DSCR loans are cheaper than a traditional 30 year fixed right now.
Real Estate Agent · Louisville, KY · Member since 2017 · 1k+ posts · 1k+ votes
DSCR loans are cheaper than a traditional 30 year fixed right now.
Most Popular Reply
Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votesThey are technically more expensive than a traditional 30 year fixed.
Let's compare two scenarios I priced out, Borrower Paid Broker Compensation
Purchase Price: $500,000
SFR
30 Year Fixed
Credit 740
DSCR over 1.00
Meets DTI Requirement
1. DSCR
No PPP
Rate: 8.75%
PAR
30 Years Fixed
2. Conventional, UWM
Rate: 8.00%
Lender Credit: $620
30 Years Fixed
You have to consider that a conventional loan does not have a Prepayment Penalty. The added Prepayment Penalty, makes the loan technically more expensive than a traditional conventional refinance if you decide to refinance in 1-5 years.
BUT,
If you do not plan on refinancing your loan in 1-5 years, then you could get better pricing on a DSCR loan.
Same scenario, with a 5,5,5,5,5 PPP structure
Rate: 7.25%
PAR
30 Years Fixed
LuxePrivate Investments LLC 572 Reviews
11 Replies
- Member since 2023 · 348 posts · 190 votes1y
DSCR loans also allow real estate investors to secure financing based on property cash flow rather than personal income, which simplifies the application process! Keep in mind - they are only for investment properties, not primary residences.
- 1yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
They are technically more expensive than a traditional 30 year fixed.
Let's compare two scenarios I priced out, Borrower Paid Broker Compensation
Purchase Price: $500,000
SFR
30 Year Fixed
Credit 740
DSCR over 1.00
Meets DTI Requirement
1. DSCR
No PPP
Rate: 8.75%
PAR
30 Years Fixed
2. Conventional, UWM
Rate: 8.00%
Lender Credit: $620
30 Years Fixed
You have to consider that a conventional loan does not have a Prepayment Penalty. The added Prepayment Penalty, makes the loan technically more expensive than a traditional conventional refinance if you decide to refinance in 1-5 years.
BUT,
If you do not plan on refinancing your loan in 1-5 years, then you could get better pricing on a DSCR loan.
Same scenario, with a 5,5,5,5,5 PPP structure
Rate: 7.25%
PAR
30 Years Fixed
LuxePrivate Investments LLC 572 Reviews - 1yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
The cool thing about DSCR loans, is that different lenders have significantly different rate spreads, so shopping it could be beneficial for you to save on rate and fees. On a conventional loan, there isn't much of a difference shopping it around from bank A to B.
LuxePrivate Investments LLC 572 Reviews - 1yNick BelskyBusiness MemberResidential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
DSCR rates have been much lower than conventional for nearly 2 months now. This happens from time to time but it usually does not last long. Traditionally, conventional will be 0.25-0.60% lower than DSCR on average.
Cheers!
Belsky Mortgage, LLC527 Reviews - Rental Property Investor · New Braunfels, TX · Member since 2022 · 408 posts · 408 votes1yI just closed on a DSCR loan at 5.7% last week. 7.25% is insane…
Quote from @Erik Estrada:
They are technically more expensive than a traditional 30 year fixed.
Let's compare two scenarios I priced out, Borrower Paid Broker Compensation
Purchase Price: $500,000
SFR
30 Year Fixed
Credit 740
DSCR over 1.00
Meets DTI Requirement
1. DSCR
No PPP
Rate: 8.75%
PAR
30 Years Fixed
2. Conventional, UWM
Rate: 8.00%
Lender Credit: $620
30 Years Fixed
You have to consider that a conventional loan does not have a Prepayment Penalty. The added Prepayment Penalty, makes the loan technically more expensive than a traditional conventional refinance if you decide to refinance in 1-5 years.
BUT,
If you do not plan on refinancing your loan in 1-5 years, then you could get better pricing on a DSCR loan.
Same scenario, with a 5,5,5,5,5 PPP structure
Rate: 7.25%
PAR
30 Years Fixed
- 1yErik EstradaBusiness MemberLender · Member since 2022 · 6k+ posts · 1k+ votes
Quote from @Account Closed:
I just closed on a DSCR loan at 5.7% last week. 7.25% is insane…Quote from @Erik Estrada:
They are technically more expensive than a traditional 30 year fixed.
Let's compare two scenarios I priced out, Borrower Paid Broker Compensation
Purchase Price: $500,000
SFR
30 Year Fixed
Credit 740
DSCR over 1.00
Meets DTI Requirement
1. DSCR
No PPP
Rate: 8.75%
PAR
30 Years Fixed
2. Conventional, UWM
Rate: 8.00%
Lender Credit: $620
30 Years Fixed
You have to consider that a conventional loan does not have a Prepayment Penalty. The added Prepayment Penalty, makes the loan technically more expensive than a traditional conventional refinance if you decide to refinance in 1-5 years.
BUT,
If you do not plan on refinancing your loan in 1-5 years, then you could get better pricing on a DSCR loan.
