DSCR Loan options

Memphis, Tennessee
Creative Real Estate Financing
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DSCR Loan options

Jemma Jacques
Member since 2021 · 50 posts · 34 votes

Hi there,

I am looking to buy a set of 3 duplexes (that are $125k each) Id like to buy either one or all of them, wondering if I buy 2 or three if I can roll them into one DSCR loan to save on all the fees. Also what qualifies if the location is rural? (Location is about 50 mins from metro city in a smallish town)

What are the current rates and fees pls and best companies to work with.... Thanks

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Jason WrayPro Member
Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
2y

A Loan officer cannot alter their loan officer compensation it would violate the LO Comp rule under the "Dodd Frank" regulation.  The only way you could pay less is if the lender/loan officer agreed to have another loan officer in the office to close one or more of the deals who was on a lower compensation plan.  

Every loan officer is paid based on a percentage I have seen it range from .75 up to 3.50% which means that margin is added to your rate.  You typically see lower rates and fee's when you use a Bank versus a Lender or Broker.

Even though its a very "Grey" area I have seen some managers agree to cover the appraisal or drop a hard cost fee.  If that branch or lender gets audited they are going to pay a fine though so thats why most do not reduce fee's.  It's so there is a fair and even playing ground and what person is not paying more versus the "other guy".

[email protected]727-637-4289
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  • Jason WrayPro Member
    Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
    2y

    Jemma,

    Pretty much all DSCR loans will require (3) separate purchases because each loan is assigned to the property and its individual parcel. If they were all on the same parcel you could do just one loan but sounds like that's not the case. Which means they are going to hit you for 20% down and closing costs on all 3 loans.

    Rates have dropped a bit over the last week on DSCR but they are still dependent on e few things like loan size, (Lower the loan amount higher the rate), Credit scores (under 740 higher rate),property type, number of units and DSCR ratio (under 1.10% rates are higher) DSCR over 1.35% gets a lower rate (Depending on lender).

    Most DSCR loans carry 1.50% - 2.75 points with an average range of $1500-$2100 in hard costs (processing, underwriting, credit report ect...)

    [email protected]727-637-4289
    1Reply
  • Rick Albert
    Real Estate Agent · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    2y

    @Jason Wray, could a loan officer cut back some of the fees because they are making a larger commission for doing three purchases?

    I agree, each need to be its own transaction. Maybe there are wraparound or cross collateralization loans that might make sense.

    0Reply
  • Jason WrayPro Member
    Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
    2y

    A Loan officer cannot alter their loan officer compensation it would violate the LO Comp rule under the "Dodd Frank" regulation.  The only way you could pay less is if the lender/loan officer agreed to have another loan officer in the office to close one or more of the deals who was on a lower compensation plan.  

    Every loan officer is paid based on a percentage I have seen it range from .75 up to 3.50% which means that margin is added to your rate.  You typically see lower rates and fee's when you use a Bank versus a Lender or Broker.

    Even though its a very "Grey" area I have seen some managers agree to cover the appraisal or drop a hard cost fee.  If that branch or lender gets audited they are going to pay a fine though so thats why most do not reduce fee's.  It's so there is a fair and even playing ground and what person is not paying more versus the "other guy".

    [email protected]727-637-4289
    2Reply
  • Bien Nguyen
    Realtor · Savannah, GA · Member since 2023 · 41 posts · 13 votes
    2y

    Following this post as I am new to DSCR loans. Do all DSCR loans require a 20% down? Any other investment loan options that allow for a lower down payment (aside from conventional)?

    0Reply
  • AJ ExnerPro Member
    Lender · Springfield, MO · Member since 2023 · 661 posts · 320 votes
    2y
    Quote from @Jemma Jacques:

    Hi there,

    I am looking to buy a set of 3 duplexes (that are $125k each) Id like to buy either one or all of them, wondering if I buy 2 or three if I can roll them into one DSCR loan to save on all the fees. Also what qualifies if the location is rural? (Location is about 50 mins from metro city in a smallish town)

    What are the current rates and fees pls and best companies to work with.... Thanks


    Hey Jemma,

    So there are some decent portfolio DSCR options, but I always feel like your best bet is keeping them as 3 single asset properties. Often your rate/leverage will be better, but it will also give you the flexibility later in case you may need it.

