DSCR Investor Loan Rates Vs. Conventional Investor Loan Rates

October 10, 2023

DSCR Investor Loan Rates

DSCR Investor Loan Rates have been historically on average between 1 point to 1.5 points higher than Conventional Investor Loan Rates. That margin has dramatically narrowed recently. With other benefits of financing investment real estate under a DSCR program it makes sense for most real estate investors to use DSCR instead of conventional investor financing for 1 to 4 unit properties. The following factors determine conventional investor loan rates and DSCR investor loan rates:

Conventional Investor Loan Rates:

Credit Score: The borrowers with the higher credit scores qualify for the lower rates.
Down payment amount: The greater the down payment the lower the Loan to Value the lower the interest rate.
Property type: For conventional investor loans the rates are also based on number of units. Single family homes have the lowest rate, but the rates for 2, 3 or 4 units will be higher.
Debt-to-income (DTI) ratio: This is based on your personal verifiable, stable, acceptable income versus your debt. Only 75% of the rental income of the investment property is counted.
Tax Deductions: Deductions from all properties owned and shown on tax returns will negatively impact your income and debt to income ratios.

DSCR Investor Loan Rates:

DSCR Ratio: This is the net cash flow from the property. The greater the cash flow the lower the rate. The Higher the DSCR Ratio the lower the rate.
Down payment amount: The greater the down payment the lower the Loan to Value the lower the interest rate.
Property type: The rates are also based on number of units. Single family homes have the lowest rate, but the rates for 2, 3 or 4 units will be higher. Potentially DSCR Investor Loan Rates for two to four unit properties could be equal to conventional rates. Two to four unit properties have a higher DSCR Ratio.
Experience of the investor: Some DSCR Investor Loan rates may be higher if a borrower has not owned real estate investment property.

Current Conventional Investor Loan Rates and DSCR Investor Loan Rates:

As of October 10, 2023, the average interest rate for a 30-year fixed-rate conventional investor loan is over 8%, according to Bankrate.com. The average interest rate for a 30-year fixed-rate DSCR investor loan is 8.75%. The rates depend on the factors listed above.

Why are DSCR Investor Loan Rates higher?

DSCR loans are considered to be riskier investments than conventional investor loans because they are based on the property’s cash flow potential, rather than the borrower’s personal income. This means that lenders are more likely to charge a higher interest rate to compensate for the increased risk.

Which type of loan is right for you?

The best type of loan for you will depend on your individual circumstances. If you have a good credit score and a large down payment, you may be able to qualify for a conventional investor loan with a lower interest rate.

However, limited verifiable income, too many finance properties, not enough verifiable assets, long enough ownership seasoning among other factors a DSCR loan may be a better if not the only option.

Here are some additional factors to consider when choosing between a DSCR loan and a conventional investor loan: