DSCR rates are LOW! Time to refi?

Question

Big news for real estate investors! The 5-year treasury took a dive today, and we’re now seeing PAR rates at 6.5% for DSCR loans!

For those using DSCR loans to scale their rental portfolios, this could be a golden opportunity. A lower rate means:

Increased cash flow on rental propertiesEasier debt service coverage requirementsPotential for better leverage on new deals

As a wholesale lender, I’m seeing investors take advantage of no cash-out seasoning and LTVs up to 85% to maximize their refinancing options. With rates dropping this much, are we about to see a wave of refinances? Or are investors holding out for even lower rates?

Would love to hear from the BP community—who’s locking in deals, and who’s waiting it out?

Scott Wolf · Answer

I'm seeing clients with equity doing a cashout and buying down into the 5's. That being said, historically the average mortgage rate in the USA is 7.71% so we're well below that right now.

In the end, the adage of "time in the market beats timing the market" usually holds true.  If it's a good asset, it will continue to perform.

Stacy Raskin · Answer

DSCR loan rates might drop further but if they drastically drop then we can get into a situation where were were a couple of years ago where multiple bidders were bidding on properties and driving up prices so if investors weren't paying  on the rate, they were paying on the price.

There are DSCR loan options that are 15% down for a single family rental but that drives the rate up.

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. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.

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 < 1Principal + Interest = $1,700Taxes = $350, Insurance = $100, Association Dues = $50Total PITIA = $2200Rent = $2000DSCR = Rent/PITIA = 2000/2200 = 0.91Since the DSCR is 0.91, we know the expenses are greater than the income of the property.DSCR >1Principal + Interest = $1,500Taxes = $250, Insurance = $100, Association Dues = $25Total PITIA = $1875 Rent = $2300DSCR = Rent/PITIA = 2300/1875 = 1.23

If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.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 with investors to discuss further.

Mike Grudzien · Answer

Is 6.5% really low or low by comparison....?

Sean MacDonald · Answer

You think it's possible? Trending that direction.

Seeing a lot of cashout's as well. Mostly out of hard money since we got rid of our seasoning requirements. Investors are able to access that equity real fast, it's been fantastic.

Sean MacDonald · Answer

We do not offer non-recourse unfortunately

Anderson S. · Answer

Sean are you a direct lender or a broker?

Sean MacDonald · Answer

Floor rate is 6.625% today, up an 8th a point from yesterday

Vincent Zhu · Answer

What's your rate today now for Phoenix area with single family rental under LLC? Thanks.

Sean MacDonald · Answer

Wholesale lender!

DSCR rates are LOW! Time to refi?

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