    As for the 'rural' designation, it really depends on the appraisal. If the appraiser calls it suburban, then that is what they go by. But if they call it rural, you'll have to look for an exception. I always go by either the 'WalMart check' (if there is a Walmart in the town), or the USDA has a map that they utilize that is pretty solid (https://www.fns.usda.gov/sfsp/rural-designation).

    Hope that helps!

    [email protected]417-427-2612
    0Reply
  • Bill Rapp
    Real Estate Broker · Houston, TX · Member since 2016 · 35 posts · 15 votes
    2y
    Quote from @Bien Nguyen:

    Following this post as I am new to DSCR loans. Do all DSCR loans require a 20% down? Any other investment loan options that allow for a lower down payment (aside from conventional)?


    It is possible to purchase single unit SFR's and up to a 4 unit with 20% down, but generally when there are 5 or more units in a property down payments start with 25% down.

    0Reply
  • Bill Rapp
    Real Estate Broker · Houston, TX · Member since 2016 · 35 posts · 15 votes
    2y
    Quote from @Jemma Jacques:

    Hi there,

    I am looking to buy a set of 3 duplexes (that are $125k each) Id like to buy either one or all of them, wondering if I buy 2 or three if I can roll them into one DSCR loan to save on all the fees. Also what qualifies if the location is rural? (Location is about 50 mins from metro city in a smallish town)

    What are the current rates and fees pls and best companies to work with.... Thanks


     We could look at a 3 unit portfolio deal or purchasing them as individual units. When held in a bulk portfolio it is still possible to sell these off individually when and if the time comes to do so. This is generally the concern that keeps investors from using portfolio loans, but it is possible to do so. 

    Personally I would be able to discuss particulars in more detail and provide you a quote if you want to reach out directly. 

    0Reply
  • Caroline Gerardo
    Lender · Washington DC · Member since 2015 · 2k+ posts · 2k+ votes
    2y

    DSCR cannot be bundled. Hard money will bundle them, but no savings there. If someone cross collateralizes or bundles they DO NOT release one for free if you want to sell one.

    RURAL - do you mean on acreage more than 10? Population of city less than 20000? BIG problem you will have with lending is having comparable sales. Duplexes tend to be less of the total number of unit types in any location. If there are no comparable sales in past three months with a conventional type loan nearby the appraisal will be a struggle. 

    Other problem with low density/low number of units to compare is lenders require a rental survey by the appraiser which has to be greater than your rental agreements. If there are few rentals the survey is hard to verify the rents... long term rents are what is used. With $125000 sale price and 20% down the PITI is about $950.

    GET A QUOTE ON Hazard Insurance- rural may be a struggle.

    So if the property has 3 comps and can cash flow rates today are in the 7-8 range for 30 year fixed APR 8.119- 8.411 depends on your FICO score and the DSCR number.

    @Rick Albert loan officers make between .25- 1% on loan amount there is no larger commission in this case. A $100000 loan is not making anyone fat. We are regulated to not be able to flex our commission. The bulk of the costs are all the many vendors: appraisal $700 underwriting/processing $1000 settlement $500-600 title -guess not knowing location $400-600 notary $200 recording $50-100 transfer tax unknown $ varies greatly $40 CPL $70 wire   then points or a prepay

    1Reply
  • Tarik Turner
    Lender · Hackensack, NJ · Member since 2016 · 1k+ posts · 372 votes
    2y
    You can also check the consumerfinance.gov website for rural designation of an address
    0Reply
  • Chad Davis
    Lender · Richmond VA · Member since 2012 · 320 posts · 33 votes
    2y

    @Jemma Jacques pm sent 

    0Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    4w

    Hey Jemma,

    I usually check on the CFPB website. There is a rural county look up tool that indicates whether or not a property is rural. Ultimately it will come down to what the appraiser marks on the report, however this is the fastest way to see the likelihood of an area being deemed rural.

    A portfolio loan will help you save on fees, however many lenders will underwrite differently. They may require a harder DSCR requirement or higher reserve/credit requirements.

    [email protected]818-269-7983
    LuxePrivate Investments LLC 570 Reviews
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    0Reply
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