Is my first DSCR loan experience normal?

Fort Worth, Texas
Private Lending & Conventional Mortgage Advice
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Is my first DSCR loan experience normal?

Hana Mori
Investor · Fort Worth, TX · Member since 2023 · 7 posts · 7 votes

My first DSCR loan experience was unexpected. I'm looking for guidance from this community. Is my experience normal?

I was given the loan terms verbally from a DSCR loan broker out in California for a cash-out refinance on one of my rentals. The appraised value is exactly what I estimated, as well as the market rent and expenses. However, right before closing, the terms changed drastically, and there were $4000 extra loan fees that were never disclosed during the month-long underwriting, despite my efforts to get a clarification on fees. The LTV ratio also dropped to 70% from the original quote which was 75%, which impacts the cash-out amount. None of these changes were communicated until right before closing. I already spent $1200 on the appraisal. What would you do if you were in my situation?

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

My first DSCR loan experience was unexpected. I'm looking for guidance from this community. Is my experience normal?

I was given the loan terms verbally from a DSCR loan broker out in California for a cash-out refinance on one of my rentals. The appraised value is exactly what I estimated, as well as the market rent and expenses. However, right before closing, the terms changed drastically, and there were $4000 extra loan fees that were never disclosed during the month-long underwriting, despite my efforts to get a clarification on fees. The LTV ratio also dropped to 70% from the original quote which was 75%, which impacts the cash-out amount. None of these changes were communicated until right before closing. I already spent $1200 on the appraisal. What would you do if you were in my situation?


Caught the flag on the first sentence "given the loan terms verbally" - Pretty much all the "reputable" DSCR Lenders will give out a detailed term sheet / pre-approval letter / LOI (many different names but same thing) outlining terms and approvals early on in the process - the good news is that if you haven't closed yet you can still switch lenders and see if you can secure your original terms - also good news is that the appraisal, while likely ordered by the lender or broker is in your name and your property, so you can likely transfer it to the new lender

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  • David Ramirez
    Investor · Tampa, FL · Member since 2019 · 1k+ posts · 1k+ votes
    2y

    Did they give you any reason for the drastic change? 

    You might want to hear a second opinion, reach out to @Austin James Weed we should be able to help you out. 

    0Reply
  • Jay HurstBusiness Member
    Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    2y
    Quote from @Hana Mori:

    My first DSCR loan experience was unexpected. I'm looking for guidance from this community. Is my experience normal?

    I was given the loan terms verbally from a DSCR loan broker out in California for a cash-out refinance on one of my rentals. The appraised value is exactly what I estimated, as well as the market rent and expenses. However, right before closing, the terms changed drastically, and there were $4000 extra loan fees that were never disclosed during the month-long underwriting, despite my efforts to get a clarification on fees. The LTV ratio also dropped to 70% from the original quote which was 75%, which impacts the cash-out amount. None of these changes were communicated until right before closing. I already spent $1200 on the appraisal. What would you do if you were in my situation?

    Should not be normal, but with DSCR unfortunately it happens more then it should. Often DSCR lenders do not go through the typical compliance required by respa/TRID due to the loan being business purpose. so, it is 100% buyer beware when working with those lenders as the timelines required by TRID of any change in costs or loan amount so not apply.

    These changes MIGHT be legit due to the coverage ratio on the deal or any other changes in the application but of course they should be communicated at the very least.

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  • Connor Hibbs
    Lender · Ellington, CT · Member since 2024 · 210 posts · 103 votes
    2y

    The LTV change doesn't make sense unless there was something that caused alarm to the treasury/UW team of said lender, but they should have explained/ be able to explain why to you. Lower rates with the Fed should've helped your DSCR so if anything, it should have given you more wiggle room.
    The Fees are odd for it to be that big of a difference. The only logical thing I can think of is if the title company's fees weren't included in the estimates you were given, even then though 4k would still be significant for a title company to charge unless it was a very large loan.

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

    @Hana Mori

    No, not normal. If FMR or DSCR fell below a threshold, you should have been notified immediately. Wholesale lenders suck at DSCR. Be sure you are using a non Wholesale lender for the true DSCR experience.

    Cheers!

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  • Connor Hibbs
    Lender · Ellington, CT · Member since 2024 · 210 posts · 103 votes
    2y

    If you haven't closed, then you could seek a different lender who would accept the appraisal. You may need to spend a few hundred dollars to get a lender name change if the new lender requires that, but depending on when you rate locked you may still end up saving money with a new lower rate.

