🤔How does Loan Purpose (Acquisition vs. Refinance) affect DSCR Loan Pricing (Interest Rate and Terms)?
➡️Essentially, the more confident the DSCR Lender is in the appraised market value, i.e. the price the property would reasonably sell for in an open market, the more friendly they can be with pricing (i.e. loan terms). Conversely, if the value may be inflated or is more difficult to validate, lenders will adjust pricing upward (i.e. higher rates and/or fees) to compensate for the increased risk.

This is why DSCR Loans for acquisitions tend to have the best pricing. Since DSCR Acquisition Loans are by definition loans in a transaction where a seller is presumably selling a property to the highest bidder on the open market (a pure "market value"), the lender has the highest confidence in the market value, or "V" in the LTV calculation. Caveats aside (such as over- or under-market deals or fraudulent sales), the vast majority of acquisition transactions will more or less substantiate the market value through the transaction itself, allowing the lender to have top confidence in the value of the property they are financing (and their evaluated LTV ratio). Because of this, not only will acquisitions tend to have the lowest rates and fees for DSCR Loans, they will always be eligible for the maximum leverage options the DSCR Lender has to offer (i.e. highest LTV limits).

Conversely, refinances have worse pricing because the valuation is based on an appraiser estimate since no market transaction is happening (there are no buyers or sellers), so the value is less certain. While DSCR Lenders have robust processes and methodologies to estimate value for refinance loans through independent appraisers and secondary valuation reviews (including typically both internally and through a third party), nothing quite emulates market value like a live-market sale that occurs in acquisition transactions. For this reason, refinances tend to have worse pricing (higher rates / fees) than acquisitions.

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