DSCR Loan for 1-4 Unit Residential Tear Sheet
| Loan Amount | $75,000 minimum. No firm maximum. |
| Loan Term | 30 Years |
| Coverage Area | Most States |
| Interest Rate, Points, and Fees | Near bank rates |
| Timeline to Close | 20 - 30 days reliably |
| Borrower Income (DTI ratio) Requirement | None |
| Lease or Occupancy Requirement | No Lease or Occupancy requirement for Purchases No Lease of Occupancy requirement for single family refi Max 1 unit vacant for 2 - 4 unit property for refi |
| Seasoning Requirement (for refi) | None for loan amount up to 100% of purchase price and rehab hard cost 90 days for full LTV refi for some programs. 180 days for most programs |
| Recently Completed Vacant Property, New Construction and Condo Inventory | Allowed. Lender will go off market rent from appraisal report. |
| Asset Requirements | None for cash out refi. 6 months payments in the bank to show, for rate and term refi. Cash to close plus 6 months payments in the bank to show for Purchases. |
| Property Level Cash Flow Requirement | Monthly Rent must be greater than Monthly Interest, Property Taxes, and Property Insurance (i.e. 1.00 DSCR on interest only payments). |
| Purchase LTV | 80% of purchase price (higher rate) 75% of purchase price (better rate) |
| Rate and Term Refinance LTV | 80% of appraised value (700+ FICO) 75% of appraised value (680+ FICO) 65% of appraised value (580–679 FICO) |
| Cash Out Refinance LTV | 75% of appraised value (680+ FICO) 75% of appraised value (650–679 FICO) higher rate 65% of appraised value (580–649 FICO) higher rate |
| Short Term Rental Properties | Allowed. For refinances, most lenders require the property already be listed for short term rental on an online platform or with a real estate agent. Lender can use Airdna® to pull market short term rental rates. |
| Revocable Trust Borrower | Allowed. Same LTV. |
| Non-Warrantable Condos | Allowed. Max LTV 65% of appraised value. |
| Condotels | Allowed. Max LTV 65% of appraised value. |
| Rural Property | Allowed. Max LTV 65% of appraised value. |
| Lower Value Properties | Allowed. Can combine multiple lower value properties to meet loan minimum as long as they meet on property condition requirements and are not rural. |
| Foreign National Borrower | Allowed. Max LTV 65% of appraised value. |
| Individual Loans vs. Portfolios | Most common structure is a separate loan for each individual property. Multiple properties can be structured as multiple individual loans, a portfolio loan, or multiple portfolio loans. |
| Entity (LLC or Inc) vs. Individual Name Vesting | Most common is Entity (LLC or Inc) vesting. Some lenders in some states allow individual name vesting. For refis, borrowers can change ownership concurrent with the refi closing, as long as the majority individual owner stays the same. |
| Credit Scoring for Multi Member LLC | Lender will pull credit for only 1 Member, and does not need to pull credit for every Member. |
| Owner Occupancy | Not allowed. Loans for owner-occupied 1–4 unit residences are in a separate category and are heavily regulated. |
| Monthly Payment | Principal, Interest, Taxes, Insurance, and Condo/HOA dues if applicable (PITIA payment) with 30 year amortization, similar to a home loan. Interest Only feature available at nominally higher interest rate. |
| Property Condition Requirements | Visible safety and rent readiness items flagged on appraisal report need to be repaired prior to loan closing. This is a non-issue for cosmetic items. |
| Property Insurance Requirements | Rental policy that covers replacement cost. |
| Prepayment Penalty | No prepayment penalty structures available. Lowest interest rates often come with prepayment penalties. |
| Appraisal | 1–4 Unit Residential Rental Appraisal ordered by an Appraisal Management Company selected by lender. |
DSCR Loan Calculator
Almost all DSCR loans are 30 year term, so we've plugged in 360 months for the term length.
For 1-4 unit residential, multifamily, and commercial / mixed use DSCR loans, the lenders escrow the estimated monthly cost for property taxes and property insurance. The monthly payments are PITI (Principal + Interest + Taxes + Insurance), like a 30 year home loan, even though these are commercial loan products.
Up Front Costs
In choosing a DSCR lender, rates, points, and fees are important, but equally important are service, reliability, and not finding a lender that bids low to win loans and re-trades later.
DSCR lenders have less stringent dscr criteria than bank lenders. DSCR loans for 1-4 unit residential properties do not require leases or occupancy, and lenders can go off market rate for rents. DSCR loans for multifamily, mixed use, and commercial, typically require 70% occupancy. The usual dscr requirement for a DSCR loan is 1.00, based on rents divided by the PITI monthly payment with 30 year amortization, and we have lenders that can work with 0.75-0.99 dscr for certain scenarios. A full doc bank loan would adjust rental income downward for operating expenses and vacancy (not just taxes and insurance) and require 1.20 or 1.25 dscr at 20 or 25 year amortization.
