DSCR Loan Interest Rates - June 2023
Last updated: June 1, 2023
Current DSCR Loan Rates
The DSCR loan interest rates index is currently at 7.65% for competitive and 9.15% for uncompetitive terms. The unresolved debt ceiling is causing uncertainty in the bond market market -- investors don't like uncertainty. The 5 Year US Treasury increased by 0.5% during May, and the most competitive DSCR lenders (i.e. OfferMarket) are currently in the mid 7s.
The 5 Year US Treasury serves as a critical pricing benchmark for DSCR loan interest rates, and the yield on the 5 Year US Treasury has been and will likely continue to be highly volatile until the debt ceiling, inflation and the banking crisis are worked out.
We view current DSCR loan interest rates as fair for near-term purchase and refi, however we believe it is probable that rates will increase in the near term. We expect rates to remain elevated into the second half of 2023 and we are advising our clients to select a lower prepayment penalty in order to opportunistically refinance if and when rates decline in the next few years.
DSCR loan interest rates are currently highly volatile, driven in large part by Fed policy uncertainty, inflation, recession fears, and recent bank failures. The US Treasury yield curve is indicating that DSCR loan interest rates will remain elevated until the Federal Reserve brings inflation under control and stops increasing the Fed Funds Rate.
DSCR Loan Interest Rates Index
Note: index rates are based on 30 year fixed rate, fully amortizing, 1.2 DSCR, 75% LTV, 720 credit score and a 3-2-1 prepayment penalty. Interest rates are an approximation based on best available nationwide private lender data for competitive rates. DSCR loan interest rates are lower at lower LTV and higher credit score.
Keeping track of DSCR loan interest rates used to mean filling out forms, calling and emailing multiple DSCR lenders. Now you can get instant DSCR loan quotes, and know that you are getting the lowest rate, lowest fees, and highest leverage, every time.
In line with our mission to be the most transparent and competitive DSCR lender for real estate investors of all experience levels, we are pleased to introduce the DSCR Loan Interest Rates Index, an index of prevailing DSCR loan interest rates for 30 year fixed rate fully amortizing DSCR Loans.
DSCR Loan Interest Rates Today
Current DSCR loan interest rates are displayed in the chart above. Rates are sensitive to the several factors, so it's best to get a personalized instant quote.
DSCR loan interest rate quoting models weigh the following factors:
Borrower credit score
The higher your credit score, the lower your rate. Many rental property investors do not realize how sensitive DSCR loan quoting is to credit score.
| Credit Score | Interest Rate |
|---|---|
| 760+ | +0.0% |
| 740 - 759 | +0.05% |
| 720 - 739 | +0.1% |
| 700 - 719 | +0.15% |
| 680 - 699 | +0.25% |
| 660 - 679 | +0.50% |
But credit score doesn't just affect your rate, it also impacts the loan amount (LTV) you qualify for.
| Credit Score | LTV (purchase) | LTV (cash out refi) |
|---|---|---|
| 720+ | 80% | 75% |
| 700 - 719 | 75% | 70% |
| 680 - 699 | 70% | 65% |
| 660 - 679 | 65% | 65% |
Some of the capital providers that buy our loans will require a DSCR of 1.2 (instead of 1.1) for borrowers whose credit score is below 720. To see how that can affect your loan amount, use our handy DSCR calculator.
Takeaways:
- protect and optimize your credit score
- stop using credit cards for your rehab projects -- Pro tip: take advantage of our Fix and Flip loans with Advanced Draws
- learn about the tri merge credit report
Borrower experience
Some DSCR lenders do not work with 0 experience first-time investors. Among lenders that do work with new investors, it's not uncommon for max LTV to be reduced by 5% and interest rates to be slightly higher (0.1% - 0.2%).
While it's nice to be rewarded for experience, it can also be frustrating to be penalized for a lack of experience. Our DSCR loan program is designed to provide investors of all experience levels with the most competitive terms.
LTV
The higher your LTV, the higher your interest rate. This is because higher leverage means higher default risk. Lenders and credit investors are compensated for this higher risk by offering a higher interest rate.
| LTV | Interest Rate |
|---|---|
| 80 | +0.4% |
| 75 | +0.3% |
| 70 | +0.2% |
| 65 | +0.1% |
| 60 | +0.0% |
| Under 60 | +0.0% |
Loan amount
You may be surprised to learn that DSCR interest rates are affected by your loan amount. Private lenders want a higher interest rate to make it worth issuing a low value loan.
| Loan Amount | Interest Rate |
|---|---|
| $150,000+ | +0.0% |
| $125,000 - $150,000 | +0.1% |
| $100,000 - $125,000 | +0.2% |
| $75,000 - $100,000 | +0.3% |
| $50,000 - $75,000 | +0.4% |
| Under $50,000 | +0.5% |
Prepayment Penalty
The longer the prepayment penalty period, and higher the prepayment penalty, the lower your interest rate.
| Prepayment Penalty | Interest Rate |
|---|---|
| 5-4-3-2-1 | +0.0% |
| 3-2-1 | +0.15% |
| 3-0-0 | +0.4% |
| 1-0-0 | +0.65% |
Learn more about prepayment penalty options for DSCR loans.
Risk and Demand
As perceived risk and fear of inflation increases, DSCR loan interest rates increase. When lenders and institutional fixed income investors believe there is a higher risk of default due to housing market and economic weakness, a higher interest rate will be required in order to incentivize acceptance of that risk.
Interest rates on DSCR loans
DSCR Loan interest rates:
- are correlated to the 30 year conventional fixed rate mortgage
- are affected by strength of DSCR (cash flow of your rental property) -- try our DSCR Calculator
- are affected by your real estate investing experience
- are affected by your credit score, which also can limit your loan amount (loan to value, "LTV")
- increase as LTV increases
- are priced at a premium to the 30 Year Conventional Fixed Rate Mortgage rate, and this "spread" varies based on the health of the fixed income markets
DSCR Origination Fees
Otherwise known as "points", origination fees are typically a percentage of loan amount. So if your private lender charges 2 points and your loan amount is $200,000, then your origination fee is $4,000. Please note that private lenders may also charge additional fees including "underwriting fee", "processing fee", "servicing fee", so do not be fooled by a low origination fee -- understand your lender's fees and compare terms from multiple lenders. Get DSCR Loan quotes in 2 minutes or less.
DSCR Calculator
Use our handy DSCR Calculator to determine DSCR for your next rental property purchase or refinance.
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