DSCR Loan Question - Local or National?

Question

When looking for a DSCR lender, do you have to find one in the area you are looking to invest in, or does it make more sense to find a national provider? Looking to purchase a STR in North Myrtle Beach later this year and trying to find a good DSCR lender. There's a million Google results, but looking for a good recommendation.

Myrtle Mike Thompson · Answer

I can tell you in the Myrtle Beach and North Myrtle Beach markets you stand a much better chance of having your offer accepted if you go with a local lender, especially if you're looking to buy oceanfront.  The reality is that listing agents here have been burned by national lenders who don't understand the nuances of our condotels and oceanfront buildings and end up not being able to underwrite the deal.  So they push their clients towards offers that are financed by local lenders they recognize, often even naming a preferred lender in their listings.  Most of the local banks and lenders offer a DSCR option, and I've helped several clients close on properties utilizing that type of financing.  Are the rates and terms as good as you might find with a national lender?  Maybe not.  But it could be the difference in securing the property or losing out.

Chris Rosenberg · Answer

@Myrtle Mike Thompson gave some great advice for our local market. If you’re looking for condotels your best bet is to go local.

@Steven Goldman I 100% agree with you. DSCR loans are my only option bc of my DTI but some of them close very fast. I’ve had one close in about 25 days (not business days). My last refinance which was last week took about 45 days. The appraisal took a while.

@Christle Stezskal My appraisals cost about $850 for the value and income reports. I’ve also had rates jump on me during the process but still got a good rate. Points and fees didn’t change. It was I think 1.75 points and $1000-$1500 in fees.

Steven Goldman · Answer

I agree with Sasha. Brokers are familiar with the numerous lenders and their policies. I respectfully disagree with Christie as DSCR loans are closed in 30-45 days routinely if you select the right broker and they select the right lender for your deal. The main hang up with turn around time is appraisals. In the extreme seller market place that currently exists the appraisers are not only busy but have increased their fees. Supply and demand. In my opinion you do not have to limit your search to a local lender you will be unnecessarily reducing your options . Good luck!!!

Christle Stezskal · Answer

If you haven't worked with the DSCR product before, make sure you get as many details up front as possible. I just had to bail on a DSCR loan through TheLender. It was a horrible experience in so many ways. Very unprofessional, unorganized, SLOW, increased rates with bad lock policy, etc. After 45 days, we still didn't have an idea on when it would close.

Some questions I will be asking next time I'm planning to work with this product (and getting answered in writing) are:

1) How long have these loans been taking to close lately? (and if they say anything less than 60 days..I'll be suspicious. I've since gone back to our conventional lender to get this deal done. He told me working with these other lenders that offer things like the DSCR loan is a nightmare and his last close length was 90 days and that was with involving his upper management. Just before walking away, I was being told my file was going to be closing in about 60 days but I don't know if I believe them.)

2) Do you allow rate locks? If so, at what point can I lock and are your locks only good for a certain amount of time before they expire? (I couldn't lock my rate until after the appraisal. Rates just kept going up so my initial quote was significantly different than what I could lock at forcing me to change LTV and buy down the rate. The lock also expired after 15 days...which they weren't forthcoming with. And I hadn't received CTC by then so they increased my rates again.)

3) What is the cost of an appraisal? (You are basically paying for two appraisals: one for the purchase value and one for the estimated monthly income. Mine was $1250.)

4) What closing costs can I expect? (I never got a clear answer on this. And rates / points kept changing)

For the record...I still think the DSCR loan product is SUPER interesting. And I look forward to leveraging it in the future. I learned a lot with this failed attempt! I will ask more questions and will account for a lengthier close and more difficult process next time!

Hope this information is helpful for others!

January Johnson · Answer

I refer a lot of people to this guy for DSCR and other loans for investing:

Ron Vega - Has 50+ different investors, including 2 who can do non-warrantable condos.  Handles all types of loans, including DSCR

Mortgage Broker

He is with Edge Home Finance.

Tell him January Johnson sent you!

Chris Rosenberg · Answer

@Christle Stezskal For a new purchase I would say 75-80% LTV and around 5.5% with 2 points and a 5 year prepayment is pretty standard for a DSCR loan. Depending on your credit score and experience of course. You may be able to find better rates and terms if the property is newly rehabbed.

And in my experience it’s more like a rate promise than a rate lock.

Michael Weigum · Answer

When looking at Condotel's in North Myrtle Beach, local lenders are a good way to go.

@Myrtle Mike Thompson has some good insight.

Owners and Listing agents here have been burned by bad financing and are being much more cautious accepting offers that they now know wont go through.

I also have helped several clients close on properties here utilizing DSCR loans. Having an agent who specializes in Condotel's and knows the in's and out's of the market can really be beneficial to your success investing here. Another option that investors are taking advantage of here is paying cash and then doing a delayed financing just to get the deal secured.

Steven Goldman · Answer

@Chris Rosenberg:  We find DSCR loans close in under a month. But only if the appraiser and title cooperate. @Christie Stezkal:   While your rate may fluctuate, your appraisal costs should be bid out and you should be presented with more than one option. The loan will only lock at commitment. But unless rates rise you should get the loan at the quoted price and costs. Chris, 20 percent is standard it sound to me like someone was using the 15 percent as a sales ploy. Current rates are less than 6.625 for a reasonably qualified buyer. Brokers or lenders who bait and switch damage the credibility of our industry. Your word is your bond. I would not do busines with a company or broker that changes their rates, fees or LTV unless they can give you a factual explanation for the changes. After all you are jammed up at the end with money and time invested so it is dirty business.

Chris Brady · Answer

Agree with what has been said here that you should use a mortgage broker.  Most brokers will have more than one DSCR lender they send business to, which means they will know the nuanced differences in the respective lender guidelines and recommend the lender that makes the most sense for you.   A mortgage broker based in the area you are a looking to purchase is a plus.  Good luck!

Eric Goldman · Answer

national DSCR lenders are the way to go

DSCR Loan Question - Local or National?

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