Anyone able to recommend a DSCR lender?

[Tyler Noyes]

Hey bigger pockets! I am a relatively new investor freshly relocated to Detroit. I'm finishing my first flip which is intended as a long term rental. I've been back and forth with 'loanguys' and having read some material online I'm hesitant to move forward. I have lease agreements signed, security deposit in hand, etc. If anyone has a reliable DSCR lender they would be able to recommend, that would be incredible. I'm not hyper focused on rates or their fees. I just need transparency and reliability.

Any direction would be massively appreciated. I have tried the Google searches but after every website, and research process I become more and more weary of who I may be working with.

Thanks for reading!

Tyler

[Stacy Raskin]

@Tyler Noyes, it's good to do your research as DSCR loans aren't regulated the same way as federally backed loans like conventional loans, FHA and VA loans. You want to make sure that the lender isn't going to change the terms on you midway through the process.

In case helpful for more on info on DSCR loans-they 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 lenders

2. 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 < 1

Principal + Interest = $1,700

Taxes = $350, Insurance = $100, Association Dues = $50

Total PITIA = $2200

Rent = $2000

DSCR = Rent/PITIA = 2000/2200 = 0.91

Since the DSCR is 0.91, we know the expenses are greater than the income of the property.

DSCR >1

Principal + Interest = $1,500

Taxes = $250, Insurance = $100, Association Dues = $25

Total PITIA = $1875 Rent = $2300

DSCR = Rent/PITIA = 2300/1875 = 1.23

DSCR 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.