What is DSCR Lender Really Looking For On My Bank Statements?

Question

In seeking a DSCR cash-out loan, I've learned that lenders want to see bank statements. I had thought DSCR's were only property based, but lenders I've just begun to contact are saying I need to provide bank statements. I asked why and was told that they are just needed to see that I don't have NSF on my statements. I didn't fall off a turnip truck just last night and strongly suspect there is more to it.

This has been a long rehab and I"ve seen interest rates essentially double. My DCR has fallen from 1.7 to 1.25 in the process. At a closing as it is, I will still have approx $350K in equity with taking $100K in cash back.

My cash position has been squeezed as the scope of work expanded, reducing cash on hand. I"m told that I can use the cash-out proceeds for my 6 months escrow, which would be covered a few times over.

I"m thin on cash on bank statements from the rehab. What is a potential lender really looking for- and how much is low cash on hand going to hurt my lendability despite my equity/cash-out? I've got alot of personal funds  tied up in this property, even with a rehab loan.

I really didn't think bank statements were a part of a DSCR loan, but it appears I'm dead wrong on this.

Thank you.

Burt L. · Answer

I certainly appreciate the replies. Each few years when I wade into the mortgage markets it is dramatically different and it helps so much to hear from those in the business on a daily basis.

Each of the lenders I've spoken to say these are 'tumultuous times" or very similar language. Not the ideal time to be loan shopping but still being in a rehab loan is even worse and has a definite end-point. A home run deal at purchase with those now-deceased rates has dropped to a double- not even a stand-up double but a headfirst slide being required.

Robin Simon · Answer

Bank Statements will be needed to show "reserves" to show you have liquid assets to cover X amount of monthly PITIA payments, they will not be used to underwrite DSCR.  Depending on the lender and some other factors like size of the loan, generally a DSCR loan will need to show 3-9 months of PITIA in liquid assets, whether that be cash, stocks/bonds account (typically haircut like 10%) or retirement assets (typically 20% haircut).  The lender will also typically want 2 months of statements, but only count the ending balance of the more recent month (i.e. for loans closed this month, collect August and September bank statement, and count the 9/30/2022 balance towards your reserves).  Lenders will differ, but deposits that are large should typically be sourced just to confirm borrower owns the funds and there is no money laundering going on

Jared Rine · Answer

@Burt L....On a cashout refinance, there really should be no reason to see bank statement or any type of asset statements unless the cash-out is not enough to cover the reserves requirement of the lender.  If the cash-out is minimal or short, then there's a reason.  I do cash-out refinances for investors all the time and never ask for bank statements assuming the cash out is a decent amount of funds.  I don't know who you're using, but I feel like I'm missing parts of the story as if your cash out is more than 6 months PITIA, you shouldn't need any asset statements (based on lenders I work with - I'm a broker) and your DSCR should never be falling during process, assuming you have a locked rate in place.

Sylvia H. · Answer

Hi there.  The DSCR loan (Debt Service Coverage Ratio) is a loan where the lender does not verify your income  in the traditional way or require tax returns. This simplifies the process for many investors and commercial buyers. The bank statement has to show that you are able to cover your monthly debt. That is why they want to look at your bank statements. There is a formula they use for this. It's basically your net operating income divided by your debt service.  You need to show a lender that you have enough cashflow each month to cover your debts. If the lender is asking that you have 6 months reserves they do not want the cash out refinance to part of that because you should be able to show the lender that you have enough money in the bank should an emergency arise to cover 6 months of mortgage payments. That is what is expected on a day to day basis,  not after you cash out from a refinance. They expect you to always have that money as a matter of course.

Erik Estrada · Answer

Most brokers want to see a complete story which is why they would request these documents. You might be costing yourself a better loan option shopping multiple lenders without giving them full details.

Erik Estrada · Answer

Most likely they are looking to see if you have reserves. Although if you don't have reserves there are several lenders that do not have this requirement.

Nick Hiersche · Answer

Should be for reserves only!

Eliott Elias · Answer

That you're not buying bottles and tables at the club every weekend

Lyndsay Zwirlein · Answer

As a broker, I work with over a dozen DSCR lenders and everyone has different guidelines. In terms of assets, some only require a VOD (verification of deposit) a few days before closing which is solely to demonstrate sufficient funds for down payment/closing costs (purchase) and reserves (both purchase and refi).  However, some DSCR lenders follow some Fannie Mae guidelines. Fannie Mae requires 2 months of bank statements for seasoning and to source funds (large deposits). Even though you're doing a refinance, a lender will still require 2 months simply because it's part of their guidelines.

Based on your situation as you described it, I don't see any concerns nor a lender digging for anything more.  Has anyone given you pushback?

What is DSCR Lender Really Looking For On My Bank Statements?

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