DSCR Loan for 1-4 Unit Residential - Loan Process
Step 1- Initial Discussion, Loan Application, and Term Sheet
- Discuss the purchase or refi scenario and property level details
- Suggest relevant loan programs and provide parameters
- Loan application and initial info request (we can get this over the phone too)
- Term Sheet and Appraisal Fee
Step 2- Initial Info Required for DSCR Loan 1 to 4
- Any remaining info points to complete the Loan Application
- Photo of ID and void check
- Contact information for your title agent and insurance agent
- If borrower is an LLC, then LLC Operating Agreement and EIN Letter
- Bank statements with cash to close and required reserves for Purchases
Step 3- Appraisal, Title, Insurance, and Additional Info from Borrower
- Appraiser visits the property and completes the appraisal report
- Lender reviews the appraisal report, internally re-checks value and reviews for property condition
- Title agent provides title policy, works with lender on revisions and clarifications
- Insurance agent provides insurance policy, works with lender on revisions and clarifications
- Lender usually comes up with other things to ask for from borrower
Step 4- Final Underwriting, Closing, and Funding
- Lender sends complete file to underwriting, and they may find issues or require more things at that point
- Final coordination between title company and lender on loan docs and scheduling
- Closing and Funding
What is a DSCR Loan for 1-4 Unit Residential Rentals?
A DSCR loan for 1-4 unit residential property is a syndicated private commercial loan product with rates near bank rates, used to purchase or refinance 1-4 unit residential rental investment properties. The loans look similar to 30 year home loans for investment property except that there are no borrower income level requirements and the interest rate is sometimes slightly higher than a full doc loan. DSCR loans do not have debt-to-income (DTI) requirements and do not require income and employment verification or tax returns, making for a quicker process. Our DSCR lenders have more flexible seasoning requirements- we have no seasoning refi programs near bank rates up to 100% of purchase price and rehab cost, and 90 day seasoning with no loan to cost cap. RE: DSCR Loans for 5+ unit residential (multifamily), mixed use, and commercial property types, please refer to DSCR loan
How to Qualify for a DSCR Loan
Call 215-623-9500 or email rick@nonbankclearing.com and we can give you an idea of what you are qualified for with some basic information about the property and the financing scenario. Same day approval with loan application and supporting documents. Hope to earn your business !
Are DSCR Loans BRRRR loans?
DSCR loans can be part of a BRRRR strategy. BRRRR stands for “buy, rent, rehab, refinance, repeat”. DSCR loans are popular with Brrrr method investors because the loans allow brrrr investors to refinance and repeat quickly. In fact, the first “r” in brrrr, “rent” isn’t even required for 1-4 unit residential investment properties- you can close the refi with the units rent ready without leases or occupancy. No seasoning DSCR loans are a powerful tool for Brrrr investors.
What are DSCR portfolio loans?
DSCR portfolio loans are a type of blanket loan that has 5 or more properties under 1 loan. DSCR portfolio loans are very similar to DSCR loans for individual properties, except the lender offer breaks on fees and points for it being a bigger loan. DSCR portfolio loans can be used for no doc portfolio purchase, portfolio rate and term refinance, or portfolio cash out refinance for 1-4 unit residential investment properties. DSCR portfolio loans are competitive against bank loans on seasoning, proceeds, and rates for no doc rental portfolio refi.
What are DSCR loans for Short Term Rentals?
DSCR loans can be used for Short Term Rentals. DSCR loans for short term rentals are also known as STR loans. They are similar to DSCR loans except lenders can go off Airdna ® market data to underwrite income as a short term rental. For short term rental loan refinances, the property must already be listed on Airbnb ®, VRBO ®, or with Realtor ® to verify that it is being used as a short term rental.
Are DSCR Loans for Individuals or only for LLCs?
We have DSCR loans for individuals, but in most states DSCR loans for LLCs are more competitively priced. Borrowers can also have the title company transfer a property from individual name to LLC name at the loan closing. Please check your local transfer taxes first. Here in Philadelphia, PA, the transfer tax rates are high. Other places don’t have transfer tax or they have very low transfer tax.
Do DSCR lenders go off the higher of two or three LLC Members' credit scores?
For an LLC with 2-3 owners, where each owner has an equal interest, our DSCR lenders can use the credit score of the member with the highest score. Generally, a DSCR loan is a loan made to an LLC, one LLC member is the primary applicant who signs most of the loan documents, and the remaining members sign a more limited set of documents including a personal guarantee.
Can I get a DSCR loan without a tenant?
Yes, you can get a DSCR loan without a tenant. No leases or occupancy is required for DSCR loans for 1-4 unit residential properties. All units must be in rent ready condition. If the properties are leased, then you need to provide copies of the leases. For DSCR purchase loans, lender can go off market rents from appraisal report instead of in place rents. For DSCR refi, lender will go off the lower of in place rents and market rent from the appraisal report.
Can I use DSCR loan for condo inventory or homebuilding inventory?
Yes, you can use DSCR loans as a condo inventory no doc refi or homebuilding inventory no doc refi. DSCR loans are an attractive and convenient option for recently completed construction refi. 20-30 days to close and rates near bank rates.
More Information on DSCR Loans
DSCR loans are a type of loan for rental property. DSCR loans are loans for investment properties only. They are not allowed for properties where the owner lives. This avoids the moral issue of potentially needing to foreclose on someone’s personal residence, and being accused of putting someone in a loan on their own house that they cannot afford. The finance and lending businesses took a black eye in 2008 when the major banks were bailed out / given extensions by taxpayers, and regular people lost their homes to those same banks by foreclosure. The banks have since made changes to be more conservative and fairer for home loans, which is good. The private lending market has stepped up to serve investors. DSCR loans are especially competitive on cash out refi for investment property, and as an easy way to refinance rental property. DSCR cash out refi is a no doc refi- meaning there are no tax returns or borrower level income verification required- and it is also known as a 30 year no doc loan for investment property. DSCR loans are the best thing going for 1-4 unit residential investment property term loans.
Nonbank Clearing Advantages
- Cover almost any lendable scenario (multiple lender outlets)
- Competitive rates, structures, and seasoning
- Excellent service and simplified loan processing
