🤔 If two borrowers are applying for a DSCR Loan through a 50/50 LLC, which credit score does the lender use, the higher or the lower one?
➡️ Generally, DSCR Loans will have a singular credit score as the official “qualifying score,” used for qualification and pricing, even when the official “borrower” on the loan is an entity (such as an LLC) that has multiple owners, and the DSCR Loan itself has multiple guarantors (i.e. individuals signing loan documents and personal guarantees). DSCR Lenders generally require entity owners with 25% or greater ownership (and at least 50% aggregate ownership) to be recourse guarantors. All guarantors have their credit report pulled and each individual’s credit history is utilized in the qualification process (in terms of both score and other factors such as mortgage lates, credit events, etc.).

One important fact about how credit scores are used by DSCR Lenders for pricing and qualification is that only one score is used even in cases of multiple guarantors and multiple reports pulled. This holds true even though the guarantees are “joint and several,” meaning in cases of multiple guarantors, each individual guarantor is fully and 100% responsible for the remaining amount owed For cases of entity borrowers when the ownership percentages have a clear majority owner, i.e. one individual has the highest percentage of ownership (such as 75/25 or 51/49 split), then the median score of the majority owner guarantor will be used. In these cases, the score of the lowest minority owner will not be used.

The important differences in treatment among different DSCR Lenders come into play in cases where there is equal ownership of the borrowing entity such as two 50/50 owners (common in real estate investing). In these cases, some lenders will use the lower of the two median scores while some will use the higher of the two median scores. This can have a huge effect on interest rate and terms, and even qualification. For example, with two 50/50 LLC owners, one with a 650 credit score and one with a 750 credit score, the effect on rate can be very significant if one lender uses 650 and another uses 750. While there is significant variance among DSCR Lenders on using the lower or higher, generally the lender will use the median score of one of the individual owners (guarantors), either the higher one or the lower one.

Harpoon Capital will use the higher of the two credit scores on its DSCR Loan Programs, part of our borrower-first mentality!

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