This article is presented by Easy Street Capital. Read our editorial guidelines for more information.
In January, we published an article about DSCR loans, a product increasingly used by more and more real estate investors to scale their portfolios.
Known for easy qualification and light documentation standards (no income verification, no DTI requirements, no tax returns, etc.), sophisticated real estate investors are continuing to utilize DSCR loan options after maxing out on conventional financing options or simply finding it’s not worth trading the time and hassle of a bank qualification for the slightly lower rates.
The previous article outlined the basics of how to best position yourself as a DSCR loan borrower to get the best rates and terms on your DSCR loans. Quick recap: the rates and terms are primarily driven by three main metrics:
- Loan-To-Value (LTV) Ratio
- Debt-Service-Coverage-Ratio (DSCR) Ratio
- FICO/credit score
While the rate you’re going to be quoted is going to be mainly driven by those three factors, there are several other pieces to the puzzle that can also change the terms offered. The savvy DSCR loan borrower will use all the options available to optimize terms, especially in volatile rate environments like today, where every little bit of rate matters in securing profitable investments!
This article will walk through the more advanced strategies real estate investors can use to minimize their rates on DSCR loans and secure the best long-term financing for their portfolios.
Prepayment Penalties
The best way to get the lowest rate DSCR loan is to allow the lender to place prepayment penalty provisions in the loan. Essentially, this means that for the first few years of the term (DSCR loans are pretty much universally 30-year loans), if you choose to prepay the loan early by either selling the property or refinancing, you’ll have to pay a fee equal to a low percentage of the outstanding loan amount…