First DSCR - Are these costs normal?

Question

I am planning to secure my first DSCR loan. I have a property in mind that is 350k. The lender sent me the following options (attached photo). I am a little bit confused on why the monthly payment is so little? For example, I have another property with 315k balance left, 3.375% interest rate and the total monthly for it is $2030 (includes escrow + taxes).

The DSCR loan is for interest rates that are double, slight less loan amount (~35k), but even with the difference in loan amount the monthly payment feels like it should be much more.

Salvatore Lentini · Answer

@Susie C. - you will hate that 3 year pre pay penalty.  Definitely negotiate that and/or shop around.  Rates are dropping and most likely within the next 12 months you'll be itching to refi so that you can cashflow better.  Lenders have almost no volume right now and you should be able to find a lender eager to give better terms.  The rate is not the only number to look at.  Terms, fees, points and penalties can end up costing you more than the rate.

Kevin Romines · Answer

Taxes and insurance are escrowed, meaning they will be part of your payment, however the payments shown are just principal and interest. So your monthly payment will be higher than what is shown here.

I question if you really want a 3 year pre-pay penalty? The interest rates have already moved down and should continue to go lower in 2024. It could go low enough that you may want to refinance, but with a 3 year pre-pay penalty you will not really want to refinance or will pay a healthy penalty if you do so.

I would get a quote for a 1 & 2 year PPP to see where you would be at with those PPP timeframes.

I hope this helps?

Dave Skow · Answer

@Susie C.- if you plan to hold the property for just a few yrs - go with the  higher rate / lesser fee  option

Jonathan R McLaughlin · Answer

absolutely agreed on the get it in writing. We had it written explicitly into our commitment letters with two different small to middle regional banks: portfolio loans, good customer, ongoing business. Descending prepay unless refi loan with them or sale of property.

Caroline Gerardo · Answer

@Susie C. big piece missing is APR which they maybe show on another sheet? This gives you a method to really compare all the total costs.

State specific- tax stamps/recording/and title vary on location but should only be the real actual in that city.

Appraiser will do a rent survey 1007 form another $150 -250

SFR appraisal  $450- 500 units more

$350000 sales price SFR with 20% down your PITI at 7% is $2331

If your FICO is 721 APR at 7 is 7.599

MARKET rents need to be more than $2336 if there is no HOA, no flood insurance, no special hazard insurance- get a quote for the fire insurance TODAY!

Caroline Gerardo · Answer

@Jonathan R McLaughlin  NO. get that promise in writing from the BANK CEO. The sales person might say they will waive the prepay or give you a free loan but in reality that is NOT how it works. The prepay covers the cost a lender has in setting up a loan (anywhere from $9000- 13000 in processing/vendors/salaries/overhead...). When you go to sell or refinance that Loan Officer who promised the world probably won't still be there.       Lenders do not want to be paid off early as they lose money. The Loan Officer may actually have to pay back his her commission if they are paid off in the first six months. Lenders can shuffle the costs around and increase or lower rates but in one given day the market is what it is. Pricing a loan is contingent on your middle FICO, the property type, if the product still exists (what if you do a DSCR and in the future the "bank" no longer offers them?) property condition, in this case lease covers the PITI,  loan to value, debt to income ratios and several other pieces.

Melissa Maw · Answer

@Susie C. I am a mortgage broker and I recently closed a few DCSR loans for my clients in Dec as well as this month. The rates you posted are pretty much in line with what I am seeing with the lenders I work with.

Jake Baker · Answer

@Susie C.

These seem normal to me. I would get a quote from multiple lenders.

Erik Estrada · Answer

Those quotes seem pretty accurate. I would also confirm if there is any UW fee, legal fee, and appraisal review fee. Many lenders will hit you with these once the LE comes out.

Jonathan R McLaughlin · Answer

usually there is no prepayment penalty if you refi with the same bank, confirm.

First DSCR - Are these costs normal?

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