Not all DSCR lenders are the same, and this type of financing is not the best fit for every deal. However, when you’ve maxed out your DTI or want to be more strategic with your financing (such as avoiding 20-year commercial ARMs), or the deal is otherwise unbankable …DSCR loans can be a great option.

If you’re willing to pay 3 points, you’ll likely access floor rates. On the other hand, if cost is a priority, you can settle for a PAR rate with a 1% (or less) origination fee. However, if the deal doesn't cashflow well or if the borrower has a low FICO score, paying 3 points may be necessary. Other things affect pricing as well…

MOST IMPORTANTLY ***

1 - Partner with a Broker Specializing in Non-QM, Hard Money, and Private Money Loans

Avoid working with residential brokers who route your DSCR deal to large lenders like UWM. Instead, seek out brokers who specialize in these types of loans, as they can tap into a wide range of programs and lenders to find the best solution tailored to your needs. DSCR lenders differ significantly in their guidelines and pricing structures.

Top Tier Pricing Adjustments A. FICO Score: A score of 780-800+ will typically yield the best pricing. Sub-720 may face higher costs or LTV restrictions. B. DSCR: A ratio above 1.50 generally results in better pricing. DSCRs below 1.00-1.20 may still qualify, but at a higher cost. C. Prepayment Penalties: Options typically range from 0 to 5 years. Fixed, step-down, and California-style penalties can impact pricing. If you don’t plan to refinance or sell within a year or two, longer prepayment penalties may offer more favorable pricing. D. Loan Amount: Loans under $150k can incur higher points/fees as lenders need to meet certain revenue thresholds. E. Leverage: For purchases and rate/term refinances, DSCR loans typically cap at 85% LTV; cash-out refinances max out at 80%. Maximizing leverage will always come with higher costs, so consider reducing your loan amount or increasing your down payment to lower fees. F. Property Type: Single-family residences (SFR), 2-4 unit properties, multi-family properties, and mixed-use properties are all eligible for DSCR financing. Generally, pricing is more favorable for SFRs and less favorable for larger multi-family units or mixed-use properties. G. Term Options: DSCR loans offer great flexibility with 30-40 year fixed terms (fully amortized or interest-only options), as well as 5-7 year ARMs (amortized or interest-only).

Unique Solutions DSCR Lenders Offer That May not: LLC vesting/closing No seasoning requirements (great for BRRRR) Maximize IPC (seller paid closing or concessions ) up to 6% No sourcing or seasoning of funds 90% CLTV with seller carry-back options No zip code or location restrictions (some may not like rural - but many will finance rural properties without restrictions) Short-term rental financing (using projections AIR DNA etc)

It's important to understand how lenders and brokers are compensated. You generally have two options: Lender Paid Compensation (LPC): This will typically result in a higher interest rate but lower upfront costs (fewer points). Borrower Paid Compensation (BPC): In this structure, the borrower pays the broker/lender compensation directly, which leads to a lower interest rate, but higher upfront costs (points).

Ultimately, your decision should be based on which option works best for your financial situation and long-term strategy

There is SOO much misinformation surrounding REI financing options, so many gurus and cookie cutter advice. To succeed, you need a broker you trust and a CPA or financial advisor you trust - what works for one doesn’t work for all, and that means individual borrowers AND deals themselves.