Are DSCR Rates Cheaper When Interest Rates Are High?

Question

I’ve noticed that DSCR rates are much cheaper than conventional rates right now. It’s still possible to get a DSCR loan at 6.5%, while conventional investment property rates are at a minimum of 7.5%.

Robin Simon · Answer

Not really, DSCR is still gonna be in general about 0.75% to 1.00% higher than conventional, that being said theres lots lots more flexibility on DSCR Loan pricing and flexibility, such as tend to see more ability to "buy down" the rate as well as include prepayment penalty provisions that can get rates lower than conventional too

Erik Estrada · Answer

Where are you seeing 6.5% DSCR rates right now? Most are at 7.00-7.99% depending on PPP, loan amount, credit, etc.. Right on par with a conventional investment property loan without a PPP.

When you add points and a buy down, maybe you can get to 6.5%, but at par pricing, rate wise they are nearly the same

Dan Duenas · Answer

Lipa — yes, it's real. Here's why it happens: conventional investor loans stack price adjustments — an investment-property hit, a credit hit, a DTI hit, a reserves hit — each one pushing the rate up. DSCR doesn't do any of that. It prices off your LTV, your credit tier, and whether the rent covers the payment. So when base rates are high and those adjustments stack up, a 6.5% DSCR quote can absolutely land under a 7.5% conventional investor quote at the same leverage.

You're already tracking the two things that matter most: the prepay penalty is the real trade (5-4-3-2-1 means you're buying the lower rate with a hold commitment), and you have to compare at the same LTV and points.

One more thing worth knowing: DSCR qualifies on the property's rental income. No personal income docs — no tax returns, W-2s, or pay stubs. Plenty of investors who can't touch conventional investor financing can still get DSCR, down to 620 FICO and up to 85% LTV.

Happy to run your numbers if it helps — Dan

Lipa F. · Answer

Obviously, I’m talking about the same leverage and fees. The only difference is that DSCR has a PPP.

James Jones · Answer

The rate is the wrong thing to shop. I refi every BRRRR into DSCR at 70-80% LTV, and what I care about is whether the rent covers the payment with real cash flow left over. A 6.5% quote at 60% LTV or with 2 points isn't a 6.5% loan — it's a different loan. At 75-80% LTV the rate steps up, and that's the number that matters because that's where my refi actually prices. So compare apples to apples: same LTV, same points, then check whether your rent clears the DSCR coverage the lender needs. If the coverage works and it cash flows, I take the loan. The headline rate is just marketing until you see the leverage and the points. Practical takeaway: get every quote at the LTV you'll actually borrow, then run the coverage.

G. Brian Davis · Answer

I’d definitely compare the two, but I wouldn’t look at the interest rate alone. Look at the fees, prepayment penalty and overall terms too. Sometimes the cheaper rate isn’t actually the cheaper loan.

Hossein Sharifi · Answer

Normally DSCR loans price above conventional, so when you see it the other way, I'd check that you're comparing the same loan. A few things to line up:

- Leverage. DSCR rates are usually quoted at lower LTV (60-65%). At 75-80% the rate typically steps up.

- Points. A 6.5% quote with 2 points isn't a 6.5% loan. A rough rule is that 1 point buys about 0.25% off the rate. On $250K, 2 points is $5,000 to save about $83/month ($1,663 at 7.0% vs $1,580 at 6.5%), a break-even of about 60 months.

- Prepayment penalty. A typical DSCR structure is 5-4-3-2-1, so you're paying for a lower rate by committing to hold or paying out of the proceeds when you sell or refi.

- Conventional pricing. Investor conventional loans carry extra pricing adjustments on top of the base rate. Ask for the rate with no points, then compare.

At the same LTV and the same points, the monthly difference between 6.5% and 7.5% on $250K is about $168 ($1,580 vs $1,748), or about $2,000 a year. That's what a prepay penalty or points should be measured against.

Brian Cauldwell · Answer

It is possible to get a 6.5% still with DSCR. I think if you are looking for a par priced loan and max leverage you may not get to that, but reduced leverage or buy down and it is certainly there.

Are DSCR Rates Cheaper When Interest Rates Are High?

Are DSCR Rates Cheaper When Interest Rates Are High?

Most Popular Reply

8 Replies