Are DSCR Rates Cheaper When Interest Rates Are High?

Question

I’ve noticed that DSCR rates are much cheaper than conventional rates right now. It’s still possible to get a DSCR loan at 6.5%, while conventional investment property rates are at a minimum of 7.5%.

Robin Simon · Answer

Not really, DSCR is still gonna be in general about 0.75% to 1.00% higher than conventional, that being said theres lots lots more flexibility on DSCR Loan pricing and flexibility, such as tend to see more ability to "buy down" the rate as well as include prepayment penalty provisions that can get rates lower than conventional too

Adam Summerer · Answer

Not usually, the 6.5% quotes tend to have points or a 5-year prepay baked in. Ask for the same quote with no points and a 3-year step-down prepay and you'll see the real spread. That said conventional investor pricing gets hit hard with LLPAs at 75-80% LTV, so at higher leverage DSCR can come out pretty close.

Ryan Thomson · Answer

DSCR rates tend to run 0.5-1% higher than conventional, but the gap narrows when conventional investor pricing gets loaded with LLPAs. At high leverage on a non-primary, conventional can actually price worse than people expect.

The prepay is the real hidden cost people underestimate. A 5-4-3-2-1 prepay on a property you end up selling or refinancing in year 2 is expensive. I've seen investors choose slightly higher DSCR rates specifically to avoid that penalty when they want optionality.

One angle worth running: if the property has a low-rate assumable mortgage on it, the math changes completely. A $400K loan at 2.75% assumed is roughly $1,650/month. The same loan originated today at 6.8% is $2,600/month. That's $950/month straight to cashflow, and DSCR underwriting on the assumed payment can make deals pencil that don't pencil any other way.

Most DSCR lenders will actually underwrite to an assumed loan's payment rather than the market rate, which is the part investors sleep on.

For conventional vs. DSCR at current rates, I'd model both with the LLPAs fully baked in before deciding. The headline rate comparison usually doesn't tell the full story once you layer in the investment property adjustments on the conventional side.

Henry Lazerow · Answer

I was wondering the same thing but believe it is just many DSCR lenders hide high fees which buy down the loan rate.

Stacy Raskin · Answer

DSCR rates can be in the 6s with a buydown cost to the borrower as of the date of this posting depending on the borrower's credit, loan LTV, etc. DSCR loans are generally borrower paid compensation so instead of the borrower paying the lender or broker compensation by the rate being inflated, the borrower is paying the fee at the end of the transaction. Generally conventional loans are lender paid compensation so the rate will be higher if the borrower isn't paying the lender fee at the end of the transaction. The lender or broker fee is separate and different from the underwriting fee.

A benefit of DSCR loans is that the the new appraised value can be used more quickly if doing a refinance as conventional takes a year of waiting time or seasoning to use the new appraised value if doing a BRRRR. That is another reason why investors use them besides being structured on the market or actual rents and not on the borrower's income or debt to income (DTI) ratios.

Erik Estrada · Answer

Where are you seeing 6.5% DSCR rates right now? Most are at 7.00-7.99% depending on PPP, loan amount, credit, etc.. Right on par with a conventional investment property loan without a PPP.

When you add points and a buy down, maybe you can get to 6.5%, but at par pricing, rate wise they are nearly the same

Robin Simon · Answer

We're "starting" at 6.5% right now, hard to get without pristine, low leverage, but technically still on the sheet. Also, remember that theres typically the 30-60 day "lag" from locks to fundings (and then marketing) so plenty of DSCR that was locked in the sixes back in August for example now getting funded and publicized

Dan Duenas · Answer

Lipa — yes, it's real. Here's why it happens: conventional investor loans stack price adjustments — an investment-property hit, a credit hit, a DTI hit, a reserves hit — each one pushing the rate up. DSCR doesn't do any of that. It prices off your LTV, your credit tier, and whether the rent covers the payment. So when base rates are high and those adjustments stack up, a 6.5% DSCR quote can absolutely land under a 7.5% conventional investor quote at the same leverage.

You're already tracking the two things that matter most: the prepay penalty is the real trade (5-4-3-2-1 means you're buying the lower rate with a hold commitment), and you have to compare at the same LTV and points.

One more thing worth knowing: DSCR qualifies on the property's rental income. No personal income docs — no tax returns, W-2s, or pay stubs. Plenty of investors who can't touch conventional investor financing can still get DSCR, down to 620 FICO and up to 85% LTV.

Happy to run your numbers if it helps — Dan

Lipa F. · Answer

Obviously, I’m talking about the same leverage and fees. The only difference is that DSCR has a PPP.

James Jones · Answer

The rate is the wrong thing to shop. I refi every BRRRR into DSCR at 70-80% LTV, and what I care about is whether the rent covers the payment with real cash flow left over. A 6.5% quote at 60% LTV or with 2 points isn't a 6.5% loan — it's a different loan. At 75-80% LTV the rate steps up, and that's the number that matters because that's where my refi actually prices. So compare apples to apples: same LTV, same points, then check whether your rent clears the DSCR coverage the lender needs. If the coverage works and it cash flows, I take the loan. The headline rate is just marketing until you see the leverage and the points. Practical takeaway: get every quote at the LTV you'll actually borrow, then run the coverage.

Are DSCR Rates Cheaper When Interest Rates Are High?

Are DSCR Rates Cheaper When Interest Rates Are High?

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