Same scenario, with a 5,5,5,5,5 PPP structure
Rate: 7.25%
PAR
30 Years Fixed
When was the rate locked? They shifted significantly in the last 30-45 days.
Also, 5.7% is really good for a DSCR loan. Which lender did you close with? How many points and how long of a Prepay?
LuxePrivate Investments LLC 572 Reviews - Member since 2024 · 1 post · 0 votes1y
Quote from @Account Closed:
I just closed on a DSCR loan at 5.7% last week. 7.25% is insane…Quote from @Erik Estrada:
They are technically more expensive than a traditional 30 year fixed.
Let's compare two scenarios I priced out, Borrower Paid Broker Compensation
Purchase Price: $500,000
SFR
30 Year Fixed
Credit 740
DSCR over 1.00
Meets DTI Requirement
1. DSCR
No PPP
Rate: 8.75%
PAR
30 Years Fixed
2. Conventional, UWM
Rate: 8.00%
Lender Credit: $620
30 Years Fixed
You have to consider that a conventional loan does not have a Prepayment Penalty. The added Prepayment Penalty, makes the loan technically more expensive than a traditional conventional refinance if you decide to refinance in 1-5 years.
BUT,
If you do not plan on refinancing your loan in 1-5 years, then you could get better pricing on a DSCR loan.
Same scenario, with a 5,5,5,5,5 PPP structure
Rate: 7.25%
PAR
30 Years Fixed
I am in the market for a DSCR loan for a STR in Orlando. Please let me know who you ended up using for yours!
- 1yJay HurstBusiness MemberLender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
Quote from @Account Closed:
I just closed on a DSCR loan at 5.7% last week. 7.25% is insane…Quote from @Erik Estrada:
They are technically more expensive than a traditional 30 year fixed.
Let's compare two scenarios I priced out, Borrower Paid Broker Compensation
Purchase Price: $500,000
SFR
30 Year Fixed
Credit 740
DSCR over 1.00
Meets DTI Requirement
1. DSCR
No PPP
Rate: 8.75%
PAR
30 Years Fixed
2. Conventional, UWM
Rate: 8.00%
Lender Credit: $620
30 Years Fixed
You have to consider that a conventional loan does not have a Prepayment Penalty. The added Prepayment Penalty, makes the loan technically more expensive than a traditional conventional refinance if you decide to refinance in 1-5 years.
BUT,
If you do not plan on refinancing your loan in 1-5 years, then you could get better pricing on a DSCR loan.
Same scenario, with a 5,5,5,5,5 PPP structure
Rate: 7.25%
PAR
30 Years Fixed
On both conventional and DSCR programs you can get any rate you would like. It just depends on how much you pay to get that rate. You pay in two ways: Upfront cost and in pre-payment penalty. The more you pay upfront the lower the rate, but you have to make sure to do the math on what you payback period will be. The lower you get down in rate the more that payback has some diminishing returns. If a payback is really over 3 years it is not likely worth, but you can buy down to make your payback 20 years plus which of course is insane. But, hey, you have a low rate.
and of course a lot of DSCR loans are quote with a 5 year pre-payment penalty which of course can be VERY expensive if you have a 5 year flat 5% PPP and either rates drop or market conditions are such that you would like to sell the property. 5% of 300k for example would be 15k. You have paid for that monthly savings on the front AND back in that case.
Hurst Real Estate, INC4.991 Reviews - 1yMatthew CrivelliBusiness MemberLender · MA · Member since 2021 · 1k+ posts · 1k+ votesThe buydown has increasing returns in you don't refinance. Most buydowns on DSCR loans take 4-5 years to get into the green, no difference if you buydown 1pt or 5pts. It's only diminishing if you refinance before the payback period has ended. I'm not seeing rates going much lower than 5% in the near future. The last cycle where rates were on a downward trend started in 1984 and ended in 2021. Are you thinking this new cycle of higher rates is at its peak and we are going to head back to the 3%-4% range? Doesn't seem like the FED has much control this time around considering the 10Y T bill (and 5Y) continues to march higher even with the FED fund rate dropping. Are you thinking government spending is going to actually get cut and inflation was just a flash in the pan? History tells a much different story. Buydowns make sense for many buy & hold investors IMO.
Quote from @Jay Hurst:
Quote from @Account Closed:
I just closed on a DSCR loan at 5.7% last week. 7.25% is insane…Quote from @Erik Estrada:
They are technically more expensive than a traditional 30 year fixed.
Let's compare two scenarios I priced out, Borrower Paid Broker Compensation
Purchase Price: $500,000
SFR
30 Year Fixed
Credit 740
DSCR over 1.00
Meets DTI Requirement
1. DSCR
No PPP
Rate: 8.75%
PAR
30 Years Fixed
2. Conventional, UWM
Rate: 8.00%
Lender Credit: $620
30 Years Fixed
You have to consider that a conventional loan does not have a Prepayment Penalty. The added Prepayment Penalty, makes the loan technically more expensive than a traditional conventional refinance if you decide to refinance in 1-5 years.
BUT,
If you do not plan on refinancing your loan in 1-5 years, then you could get better pricing on a DSCR loan.