    0Reply
  • Hana Mori
    OP
    Investor · Fort Worth, TX · Member since 2023 · 7 posts · 7 votes
    2y

    Thank you for responding. The broker only provided a reason for the LTV drop which is due to the appraiser's comment that says "the market is in decline." The property is in Fort Worth TX which is a fast growing city. During the past few months we had a minor price correction like many other markets due to the high rates. The appraisal was conducted a couple of weeks before the most recent Fed's rate cut.

    0Reply
  • Hana Mori
    OP
    Investor · Fort Worth, TX · Member since 2023 · 7 posts · 7 votes
    2y
    Quote from @Connor Hibbs:

    The LTV change doesn't make sense unless there was something that caused alarm to the treasury/UW team of said lender, but they should have explained/ be able to explain why to you. Lower rates with the Fed should've helped your DSCR so if anything, it should have given you more wiggle room.
    The Fees are odd for it to be that big of a difference. The only logical thing I can think of is if the title company's fees weren't included in the estimates you were given, even then though 4k would still be significant for a title company to charge unless it was a very large loan.


     The fees are loan processing fees that never came up when I asked about the loan fees.

    0Reply
  • Jay HurstBusiness Member
    Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    2y
    Quote from @Hana Mori:

    Thank you for responding. The broker only provided a reason for the LTV drop which is due to the appraiser's comment that says "the market is in decline." The property is in Fort Worth TX which is a fast growing city. During the past few months we had a minor price correction like many other markets due to the high rates. The appraisal was conducted a couple of weeks before the most recent Fed's rate cut.

    well, that is it. Most programs will lower loan to value max if the market is declining as determined by the appraiser. I am in Dallas and find it surprising that any sub market in FTW was declining but that is the reason for the LTV reduction. The fed cut has absolutely nothing to do with anything that is going on with your loan. Nothing. 
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  • Connor Hibbs
    Lender · Ellington, CT · Member since 2024 · 210 posts · 103 votes
    2y
    Quote from @Hana Mori:
    Quote from @Connor Hibbs:

    The LTV change doesn't make sense unless there was something that caused alarm to the treasury/UW team of said lender, but they should have explained/ be able to explain why to you. Lower rates with the Fed should've helped your DSCR so if anything, it should have given you more wiggle room.
    The Fees are odd for it to be that big of a difference. The only logical thing I can think of is if the title company's fees weren't included in the estimates you were given, even then though 4k would still be significant for a title company to charge unless it was a very large loan.


     The fees are loan processing fees that never came up when I asked about the loan fees.


     That's likely the broker trying to get more money at the end. Push back on that because the lender would have included those from the start and 4,000 would be the highest processing Fee I've seen.

    2Reply
  • Hana Mori
    OP
    Investor · Fort Worth, TX · Member since 2023 · 7 posts · 7 votes
    2y
    Quote from @Connor Hibbs:

    If you haven't closed, then you could seek a different lender who would accept the appraisal. You may need to spend a few hundred dollars to get a lender name change if the new lender requires that, but depending on when you rate locked you may still end up saving money with a new lower rate.


     No, I haven't closed yet. The lack of communication and transparency didn't feel right to me.

    1Reply
  • Austin James Weed
    Lender · Tampa, FL · Member since 2020 · 7 posts · 1 vote
    2y
    Quote from @David Ramirez:

    Did they give you any reason for the drastic change? 

    You might want to hear a second opinion, reach out to @Austin James Weed we should be able to help you out. 

     Thanks David! @Hana Mori - sorry to hear about your experience. At first glance, this does seem unexpected & not in line with how the process should go. Usually on DSCR loans, lenders will provide a preliminary cost breakdown but we usually can't pick the pencil back up and finalize terms until the appraisal report is in hand and expenses (tax/insurance/HOA figures) are finalized. It seems as if everything remained true here though so the increase in fees is certainly frustrating.

    Were these lender fees or third-party fees? Is it possible that you got quoted title, insurance, escrows, recording fees, etc. that were less than the actuals? If it's the case that the lender origination/broker fee increased last minute I would not be thrilled.

    Regarding LTV, are there any seasoning restrictions in play? Perhaps you bought the property less than 6 months ago, for example, and then lender just realized that and is needing to dial back leverage?

    At the end of the day, DSCR loans are a moving target when it comes to your final cash out proceeds. I think the bigger question is why the LTV lowered & why lender fees are increasing.

    If you have maturing debt on the property or need to deploy this cash elsewhere, I would try and see it through with your current lender & work toward a solution. If not, it may be worth shopping around for a better option (rates likely are lower since you started the process a month ago). Best of luck!

