Where Strategy Drives Approval: Get Your Questions Answered #
We’ve compiled the most frequently asked questions from seasoned investors to help you troubleshoot challenges and optimize your financing strategy.
Q: Does a DSCR loan count against my personal Debt-to-Income (DTI) ratio? #
A: No, this is the core strategic advantage. Because a DSCR loan is underwritten to the property’s income (a business-purpose loan), the debt is typically not counted against your personal DTI. This is how investors bypass the conventional lending limit of 10 financed properties and scale their portfolios rapidly.
Q: What is “Seasoning” and how long does it take to refinance with DSCR? #
A: Seasoning is the period of time you must own a property before refinancing it to extract cash (Cash-Out Refinance).
- Traditional Banks: Typically require 6 to 12 months of seasoning.
- DSCR Lenders: Many DSCR lenders offer 3-month seasoning or even no seasoning on rate-and-term refinances. This aggressive timeline allows investors to execute the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat) much faster, improving the velocity of capital.
Q: If my DSCR is below 1.0, can I still get the loan? #
A: Yes, but it comes at a cost. If the property’s income doesn’t cover the debt (DSCR < 1.0), you will typically need to utilize a “No-Ratio” DSCR loan.
- Trade-off: Lenders will approve the loan but will mitigate their risk by charging significantly higher interest rates and/or requiring a larger down payment (e.g., 30-35%). This product is best used strategically when you anticipate a rapid increase in rent after closing (value-add strategy).
Q: How much cash reserves will I need for multiple DSCR loans? #
A: Lenders typically require 6 months of PITI for each property you finance.
- Example: If you have 4 DSCR loans, you need 24 months of total PITI payments sitting in a verifiable reserve account.
- Strategy: Maintain reserves in liquid accounts (checking, savings, brokerage). The more reserves you show, the stronger your application is, often leading to better pricing tiers.
Q: Can I use projected income for a vacant property? #
A: Yes. For DSCR loans, the lender uses the appraised rental value of the property, which is determined by a licensed appraiser through a market rent schedule (Form 1004).
- Action: If the property is vacant, ensure the market comparables you provide to the appraiser support a high rental rate to maximize your DSCR score.
Q: Are there prepayment penalties on DSCR loans? #
A: Yes, most DSCR loans come with a prepayment penalty (PPP) structure, often 5-4-3-2-1.
- Meaning: If you pay off or refinance the loan early, you pay a percentage fee (e.g., 5% in year one, 4% in year two, etc.).
- Strategy: Always map out your “exit strategy” against the PPP to ensure you don’t negate your profit. Some lenders offer “no-PPP” options for a slightly higher interest rate.