Same scenario, with a 5,5,5,5,5 PPP structure
Rate: 7.25%
PAR
30 Years Fixed
On both conventional and DSCR programs you can get any rate you would like. It just depends on how much you pay to get that rate. You pay in two ways: Upfront cost and in pre-payment penalty. The more you pay upfront the lower the rate, but you have to make sure to do the math on what you payback period will be. The lower you get down in rate the more that payback has some diminishing returns. If a payback is really over 3 years it is not likely worth, but you can buy down to make your payback 20 years plus which of course is insane. But, hey, you have a low rate.
and of course a lot of DSCR loans are quote with a 5 year pre-payment penalty which of course can be VERY expensive if you have a 5 year flat 5% PPP and either rates drop or market conditions are such that you would like to sell the property. 5% of 300k for example would be 15k. You have paid for that monthly savings on the front AND back in that case.
Freedom Capital Funding, LLC523 Reviews - 1yJay HurstBusiness MemberLender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
Quote from @Matthew Crivelli:
The buydown has increasing returns in you don't refinance. Most buydowns on DSCR loans take 4-5 years to get into the green, no difference if you buydown 1pt or 5pts. It's only diminishing if you refinance before the payback period has ended. I'm not seeing rates going much lower than 5% in the near future. The last cycle where rates were on a downward trend started in 1984 and ended in 2021. Are you thinking this new cycle of higher rates is at its peak and we are going to head back to the 3%-4% range? Doesn't seem like the FED has much control this time around considering the 10Y T bill (and 5Y) continues to march higher even with the FED fund rate dropping. Are you thinking government spending is going to actually get cut and inflation was just a flash in the pan? History tells a much different story. Buydowns make sense for many buy & hold investors IMO.Quote from @Jay Hurst:
Quote from @Account Closed:
I just closed on a DSCR loan at 5.7% last week. 7.25% is insane…Quote from @Erik Estrada:
They are technically more expensive than a traditional 30 year fixed.
Let's compare two scenarios I priced out, Borrower Paid Broker Compensation
Purchase Price: $500,000
SFR
30 Year Fixed
Credit 740
DSCR over 1.00
Meets DTI Requirement
1. DSCR
No PPP
Rate: 8.75%
PAR
30 Years Fixed
2. Conventional, UWM
Rate: 8.00%
Lender Credit: $620
30 Years Fixed
You have to consider that a conventional loan does not have a Prepayment Penalty. The added Prepayment Penalty, makes the loan technically more expensive than a traditional conventional refinance if you decide to refinance in 1-5 years.
BUT,
If you do not plan on refinancing your loan in 1-5 years, then you could get better pricing on a DSCR loan.
Same scenario, with a 5,5,5,5,5 PPP structure
Rate: 7.25%
PAR
30 Years Fixed
On both conventional and DSCR programs you can get any rate you would like. It just depends on how much you pay to get that rate. You pay in two ways: Upfront cost and in pre-payment penalty. The more you pay upfront the lower the rate, but you have to make sure to do the math on what you payback period will be. The lower you get down in rate the more that payback has some diminishing returns. If a payback is really over 3 years it is not likely worth, but you can buy down to make your payback 20 years plus which of course is insane. But, hey, you have a low rate.
and of course a lot of DSCR loans are quote with a 5 year pre-payment penalty which of course can be VERY expensive if you have a 5 year flat 5% PPP and either rates drop or market conditions are such that you would like to sell the property. 5% of 300k for example would be 15k. You have paid for that monthly savings on the front AND back in that case.
if you can tell the future with 100% accuracy sure it would be an easy decision. and yes, for some buying down a 1-3 points can absolutely make sense. You only mention refinancing which is not only done to lower rate, but also can be used to take advantage of runup in housing prices to allocate to other investments that might generate a higher return. and of course selling the property within that pay back period. A lot of forever houses on the primary side and buy to hold forever are far from forever. Lastly, plopping down 5% points for a marginal savings on a monthly payment might not be the most effective use of those funds, maybe being able to buy the next a bit quicker would generate a higher return for the cash.
and no, I do not believe we will see rates below 5%, and the fed has never had any control over mortgage rates with the fed funds rate as that is the shortest possible rate overnight borrowing between banks. The fed did lower rates more or less directly in 2008 when they started buying agency mortgage backed securities which sets mortgage rates directly. They kept buying, at a much smaller scale all the way to Sept 2022 when primary rates for top tier primary home scenarios were right at 6%. We have been more or less up from there since then. When the biggest buyer in the market is gone, supply balloons and rates have to go up to bring in buyers. So, no I do not think the fed is going to go back to buying MBS to drive down rates. But, all the above in the first paragraph still stands.
Optionality is a good thing and gets overlooked often.
Hurst Real Estate, INC4.991 Reviews - Real Estate Agent · Louisville, KY · Member since 2017 · 1k+ posts · 1k+ votes1y
Rates are going to probably end up over 8% soon. DSCR loans are the way! The dudes I use are the best. Hit me up! They can also solve some unique problems.
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