    0Reply
  • Jacqueline Wright
    Lender · Nashville TN, USA · Member since 2024 · 142 posts · 30 votes
    2y

    Your experience with the DSCR loan process sounds frustrating, but it's not entirely uncommon for borrowers to encounter last-minute changes, especially in complex transactions like cash-out refinances.
    Reach out to your loan broker to get a clear explanation for the changes in terms and fees. Ask for documentation that justifies these alterations.

    It's essential to feel confident and informed throughout the lending process, so don't hesitate to advocate for yourself and seek out advice or alternative options.

    0Reply
  • Hana Mori
    OP
    Investor · Fort Worth, TX · Member since 2023 · 7 posts · 7 votes
    2y
    Quote from @Austin James Weed:
    Quote from @David Ramirez:

    Did they give you any reason for the drastic change? 

    You might want to hear a second opinion, reach out to @Austin James Weed we should be able to help you out. 

     Thanks David! @Hana Mori - sorry to hear about your experience. At first glance, this does seem unexpected & not in line with how the process should go. Usually on DSCR loans, lenders will provide a preliminary cost breakdown but we usually can't pick the pencil back up and finalize terms until the appraisal report is in hand and expenses (tax/insurance/HOA figures) are finalized. It seems as if everything remained true here though so the increase in fees is certainly frustrating.

    Were these lender fees or third-party fees? Is it possible that you got quoted title, insurance, escrows, recording fees, etc. that were less than the actuals? If it's the case that the lender origination/broker fee increased last minute I would not be thrilled.

    Regarding LTV, are there any seasoning restrictions in play? Perhaps you bought the property less than 6 months ago, for example, and then lender just realized that and is needing to dial back leverage?

    At the end of the day, DSCR loans are a moving target when it comes to your final cash out proceeds. I think the bigger question is why the LTV lowered & why lender fees are increasing.

    If you have maturing debt on the property or need to deploy this cash elsewhere, I would try and see it through with your current lender & work toward a solution. If not, it may be worth shopping around for a better option (rates likely are lower since you started the process a month ago). Best of luck!


     Thank you for your response. There were two loan processing fees on the closing disclosure and a broker fee which was the only fee that came up during my discussions with the broker. Loan processing fees were never mentioned.

    The property was purchased 8 months ago, so no seasoning restrictions.

    0Reply
  • River SavaPro Member
    Lender · USA · Member since 2022 · 1k+ posts · 1k+ votes
    2y

    Hi Hana - 

    I am sorry to hear about your experience. It’s not unusual for some adjustments to happen during the loan process, but communication around those changes is really important. If I were in your situation, I’d ask for a clear explanation of the fee differences and changes to the terms to see what may have caused them. It might also be worth exploring other options or working with someone who can provide more transparency upfront. Happy to connect and help however I can!

    [email protected]
    1Reply
  • Connor Hibbs
    Lender · Ellington, CT · Member since 2024 · 210 posts · 103 votes
    2y
    Quote from @Hana Mori:
    Quote from @Connor Hibbs:

    If you haven't closed, then you could seek a different lender who would accept the appraisal. You may need to spend a few hundred dollars to get a lender name change if the new lender requires that, but depending on when you rate locked you may still end up saving money with a new lower rate.


     No, I haven't closed yet. The lack of communication and transparency didn't feel right to me.


     I'd push on a clear explanation of the fees then and where their communication broke down. That may help you feel more comfortable here or if it doesn't then I'd explore other quotes. I've seen several other lenders reply in this chain, including myself, who could all provide you with rough term scenarios, but first I'd talk with your current broker and lender to see where the real issues stemmed from.

    0Reply
  • Kristin Flores-Brockman
    Real Estate Agent · Fort Worth, TX · Member since 2021 · 142 posts · 59 votes
    2y

    While changes are normal, communication and transparency is needed throughout the process.

    Since you paid for the appraisal, you could seek a new lender that can give you more clarity and possibly better loan terms.

    I am in the Fort Worth area as well and I can provide you some reputable local lenders to can assist. If not with this transaction, possibly ones in the future. 

    Good luck and follow you gut!

    0Reply
  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    2y

    I had this happen on a rehab loan before. Didn't see the change until 3 days before close when reviewing the docs. It's buyer beware on anything outside conventional. I closed anyways as it was a purchase but if was a refinance I would of cancelled and used another lender, the appraisal you can typically transfer FYI.

    0Reply
  • Zach Wain
    Scottsdale, AZ · Member since 2019 · 434 posts · 248 votes
    2y

    No this is not normal. But, the most common problem with DSCR loans is when the DSCR ratio changes from the loan officers initial estimate. If they thought the property cash flows $3,000 per month on a $2700 payment but the rent comps come back at $2,600 per month that changes EVERYTHING in the DSCR pricing world. The loan officer must have made a pricing mistake somewhere in the process.

