Rates near 7.24%: the 5 checks I run before leaning on a DSCR loan

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Rates near 7.24%: the 5 checks I run before leaning on a DSCR loan

BJ Everson
Realtor · Columbus, Franklin County · Member since 2026 · 124 posts · 42 votes

Freddie Mac's 30-year fixed average was 7.24% for the week of Oct 29, and investor DSCR loans typically price above conventional owner-occupied rates. A lot of small rentals that penciled a year ago don't clear the bar anymore. Here's the quick stress test I run on 1-4 unit deals before relying on DSCR financing:

1. Use the lender's DSCR math, not mine. Most divide market rent (often the appraiser's rent schedule) by PITIA. Ask exactly which rent figure and which expenses they count.

2. Underwrite at the quote plus a cushion. I run the deal at roughly half a point above the rate I'm quoted, so a move between offer and closing doesn't sink it.

3. Get a real insurance quote and the current tax bill early. A premium jump or a reappraisal can move DSCR more than the rate does.

4. Read the prepayment terms. Many DSCR loans carry 3-5 year step-down prepay penalties, which matter if you plan to refi or sell.

5. Run your own number too. Lender DSCR usually ignores vacancy, management, and capex. I want positive cash flow after those, and at least 1.25x on the lender's math.

What DSCR and rate cushion are you underwriting to right now, and has a lender's rent schedule ever surprised you?

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Adam Summerer
Lender · Franklin, TN · Member since 2026 · 132 posts · 38 votes
1w

Good list. One I'd add befor writing the offer: ask what the lender's minimum DSCR actually is. It isn't always 1.0, some programs go down to 0.75-0.80 (usually with lower LTV or a higher rate) and others want 1.0 or a bit over, so a deal that misses 1.0 isn't automatically dead, it just costs more.

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  • Adam Summerer
    Lender · Franklin, TN · Member since 2026 · 132 posts · 38 votes
    1w

    Good list. One I'd add befor writing the offer: ask what the lender's minimum DSCR actually is. It isn't always 1.0, some programs go down to 0.75-0.80 (usually with lower LTV or a higher rate) and others want 1.0 or a bit over, so a deal that misses 1.0 isn't automatically dead, it just costs more.

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  • Dan Duenas
    Lender · Irvine, Orange County · Member since 2026 · 75 posts · 41 votes
    1w

    BJ — solid checklist, and the two that bite people most are the ones you listed: the rent schedule and the prepay terms.

    On rent: underwrite to the lender's number, not your lease. Most DSCR lenders use the appraiser's market rent, so if your tenant is $300 under market, that's the rent you're qualifying on whether you like it or not. And run your own number separately with vacancy, management, and capex in it — the lender's DSCR math usually ignores all three, so a deal that passes at 1.25x on their sheet can be a lot thinner in real life.

    On prepay: read the step-down schedule before you fall in love with the rate. A 3- or 5-year step-down can trap a BRRRR exit if you planned to refinance in year two. That penalty is part of the price, same as points.

    Your rate cushion idea is right — underwriting at quote plus half a point keeps you from getting re-traded at the closing table. And get the real insurance quote and current tax bill early; those two move DSCR more than a quarter point of rate ever will.

    Good discipline on the 1.25x. That's the kind of underwriting that keeps you out of trouble. — Dan

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  • Stacy RaskinBusiness Member
    Lender · Member since 2022 · 1k+ posts · 530 votes
    6d

    DSCR rates are just an idea until they rate is locked. Depending on the lender and the loan program, that will happen at different points in the process such as at loan submission, when the appraisal is back or when the paperwork is submitted for Title, etc.

    There are DSCR lenders who will underwrite to less than a DSCR 1 ratio but the rate will be higher.

    Rent schedule is from the appraiser's report and it often comes in lower than expected. Rates right now for DSCR loans as of today's posting date, are around the Freddie Mac average you mentioned depending on the borrower's mortgage credit score, LTV and type of transaction. More on why below. Typically, a cash out refinance rate is higher than a purchase transaction for the same borrower profile since a cash out refinance transaction is considered a higher risk transaction so the rate is higher to account for that.

    Why conventional and DSCR rates can be similar for the same borrower profile is because generally in conventional owner occupy loans, the lender fee is built into the rate so that increases the rate to cover the lender fee. This is called lender paid compensation. For DSCR loans, a borrower generally pays the rate at the end of the loan process- similar to a real estate agent being paid at the end of the process. This is called borrower paid compensation, This is why rates can be similar between conventional and DSCR loans. Happy to connect to discuss further.

    [email protected]818-770-0340
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    • BJ Everson
      OP
      Realtor · Columbus, Franklin County · Member since 2026 · 124 posts · 42 votes
      6d

      This is great loan insight!

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  • Divin KanyamaBusiness Member
    Accountant · Seattle, WA · Member since 2025 · 684 posts · 287 votes
    6d

    @BJ Everson The distinction between qualifying for the loan and being comfortable owning the property is the most important part of your framework. I'd use your 1.25x lender DSCR and half-point rate cushion as a starting screen, not an automatic green light. I'd still want the deal to produce positive cash flow after vacancy, management, maintenance, and capex reserves—without needing a future refinance to make the numbers work.

    On the rent schedule, I’d want to know how much room there is for the lender’s accepted rent to come in below my assumption before the deal stops working. Rather than stress the rate alone, I’d also test a scenario with lower accepted rent and higher insurance costs together. If that leaves almost no margin, I’d revisit the price or financing rather than stretch the assumptions.

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    • BJ Everson
      OP
      Realtor · Columbus, Franklin County · Member since 2026 · 124 posts · 42 votes
      5d

      I like these additions! Thanks!

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  • Lauren CutchenBusiness Member
    Real Estate Agent · The Woodlands, TX · Member since 2019 · 226 posts · 85 votes
    4d

    These checks are solid. I keep reminding investor clients that DSCR is a tool, not a default. Run the stress test against conventional too, especially when rates are this tight.

    [email protected]832-406-4239
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    • BJ Everson
      OP
      Realtor · Columbus, Franklin County · Member since 2026 · 124 posts · 42 votes
      4d

      Fully agree. As an investor myself, I do have a hard time thinking principal paydown is not taking place for up to 10 years is a good thing. I look at every rental as a future opportunity as future equity options 10yrs+ down the road.

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