Does anyone have experience with D.S.C.R. Loans

Question

Rookie here……but D.S.C.R loans seem to be a great way to acquire property.  I’d like to talk with anyone who has dealt with these kinds of loans before. Pros/Cons, contacts even maybe, for instance how do you even acquire a loan like this, or is it the same as hard money dealings. I just don’t know

Robin Simon · Answer

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DSCR Loans: What Are They And How To Get The Best Terms

https://www.biggerpockets.com/...DSCR Loans: How To Use Pro Strategies To Save More And Make More

https://www.biggerpockets.com/...Multifamily DSCR Loans: A New High-Impact Loan Option For Real Estate Investors?

https://www.biggerpockets.com/...12 Frequently Asked Questions (And Answers) About DSCR Loans

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8 More Commonly Asked Questions and Answers to DSCR Loans

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Jason Wray · Answer

Mitchell,

I am going to give you some advice to help you avoid getting to far into the DSCR process and losing money.  Before you decide to pull the trigger with any Bank/Lender make sure the they are well versed in DSCR guide lines and close more than a couple a month.  Its crucial that you know what the properties common rent is per month.  Regardless of what you think you will it rent for or ask per door its irrelevant.  The DSCR program "Must use the lesser of the two either common rent from the appraiser 1007 rent schedule form on the appraisal or the lease".

You also have to factor in the taxes and insurance because a guesstimate or ball park can kill the approval.  You also want to know if the Bank/Lender offers a less than 1.00 DSCR option in case the rent schedule comes in light.  It is also good to aks as a back up if they offer an I/O Interest Only option and do they calculate the DSCR based on the PITI or ITI for I/O to also help qualify. Secondly all DSCR should allow you to close in the LLC without a rate hit.

If you are going to take out any cash through a refinance in less than 1-2 years be careful of how many years they try and hit you with the Pre-Payment penalty.  If you can qualify for a Full Doc income loan and do not need DSCR I would suggest trying to get a traditonal approval to avoid the higher rates.  A true Portfolio program offers a 15% Down for any SFR or up to a 2-4 Unit Multifamily but requires proof of some sort of income.

Eliott Elias · Answer

They are easy to get and can get as many as you want. The interest rates are terrible.

Jonathan Taylor · Answer

@Mitchell Catoe What is your goal? If you do not qualify for a conventional loan, DSCR and HML are the two commercial options available. Most part time and full time investors use these loans due to the simplicity and straight forward qualifications.

To summerize, a DSCR loan, aka lite doc or business purpose loan, uses the rents you receive on the property and divided by the new loan PITI to receive a ratio. Simple math would be a PITI of 1,000 and rents of 1500. That would be a debt service cover ratio of 1.5. Basically, this property cash flows. FICO, experience, and LTV are also factors but this is the basis of the loan. No need for tax returns, Verification of Employment, or income. I have been through this loan as an investor myself and originate these loans all the time.

Jon Puente · Answer

Hey Mitchell,

DSCR is not the same as Hard Money, not even close.  DSCR is just a simple way of purchasing an investment property when you do not qualify using personal income (Paystubs, W2s, etc..) or you want to close in the name of an LLC.

The only things that matter are credit, down payment, reserves, and DSCR ratio!  If those check the boxes, it's probably the easiest loan you will encounter.

Great Question!

Dawson Rosenberg · Answer

yes all the time

Stacy Raskin · Answer

@Mitchell Catoe, DSCR loans are great rental property loans as they only focus on your credit score, down payment and DSCR ratio- more on that below.

Right now DSCR loans require 20-25% down by most lenders and your credit score will be a deciding factor for the rate and fees you pay. The higher your credit score the better. Typically lenders divide up credit scores in multiple buckets with 780+ getting the best rate for some lenders while others it's 720, 740 or 760 gets the best rate pricing. Most lenders break scores in 20 point buckets so a 720 score would get a better rate than 700-719. Most lenders will use the middle of your three credit scores and if there's more than one applicant, the lender will go with the lower of the two credit scores. Most lenders use FICO credit mortgage credit scores.

Here's a post where I go into detail about DSCR loans as far as the importance of cash flow, credit scores and down payments:

https://www.biggerpockets.com/forums/49/topics/1080147-refinance-rate-105

Lender terms and fees vary widely. As a mortgage broker, I shop my clients' loan to get them the best possible loan and the least fees while helping them to reach their investment goals. I'll send you a message as well.

Erik Estrada · Answer

DSCR are great for investors that do not report income, have exhausted all conventional financing, and want to close title under an LLC. The drawbacks are the prepayment penalties, higher downpayment requirement for purchases, and higher rates in general.

There are a few options that are first time investor friendly, do not require reserves, and do not have any prepayment penalty (with no cost to buydown)

Stephanie P. · Answer

DSCR loans are great ways to scale your business, but they're not without pitfalls.  They are inherently more expensive than conventional financing and each DSCR LENDER has their own guidelines.  Find a good DSCR Broker that works with a variety of lenders so they can tailor your scenario to the right lender.  Nothing worse than ordering the appraisal and credit and then realizing your loan won't work for that particular lender because of reserves or seasoning or an equity stake that didn't get taken into consideration.

All the best

Stephanie

Does anyone have experience with D.S.C.R. Loans

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