DSCR - why don't all lenders calculate the same way?
I gotta ask. Why in the world do all these goofy commercial lenders use DSCR calculations as part of their guidelines yet so many of them calculate it differently?
Why don't the moronic lenders just change the dscr number they'll accept?
I just did my annual check in with b2r. These goofs advertise that their dscr has to be 1.15 or better. I knew that seemed too low but had to find out how they calculated it. Turns out they take 75% of the rent and then divide PITI.
Now I've seen a ton of different lenders and several unique scenarios for how they calculated DSCR. But nobody had that ridiculous of a calculation.
I would say 70% of the lenders calculate DSCR in its truest form in terms of qualifying SFR loans.
i.e. Rent divided by PITI. And most have a DSCR requirement of 1.25 or 1.3.
A few of them will subtract 5 to 10% for things like repairs, vacancies, etc. And then their dscr number tends to be 1.2 to 1.25.
But b2r's numbers are really so inflated, it makes me wonder why these goofy lenders don't just have a standard calculation for dscr and then adjust their guideline number to their own risk tolerance.
Then they'd be comparing apples to apples.
b2r must think they're geniuses by advertising a dscr number of 1.15 - as if they're so much better than everyone else. When the reality is they have the worst tack ons of any lender I've ever seen by far. 25%????? They literally charge 8% for property management EVEN if you self manage!
Makes no sense. DSCR is supposed to provide the bank an indication of how much profit there will be for a borrower to afford to make the payments. Yet, b2r is charging 8% for PM fees. How is that showing them how much profit I have? Its a terrible comparison. They're basically suggesting that someone that is paying for PM fees (which could be at 10% of the rent or more) has the same profits that I do. When in fact, I would have 8 to 10% more than they would.
What b2r is really doing is bastardizing dscr to use it as a way for them to see whether they would make money if they were to take the loan over. Nothing wrong with that. But, again, thats not dscr.
Seems to me that someone needs call these lenders out on their dscr guidelines and someone should require these lenders to report their guidelines consistently. If you advertise DSCR as a requirement, then there should be an industry accepted standard for calculating it and then the lender should just push up their minimum number as they see fit.
So for b2r, their true dscr requirement is NOT 1.15. Its 1.45! Thats what I should see in their advertising. And then I would know that my rent divided by PITI would need to be 1.45.
Otherwise, you could technically have lenders advertising that they accept DSCR of 1.0. And they could just say that they calculate dscr at 65% of rent. Where does it end?
Can lenders advertise that they'll do LTV of 100% and then tell you that they calculate LTV as appraised value minus 20%????? Its nonsense. Where does it end?