normal DSCR underwriting or an annualization mistake?

Question

I bought two investment properties in 2025 — one closed Jan 31, the other July 25.

My 2-year HELOC was coming due in April. Bank called me in February, said I was auto-approved and there was even ~$100k in extra equity on top of refinancing the $150k balance.

Fast-forward to today: I’m suddenly “soft denied” with only 18 days until maturity. Now they’re telling me my DSCR is too low.

Here’s what they did:

They annualized the full 12 months of debt service on both properties, but they’re only using the actual partial-year income from my tax return.

That means they completely left out ~7 months of $6,000/month gross rents on the July purchase and 1 month of $7,400 on the other.

Even if I haircut the missing income at a conservative 60%, my DSCR jumps to ~1.21. Right now I'm sitting at 1.06 and they want 1.10 minimum. A mere 20% percent allowance for NOI and I clear the bar for a refi- but no tapped equity-- otherwise I have to find another lender or go into foreclosure on performing properties lol And these three happen to be the lowest maintenance ones - townhomes in the suburb

So my question to the BP community:

Is this actually normal underwriting practice for small commercial/portfolio HELOC refinances?

Or did the underwriter just run the “annualize debt service” script without stopping to think that I only owned one property for half the year?

If you buy a property in December, does that mean your DSCR is automatically trash until you file the next tax return? Can they use current bank statements or a rent roll for verification?

I was in consolidation mode right now too (selling one property- my overall cash flow is solid (~$6k/month passive + W2) on a healthy month and if the month is not great and the numbers are lower that means a building gets new appliances or upgrades or whatever

He's talking to his underwriter tomorrow. she was out of the office today - typical lately or in this place. Is that universal It being so hard to get a hold of everybody get them on the phone etc or is that just this place?

he was going to try get an exemption from her for the missing .04 but we won't need that if they give me income for those missing months that they build me debt on. I put together a clean spreadsheet showing this and I emailed him my findings. We'll see what comes back

ps I got 19 days until due date so I'll probably start calling around for backups. I don't like operating this way. he assured me we had time and he was working on it and he was hard to get a hold of sometimes, when I asked for updates and now aren't we up a crick. I don't know how other cities are. I visited Austin last year and I loved it but I feel like this city slows me down especially when you have dependencies. it's so hard to find reliable quick people it seems like.

Thanks in advance

Patrick Roberts · Answer

Welcome to dealing with banks. This is the entire reason the specialty mortgage industry like IMBs and wholesale lenders exists. From black-box underwriting to "banker's hours", youre getting the full experience. The specific underwriting process this bank is using is likely just the way that they have decided to underwrite deals. This is not necessarily universal.

Specific loan programs have set guidelines for how these situations are approached, and then most banks have thier own internal credit guidelines as overlays for anything they might have to hold on balance sheet. It's impossible to say more without facts and info.

There are definitely reliable and fast lenders who can solve this issue for you. Theyre not likely to be as cheap as a bank, though. BiggerPockets is full of lenders who could likely close this deal and you'll probably have several post on here to message them before the days is over with.

As the old saying goes: Good, fast, and cheap - pick any two of the three.

Lori Vasquez · Answer

The borrower side of this is exhausting and you're not crazy for being irritated. I've done eight closings and the lesson that took me the longest to learn is that what your relationship banker promises you verbally is not what credit committee is going to come back with. It's not lying. It's that the LO genuinely thinks they can get it done and then guidelines tighten or an underwriter gets cold feet and suddenly you're hearing about "resting patterns" you never saw in writing.

I'd take Tim's read on this. The 12 month renewal buys you runway. Use it. Get the next conversation about what it would actually take to put the bank in first position on those properties down on paper, not a phone call. A term sheet, not a "we could probably do." If you're going to start shopping in parallel anyway, and you should, you want to be comparing real numbers against real numbers.

While you're inside that 12 months, start pulling quotes from a couple of credit unions and one portfolio lender. Not because you've decided to leave, just so you know what your other options look like. The spread on portfolio second position stuff can surprise you once you're shopping seriously.

Tim Swierczek · Answer

He's talking about a HELOC at a bank. That is a commercial portfolio loan. They use true DSCR, not what the non-QM industry rebranded as DSCR. The calculations and methodology are totally different. It's the same UW you would use to purchase any commercial asset.

