DSCR Refinance with Cash Out

[Michelle Romano]

Hello - I have been reading posts about DSCR loans and prepayment penalties and have a question. To clarify, it is illegal for the lender to charge the investor a prepayment penalty in PA for $301K loan and undee even if the lender is not located in PA or do they both need to be in PA?

I am looking for a DSCR loan for a long term rental I have in PA with small cash out. The existing loan I obtained 6 yrs ago was a DSCR loan with a one year ARM - no prepayment penalty, that is coming due in October. I am getting quoted the 5/4/3/2/1 step down prepayment penalty. I have no intention of selling the property as it has great cash flow. Any lenders here that can assist. Thank you.

[Robin Simon]

Quote from @Michelle Romano:

Hello - I have been reading posts about DSCR loans and prepayment penalties and have a question. To clarify, it is illegal for the lender to charge the investor a prepayment penalty in PA for $301K loan and undee even if the lender is not located in PA or do they both need to be in PA?

I am looking for a DSCR loan for a long term rental I have in PA with small cash out. The existing loan I obtained 6 yrs ago was a DSCR loan with a one year ARM - no prepayment penalty, that is coming due in October. I am getting quoted the 5/4/3/2/1 step down prepayment penalty. I have no intention of selling the property as it has great cash flow. Any lenders here that can assist. Thank you.

The prepayment rules and regulations vary by state and are often grey areas with different lenders and lawyers interpreting them differently in many cases - a lot of these prepay restriction laws were not really intended to be applied to business-purpose loans (they are for consumer protection) however some states are hamstringing their own investors with them. Some states are pretty cut and dry with no prepayment ever allowed and its pretty clear in the law (New Mexico, Alaska, etc.) however Pennsylvania is probably the biggest one thats vague and hard to interpret -some lenders will not do prepay under the ~$312k min, some will apply that only to duplexes and SFR and some interpret that its allowed for DSCR. Definitely the number one state to shop around for different prepay options!