    1Reply
  • Bruce Lynn
    Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
    2y

    @Hana Mori

    I'm sorry this happened to you.  No fun at all.  In my experience it is not unusual at all.  I see this most often, when people go shopping on the national websites chasing rates.  If that's what happened, you are not alone.   What I have found over and over and over is when people go chasing rates, bad things just like this often happen.  Rates change, leverage change, fees go up, and sometimes they just leave you hanging with no closing and no communication.  It just feels like a big trap.  We try to warn our buyers about this and to use one of our trusted resources that is normally local, in the business for years, super knowledgeable and has a local reputation to defend and maintain.  Sometimes people just get so focused on shopping rate, they forget about fees, and many lenders understand that, so they quote a low rate, but don't tell you there are buydown fees involved, or their fees are there to make up for the low rate.

    Next time use a trusted local resource like @Andrew Postell.  He is in the Ft. Worth area, a fellow investor, active on bigger pockets, Marine, and all around good guy and smart lender.  We also have other great lenders we work with regularly, some as long as about 20 years.  Plenty of lenders come and go, but when they last that long, they're doing something right and get lots of repeat business.

    1Reply
  • Jeff ChisumPro Member
    Lender · All 50 States · Member since 2020 · 248 posts · 142 votes
    2y

    When a loan is brokered out, it often leads to uncertainty because the originator may not have all the details upfront, especially if the lender's preferences change or they're not familiar with recent updates. A good first question to ask your loan officer is, "Are you brokering my deal?" Personally, I believe it's better to work with a lender who is fully delegated by the investor. For instance, the DSCR loans we originate are not brokered out. We are fully delegated and have worked with the same investor for three years, which provides more stability and confidence in quoting terms, fees, and expectations from the start.

    0Reply
  • Matthew CrivelliBusiness Member
    Lender · MA · Member since 2021 · 1k+ posts · 1k+ votes
    2y
    Quote from @Hana Mori:
    Quote from @Connor Hibbs:

    If you haven't closed, then you could seek a different lender who would accept the appraisal. You may need to spend a few hundred dollars to get a lender name change if the new lender requires that, but depending on when you rate locked you may still end up saving money with a new lower rate.


     No, I haven't closed yet. The lack of communication and transparency didn't feel right to me.

    Kill the deal. You may be able to have the appraisal transferred to the new lender. I would be happy to take a look. I have gotten lender name changes approved on prior deals. 
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  • Yesenia Martinez
    Flipper/Rehabber · Member since 2023 · 11 posts · 6 votes
    2y

    hi everybody,  2 questions here, please need your help:

    I have done fix and flip before about to close on my 13 deal, but i have only worked with own cash/capital.

    1. What is the legal process,  or the ABC to do when asking for private money from individual and private hard money lender?  

    2. what are current normal interests, fees, for these loans? 

    thanks--

    0Reply
  • Craig Warner
    Lender · Nationwide Lender / Novus Home Mortgage, a division of Ixonia Bank / NMLS #423065; Craig Warner / NMLS #129642 · Member since 2024 · 78 posts · 15 votes
    2y

    Hi Hana,

    We are a direct lender, not a broker and have aggressive DSCR interest rates and can use your existing appraisal. I'd be happy to give a quote.

    Let me know how I can help.

    Thanks

    Craig  

    1Reply
  • Ryan ShortPro Member
    Investor · Boston, MA · Member since 2016 · 77 posts · 55 votes
    2y

    @Hana Mori I would switch to a new lender ASAP and ask for the appraisal to be switched to the new lender. Identical situation happened to me so I went to a new lender 2 weeks before closing and everything went perfect. That is predatory and not good business practice but some banks think they can get away with it especially with new investors.

    1Reply
  • Drago Stanimirovic
    New to Real Estate · Miami, FL · Member since 2024 · 1k+ posts · 453 votes
    2y

    Hi Hana,

    Your experience, while frustrating, isn't uncommon in the DSCR loan space. Sudden fee increases and changes to terms, like the LTV drop, can happen if the lender or broker isn't transparent. Here's what you should do:

    1. Pause the closing and request a detailed explanation of the fees and LTV change.
    2. Negotiate see if they'll reduce fees or revert to the original LTV.
    3. Explore other lenders who might offer better terms and transparency.

    Always insist on written terms upfront to avoid surprises. Need help finding better DSCR loan options? Let me know! I'm happy to assist.

    Regards,

    Drago

    0Reply
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