Gerald Ryan · Answer

yeah that's sound advice. i heard yesterday (and i'm meeting tomorrow in person) that they want to sting me maybe with 2 percent early closing fee if i refi out- even though i've been there two years. That woudl be max 3k - not a huge amt but they don't deserve it but we'll see what comes. Yeah the loan officer promises stuff- i get that but i was waiting for months-i sent out docs 2/18 and it's 4/8 now, for updates because i knew it was coming due and i don't expect anything until the line is crossed but he moved so slow- consumed my timeline. it's one thing to promise and another to be slow at getting back and making me feel like a bother. That i think might be the industry, might be the generation but I think it is very very much a minnesota thing- people taking their time even though you depend on them. that same thing happened in multiple systems at once and this least year has been me as the highest performer i have ever been at my job and in real estate and the slowest of my dependencies and systems around me. it is irritating. is anyone ever available, even for a quick chat or confirmation? That is what has been running through my head these last months and year- beyond just the refi- in a state of pending and multiple open loops. I guess that's normal but you have to force things along like driving cattle it seems like. people drift, people lose focus, people stray and make excuses i'm finding and they do another thing- pre-excuse. they'll open a vector saying something like "things have been crazy". irrelevant. Things for me are overal pretty good but i have to use a lot of psychological force. it feels or has felt in this last year in particular that systems have forced me to do a lot of cognitive and emotional labor- so even if he promised me things that he couldn't deliver on i don't appreciate him being so slow- even though he's a really nice guy and easy to get along with- another common minnesota pattern. avoid dependencies. Friends are one thing- dependencies are another but they killed my timeline- i could have been looking at backup but i was working, i was auto approved, i thought it would be hard to get a second mortgage elsewhere and i didn't want to go through that whole ringamarole when it didn't seem necessary and the idea of a refianced first was out of the question. it got back in the question for predictable long term stability but i'm kind of going back on that again now because it would be another 1k/mo for nothing- down teh drain-- that is the 340k debt that would have to be redone to get in first. the rest is a wash but 3% delta on 340- 850/mo i guess-- all cause underwriter got so uptight. hey i got a lot. things aren't bad now in retrospect but they put me through a dance and i don't appreciate their moralizing, condesension and accusation i didn't use it for its intended purpose- short term investment purpose. if they don't want to do a deal because of their balance sheet or whatever, just say that. the loan officer's boss who i worked with 2 years ago, he passed on what she said. So i don't want to be beholden but i am right now and that's fine. worse is living in minnesota. it's not the politics. i coudln't care less about left or right politics if it doesn't hit my business (though it could) or riots or any cultural issues in the news but i care about culture from a quality of life point of view and this is low quality for me- i'm high in openness and agreeableness and sociality. they say they are high in agreeableness here but it is superficial. it is low in sincerety and authenticity and openness and mind-your-own-businessness actually too in many ways- cultural policing and so much else. don't know how i lasted so long. i was tough and endured. a weaker me would have probably left sooner. It feels inverted to what i need. no real sense of humor, people don't tend to smile or look you in the eye as they pass. in many places they are amazing at not acknowledging your existence and then suddenly they are able to acknowledge it when they need to criticise some little thing. they can be nice enough too- they have their rituals and there are exceptions but very few actually. THey are very routine based. i'm generalizing but here the norms are tightly packed and clustered- a small standard deviation i guess you'd say compared to elsewhere so generalizations apply more strongly. they are just happy to do what they do and that's fine-- although there are a lot of people not well too- people i see struggling stoically not realizing the culture is harsh and unhelpful, people out and about or some of my tenants. a sunnier and socially sunnier place would help them but they don't know. this is all they have known so some are happy and some are not. that's true everywhere I know but here has its own flavor and intensity. people struggle to be down to earth and just do what makes sense. a lot of things seem to come down to power with a certain type of people. i get the feeling they view things from a lense of power or else safety to an extreme. i'm not one to judge but it's different elsewhere, other places and states you get an openness and a warmth and i much prefer that- whatever the reasons and justifications those here can give. i'm a sociologist ethnographer now before i am able to exit. however long it takes- i can't force it. it is the path. epictetus- not a restrictive embrace the grind because it's good for you cold shower stoicism but a patient accepting stoicsim that optimizes for what is, knowing that things change and new seasons emerge and new opportunities blossom- in new places especially. one can migrate. migration is part of the human condition and story. not migrating, not being a nomad is kind of the unusual pattern

Erik Estrada · Answer

Sounds like you just need to find another lender. Is this a refinance for 1-4 Unit Residential units or a commercial building?

Tim Swierczek · Answer

I'd be interested to hear what the second lender comes up with. The 85% LTV is very aggressive, but if you are not buying more properties, you might not need the extra 100K and then maybe you can find a bank with better terms.

