How Are DSCR Rental Loans Structured and Priced?

This loan program is designed for investors wanting to buy or refi one or many rental properties. A perfect tool to simplify the permanent financing process on your BRRRR or Turnkey Rental transactions as it relies mainly on the Debt-Service-Coverage-Ratio (DSCR) with the loan in place. The loan is setup to ensure that the property cash flows based on the long-term or short-term rent that is expected or being received.

Before diving into the many ways these loans can be structured to fit your needs, feel free to check out our past blog post on BP covering 6 reasons investors should consider this type of loan vs. conventional financing. In a nutshell, the loans are easier to qualify for, have less paperwork (not DTI means no tax returns & W2 needed), allow for properties to be held in LLCs, and allow for unlimited properties to be financed.

The pricing of these loans is a dynamic combination of 8 variables as listed below. The last 4 variables are controlled by the borrower and can be used to align the loan with the borrower(s) strategy for the particular property or properties.

RENTAL PROPERTY LOAN VARIABLES THAT IMPACT PRICING:

1) FICO Score (Typically 720+ Qualifies You for Max Leverage, while each 20 point reduction increase base rate.)

2) Loan-to-Value (Max of 80% for Purchase/Refi & 75% LTV for Cash Out. This is reduces as FICO score of primary guarantor with highest score drops below 720.)

3) Property Type (SFR, vs. 2-4 Unit vs. Condo or Townhome)

4) Transaction Type (Purchase, Refinance or Cash Out Refinance)

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5) Loan Amortization Structure (30 yr Amortization vs. 10 yr Interest Only Followed by a 20 yr Amortization)

6) Loan Rate Structure (30 yr fixed vs. 5/1 Adjustable Rate)

7) Pre Payment Penalty (Ranging from a 5 Year [5%-4%-3%-2%-1%] to 1 Yr [1% penalty]

8) Discount Points (.5% Fee reduces Interest Rate by .25%)