Best rates for conventional mortgage and/or DSCR?

Question

Hello

I wanted to check if both conventional and DSCR rates are almost the same in today's market? With no discounts, what'd the best rate with 25% down?

Nick Belsky · Answer

@Ashish Wa

The difference between rates on DSCR and Conventional fluctuates all the time.  As it sits today, if someone were to say there is a 1% gap, then find another broker or lender.  I have been seeing DSCR beating conventional for a few weeks now, but that can change any day.  I locked 7.25% DSCR at par pricing on Friday.  The best conventional pricing on that same scenario was 7.5%.  Not a huge difference, but the amount of documents/scrutiny to qualify for DSCR is far simpler than conventional.  Many investors I work with prefer DSCR over conventional due to simplicity.

Not forgetting to point out that rate is relative and can be easily offset.  For investments, rate should not be the #1 criteria for the loan, there are so many other factors that have far great impact than rate.  You can always refinance if/when rates recover.  For now, either the numbers work or they don't, simple as that.  If they don't, move on.  If you have to rely on rate to make the numbers work, you are already staring at a bad deal.

Cheers!

Stacy Raskin · Answer

@Ashish Wa, DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth. Here's a bit more in detail about how rates are calculated for DSCR loans:1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.4. Are you cash flowing the property? Is your DSCR ratio greater than 1-meaning are you cash flowing. Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit.I've included an example below to help illustrate this.So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.See example below:DSCR < 1Principal + Interest = $1,700Taxes = $350, Insurance = $100, Association Dues = $50Total PITIA = $2200Rent = $2000DSCR = Rent/PITIA = 2000/2200 = 0.91Since the DSCR is 0.91, we know the expenses are greater than the income of the property.DSCR >1Principal + Interest = $1,500Taxes = $250, Insurance = $100, Association Dues = $25Total PITIA = $1875 Rent = $2300DSCR = Rent/PITIA = 2300/1875 = 1.23DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.

Abbey Humphreys · Answer

Your rate is going to depend on a few factors when it comes to a DSCR loan. The three main factors are your personal credit score (though this can be mitigated through borrowing through an entity), your desired LTV, and the actual DSCR of the property.

Here are a couple of articles that should be helpful for you:

https://www.biggerpockets.com/blog/questions-and-answers-abo...

https://www.biggerpockets.com/blog/dscr-loans-what-are-they

Raymond J. Rodrigues · Answer

@Ashish Wa, happy to answer any questions. Feel free to reach out.

Peter Mckernan · Answer

yeah, 1% lower on conventional and DSCR will be higher. There is the challenge to confirm numbers etc... Get some concessions back from the seller to buy down the rate a bit.

Ashish Wa · Answer

Okay. Are you registered in GA? What loan types do you deal in?

Erik Estrada · Answer

Hey Ashish,

Rates are very similar. DSCR has less scrutiny when it comes to personal income and debt. Can you qualify for a conventional investment loan?

Michael Dumler · Answer

@Ashish Wa, as noted above, generally speaking, you'll receive better rates/terms via conventional financing. Moreover, most conventional non-owner occupied investment loans still only require 20% down (depending on your financial profile and creditworthiness). If you're interested in connecting with either a local conventional and/or DSCR lender, I'd be more than happy to help out. Feel free to shoot me an email or text to connect (contact info is listed in my bio).

Doug Smith · Answer

Conventional will be about 1% lower than a DSCR right now...generally speaking.