DSCR lender recommendations?

[Justin C.]

Hi all -

Looking for recommendations for good DSCR lenders. Purpose would be for a cash out refi on SFH BRRRR post appraisal... high credit score... renovated & rented property... no docs and quick close DSCR loan. Ideal criteria, in order of importance

* no or minimum prepayment penalty (is 2-3 years "normal"?)

* low seasoning period (3 months ideal... anyone doing <6 these days?)

* no or minimum points

* 75% or greater LTV

* minimum rate of course... especially for the first few years

* will lend to LLC

Finally, are there any good options out there with a lower rate for the first 1/2/3 years... or IO... etc? Any other DSCR eligible products you recommend looking at right now, other than 30y fixed.

Thanks in advance for your suggestions!

[Stephanie P.]

Quote from @Doug Smith:

Quote from @Robin Simon:

Quote from @Doug Smith:

Keep in mind that most lenders that do DSCR deals have to sell them into the same pools, so their terms are going to be somewhat similar. Most of the investors we work with go with a 3-year prepay. UWM is the only lender that allows no prepay that I know of, but that's not a true DSCR and they won't lend to an entity. It's really a conventional loan that's been twisted a bit. Most of the investors we work with opt for 3 year prepays. Most lenders start with a 5-year prepay as their base and then add to the rate for each year you shave off, but almost none go below one year. I've notice a huge jump in rate between 3 years and 2 years, so most opt for 3 because if they are doing a DSCR, they plan on holding the property for a bit, otherwise they would simply do a bridge loan. I don't know of anyone that does seasoning less than 6 months for using the appraised value over the lesser of appraised value or purchase price. Regarding points, the lender has to make money and cover overhead. Otherwise, why would they be taking any risk in being in business. They can bump the rate a bit to shave a point or two, but you'll likely have points. 75% LTV...even 80% and in some instances 85% is doable depending upon several factors...but 75% is pretty common. With regard to rate, most investors we work with opt for a 5/6 ARM, which is fixed for 5 years and then adjusts every 6 months thereafter, but many will take a bump in rate to go interest only during that initial period. Pretty much every lender, other than UWM that is not really a DSCR lender, will require that the loan be in the name of an LLC with the owners of the LLC personally guarantying. That how they get around Dodd Frank and CFPB requirements of proving income on a consumer loan. A loan to an entity like an LLC or S-Corp on an investment property technically makes it commercial, which allows them to avoid personal global cash flows. I hope that helps. It many not be the answer you're looking for, but it's the truth. Good luck and let me know if you have any more questions.

Not accurate - almost all DSCR lenders will have zero prepay options

Perhaps we're working with the wrong funds. We have several and we even do them in house to securitize out, but one thing that perhaps I should correct myself on...some states don't allow a prepay (like AK, IA, KS, MD, MN, MS, NJ, NM, RI & VT), but they are required with most lenders in most states. Others limit prepays. Which good funds that back DSCRs have no-prepay options in all states that won't cost a borrower a kidney? I would love to know so we can sign them up. I would appreciate the education. 

Your generalizations are what are getting you. All DSCR lenders offer a no prepay option, but the borrower has to pay for it. Does it cost a kidney? In some instances, yes.

Not all lenders agree regarding the states that do and don't allow prepays.  I've done many loans in Maryland where prepay isn't an issue.  Same with New Jersey.  Many lenders won't lend to an individual in Jersey, but don't consider lending to an entity an issue and allow the prepay.  Same with Rhode Island and Kansas.

You brought up UWM a few times and mentioned the products they offer aren't really DSCR loans. You're right.

Just putting a loan into an LLC doesn't necessarily allow for a loan to not be considered a "covered mortgage" and subsequently subject to Dodd Frank and the CFPB. Fannie allows for LLC's. Here's the verbiage from the CFPB that defines a business purpose loan. Essentially a rental property is "business purpose".

https://www.consumerfinance.go...

We offer ARM's and haven't had anyone take them yet. They're either opting for the 40 year amortization or a 10/40 interest only product.