DSCR lenders in the area

[Jonathan Dye]

Hello,

Does anyone know of any DSCR lenders in the Knoxville, TN area?

Thanks

[Stacy Raskin]

@Jonathan Dye, I can assist.

In case helpful- more about DSCR loans-

There are lenders that will do purchase DSCR LTVs up to 80% for a 1-4 purchase with a DSCR 1 ratio and a strong credit score. Cash out rates are at max 75% from what I've seen depending on the borrower's middle mortgage FICO score.

There are factors that really weigh into the rate including the length of the prepayment penalty and the LTV.

Here's a bit more in detail about how rates are calculated for DSCR loans:

1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders

2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.

3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.

4. Are you cash flowing the property as far what factors the lender uses to underwrite the loan? Is your DSCR ratio greater than 1-meaning are you cash flowing when comparing the actual or projected monthly rent against the monthly mortgage, property taxes, insurance (and HOA if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit.

I've included an example below to help illustrate this.

So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.

See example below:

DSCR < 1

Principal + Interest = $1,700

Taxes = $350, Insurance = $100, Association Dues = $50

Total PITIA = $2200

Rent = $2000

DSCR = Rent/PITIA = 2000/2200 = 0.91

Since the DSCR is 0.91, we know the expenses are greater than the income of the property.

DSCR >1

Principal + Interest = $1,500

Taxes = $250, Insurance = $100, Association Dues = $25

Total PITIA = $1875 Rent = $2300

DSCR = Rent/PITIA = 2300/1875 = 1.23

DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.