What are the risks of DSCR loans?

[Jack B.]

I understand they have a little bit higher interest rate, but what are the risks of DSCR loans? Is there a demand clause where they can call the loans for no reason? My conventional loans don't have a demand clause. They can only call the loans due prematurity if I default.

I'm hesitant to give up my conventional loans on the next cash out refinance for DSCR loans. Thing is, I will need to go DSCR loans from here on out or just stop buying new real estate altogether.

[Jason Wray]

Jack,

There is really nothing to fear when it comes to DSCR even as a Non/QM mortgage they are still fairly simple. DSCR is good for anyone who cannot show enough income to qualify instead the rents are used. DSCR is different with every lender but in most cases you can select your rate/term. In some cases you can also select from a No prepay, 1 year, 2 year, 3 year and 5 year prepayment penalty.

The longer the prepayment penalty the lower the rate and with rates showing a trend of coming down its tough to take a prepay at these higher rates. They also offer longer I/O options like a 30 year with the first 10 years fixed interest only. This can help the initial cash flow until you refinance and lower the rate for a LTR.