay and it would cost you a little over $5k upfront...

so if you keep the loan through the prepay period you profit $1,000 bucks

if you keep it the full term it's a savings of around ~$35,000

Most DSCR Lenders dont allow rate significant rate buydowns these guys do (Lowest I can go down to 5.999% but that's paying 6 points total) and we're correspondents with them so it would close Lightning Fast...

a couple more, this is kind of fun...

Lender 4: Ooooh, interesting...

L4 - Option 1: 7% with 2 Upfront BUT... I can go to 80% without affecting the pricing. So that's 5% more in your pocket and a bit of savings on the rate

L4 - Option 2: 7.125% with 2 Upfront BUT a 40 year(30 if you prefer) fixed term AND Interest Only for the first 10 years...

we're getting lower!

Lender 5: 7.25 paying 2 Points so pretty standard on this one...

This has been great and you guys can see how I work... I shop the deals to death until I get to the rock bottom. My CEO gives me a lot of freedom and we have every major (and some minor) DSCR Lenders on board...

If you where my client I would price this thing out with 40+ Lenders, my AE's know how I work and help me with this so it can be done in a few business hours.

I would love to connect!
0 Reply
Charlie GonzalezPro Member
Lender · Charlotte, NC · Member since 2023 · 70 posts · 10 votes
2y
Hi Gabe,
Very clean scenario. With me, if your ratio is over 1.0, you get pricing enhancements. Currently, our rates start at 6.5%, specifically for your scenario above. I can run some other quotes for you if you would like. Just so you have another option to consider. Message me if you are interested! See rate grid below:
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