Gerald Ryan · Answer

i don't know how i got 30 year fixed on those townhomes but unlike my other properties, i never lived in them. they knew they were for investing- and they are 30 year. i am going in to talk to the lender tomorrow afternoon. i'm not feeling as much pressure. i was told they were going to give me the 12 month period. I was thinking like you said that i could take that to buy myself time but i was told there would be a 2 percent early termination penalty if i completely refinanced out. i don't like that, i don't think that's fair since i've been with them 2 years and never missed a payment. we'll see what they say. if i lose a fight i lose a fight but i do fight. Maybe partly my fault trusting but they killed my timeline here. i sent out docs to them 2/18 almost two months ago and was always checking in. they were slow. they had told me i was auto approved- even for 100k more both ratio wise and equity. Then it all reversed lol and i was left with no time. Feels like gamesmanship although it could just be systemsI was thinking cash out refi somewhere to escape this lunacy and get exit velocity to leave the state- which i really want to do and just have more surplus and have more cushion-- but i'm doing fine- and lose 3 percentage points from 4 to 7 if it's at that on 340k of debt -- a rook sacrifice ... but now i'm thinking not. that's about 1k/mo for 20 years (their term if i go with them- who are offering that at 85% ltv and others 70 or 80). i don't think i want to lose 1k/mo for nothing but otherwise i will be under their heel with the heloc. I can pay it down organically or i can pay it all off when i sell a separate property, which i am working on- but there are no guarantees when that will happen. i have a showing sunday though. that will eat my surplus -- it will keep me lower in reserves for if i want to buy a small quiet house in texas but that forces creativity and thrift which is good and saves me 1k/mo.. which is great on excess interest if i refi at 7, plus another 1k in that heloc cost currently, so 2k/mo vs the cash out alternative but less reserves-- but 1k savings from the perspective of me now. i will be fine. I don't want to buy anymore investments right now. i want to refocus, re-center, focus on living and look at what else is out there for opportunity- buying a small biz maybe but i want to move and resettle myself. i'll be fine but no more investments and 1k/mo savings on the heloc i'm paying now is not insignificant. huge saving if i sell 301 and pay off the heloc. All this happened because a bank tried to make me feel beholden, on a line i was consistently paying interest on. borrower slave to lender and anything that can go wrong will go wrong. months of waiting and checking in for progress-- when i was thinking i was auto approved for more (his idea). there is always a vector path for things to go wrong until you cross the line. i am all about crossing the line. that's partly why i was thinking of just cashing out refying- cross the line and close the books but -- it is 1k/mo and a 12 month renewal not so bad. worst case they enforce a 2 percent penalty or 3k if the balance is full in say 6 months- but i cash out and get out or else i maybe bring it down to 100 or even less if i sell 301 and they call me a good boy and renew it- or i just close it. it's just a small note and the underwriter was making a big deal out of it. maybe the loan officer was overly optimistic. i was at his office multiple times because i go there over lunch or afternoon- it's close and he's friendly and maybe his overoptimism created confusion between me and the underwriter, or maybe they're just tight. the bank was just bought out by another- but the underwriter didn't have to moralize and accuse me of not using it for the intended purpose. i know that's partly a risk based concern of banks and underwriters but it is also a signature minnesota thing. We'll see what tomorrow brings. sorry to ramble and consume bandwidth. i process things by writing and explaing but i don't mind if anyone didn't read this- you all have lives.

Melvin List · Answer

@Gerald Ryan If you are looking at a DSCR loan why are they asking for your tax returns. Many lenders will allow verification of 3 payments and call it a day.

Tim Swierczek · Answer

It sounds like the prudent thing is to take the 12-month option for now and make plans to reposition that debt. They are out of line for requiring you to use the line in a certain way (other than they can and must require the funds to be used for business use) because these loan underwriting standards do not conform with the Federal primary residence ability to re-pay and other QM mortgage rules.  That being said, they are giving you a 1-year warning.

You are incorrect in thinking that your previous commercial loans were 30-year fixed products. Those terms do not exist due to FDIC banking insurance. Commercial banks are regulated by the federal government, and they are NOT ALLOWED to offer at 30 year rate. They can amortize over 30 years, but they must offer a much lower fixed rate. You can find some exceptions, but typically the term loans are 5-7 years fixed with amortizations that last 20-30 years.  Smaller second mortgages on primary residences can be fixed for a longer term. I normally see 15-year maxes, but I think they may allow 20 years on that loan type.

Lastly, if you are looking for a bank-style second mortgage, it's always helpful to list the location of the property, as that is important for product availability.  In addition to banks, there are some hedge fund-owned second mortgages on the market that will offer longer terms but may not offer as high an LTV or as low a rate.

Gerald Ryan · Answer

Hi Erik- see my reply above to Melvin- i don't want to repeat myself. I mentioned my ideal but that's only my ideal- 80-85 LTV in second position (~250k collateralized by 3 properties, which are in trusts that I control) can close in 17 days and reasonable market rate- don't need to haggle and ideally like term loan 5 or 10 -- all of which they promised but if this is too much I can go lower LTV or I can do HELOC versus term or whatever. I just want the process to be smooth and not jerky. Message me or whatever- same goes for all lenders. I'm new here on BP but I see this is a resource I'm open to shopping around.

normal DSCR underwriting or an annualization mistake?

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