How can I tell if the DSCR is a good rate?

Question

I was recently offered 6.75% (5,5,5,5,5) and 7.25%(5,4,3,2,1) for 75%LTV with a 1PT close on a 700K property I own outright --- Is this a good deal?

Greg Soon · Answer

@Dave Aheimer

Could you share the lender info? I am looking for a 7 unit financing

Andrew Garcia · Answer

Hi @Dave Aheimer, the only way to know is to shop around with some different lenders. That pricing is not out of line with the market from the information you provided.

Matthew Crivelli · Answer

Unfortunately these numbers are on par with what the rest of the market has to offer. 6.5% -7.5% is the current range. I don't like the sound of 5-5-5-5-5 PPP :/ @Dave Aheimer

Erik Estrada · Answer

Look at the estimated total monthly payment and see if it aligns with your goals. There are 40 yr fixed options, at about the same rates at a much lower total monthly payment.

John Herold · Answer

Seems high.  What is your FICO, desired rate structure (30 yr fixed?), and type of property (SFR?)?  Do you own it in an LLC?

Givo Aghasi · Answer

Your fico score does play a big factor with DSCR or alternative lenders. 6.50% - 7.50% @ 75% LTV is on par with what the market has to offer. You can increase the rate or pay extra cost to reduce prepayment penalty @Dave Aheimer

Ryan O'Mara · Answer

@Dave Aheimer - For a 75%LTV; 30yrfxd; with a 712 FICO, those rates are in range of what I am currently seeing.

If you're willing/able to provide tax returns and have your income considered, you could find better rates with a commercial loan through a bank.

You can also buy the rate down with more points up front.

Kevin Romines · Answer

There is no need for a commercial loan if you can provide the documents to prove your income. A conventional loan will fit the bill at that point and now both Fannie and Freddie allow you to move title of the property to an LLC that the borrowers are the majority members of without it violating a due on sale clause.

I would consider a conventional 1st, then a Non-QM DSCR next and last a commercial loan, in that order.

I hope this helps?

Eliott Elias · Answer

A good deal is whatever makes your deal still work. Is your goal to cash flow as much as possible? If so you probably want to take the conventional route. That rate seems right for DSCR

Dave Aheimer · Answer

Update: Thank you all for the input!

First, I exhausted conventional lending first (no W2 income; great tax returns from asset sales in 2020, but nothing of note in 2021)Second, the property is nested in held by an LLC owned by an IDGT (intentionally defective grantor trust)Update: Received another offer for 6% 30 YR 75% LTV (5,4,3,2,1 prepay penality) with 3.75pts to close (buying down the rate)