DSCR Loan for Multifamily (5+ Unit Residential) Tear Sheet
| Loan Amount | $250,000 minimum. No firm maximum. |
| Loan Term | 30 Year |
| Coverage Area | Most States |
| Borrower Income, Debt to Income Ratio (DTI ratio) Requirement | None |
| Timeline to Close | 30 - 45 days reliably |
| Property Level Cash Flow Requirement | 1.00 - 1.30 DSCR at 30 year amortization |
| Occupancy and Lease Seasoning (Recently Completed Projects) | 0-3 months for orders |
| Ownership Seasoning Requirement for Refi | 6 months |
| Purchase LTV | 75% of purchase price. Cash to close = % of purchase price + buyer paid closing costs + tax and insurance escrows. |
| Refinance LTV | 70% of appraised value |
| Asset Requirements | 12 months of monthly payments to show in reserves |
| Minimum FICO Score | 700+ FICO for highest LTV. Lower FICO eligible at lower LTV. |
| Credit Scoring for Multi Member LLC | Lender will pull credit for only 1 Member, and does not need to pull credit for every Member. |
| 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. |
| Owner Occupancy | Not allowed. |
| Monthly Payment | Principal, Interest, Taxes, and Insurance (PITI payment) with 30 year amortization, similar to a home loan. Interest Only feature sometimes available at nominally higher interest rate. |
| Interest Rates, Points, and Fees | Nominally higher than DSCR loans for 1–4 unit residential rentals |
| Prepayment Penalty | Most programs have prepayment penalties |
| Appraisal | Commercial Appraisal Required |
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 different DSCR requirements for multifamily properties. All require DSCR of at least 1.00. Some require 1.20 – 1.30 DSCR with 30 year amortization.
DSCR Loan for Multifamily - 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 Multifamily DSCR Loan
- 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
DSCR Loan for Multifamily (5+ Unit Residential) Commentary
DSCR loans for Multifamily property (5+ unit residential) are nominally higher priced than their 1-4 unit counterpart, but still less expensive than DSCR loans for commercial and mixed use property. The most common use cases are quick close purchase loans, refinance loans for recently completed projects, and scenarios where borrowers do not meet on income or asset level requirements for full doc bank loans or don’t want to go through a full doc bank loan process. DSCR loans for multifamily property have less stringent property level income seasoning (e.g. recently leased is OK for some DSCR lenders but not OK for most banks) and property level cash flow requirements. DSCR lenders underwrite multifamily property income on a 30 year amortization schedule and include property taxes and insurance, compared to full doc lenders who underwrite on a 20-25 year amortization schedule and include common area maintenance, management fees, and vacancy loss factor.
Nonbank Clearing Advantages
- Competitive rates and structures (multiple lender outlets)
- Familiar with multifamily DSCR underwriting and lender guidelines
- Excellent service and simplified loan processing
