How to choose a DSCR lender: what actually differs, and what to ask.

Why DSCR lenders are harder to compare

Conventional loans are standardized — the same agencies and the same credit box — so shopping is mostly about rate. DSCR loans are non-QM, so each lender sets its own rules. One may have a 1.0 DSCR floor and another 1.25; one may default to a five-year step-down prepayment penalty and another let you buy it off.

The same deal can price meaningfully differently, so the best lender is the one whose box fits your deal.

Broker vs. direct lender

• Direct lender: funds with its own money under its own guidelines. One consistent process and no intermediary, but only one credit box. A miss — a DSCR just under the floor, a rural property, a credit tier that caps LTV — means no, and starting over.
• Broker: prices one scenario across many wholesale lenders, and is paid from the winning lender's wholesale pricing, disclosed on the closing statement.

A broker's value depends on the size and quality of the network, so ask how many lenders they price against. Joshua is a mortgage loan originator; weigh this section with that in mind.

The seven terms that differ

1. 01

   Pricing for your deal

   Advertised rates are teasers for high credit, low LTV, and a strong ratio. Compare rate and points together, in writing, for the exact scenario.

2. 02

   Prepayment penalty

   Most DSCR loans have one, commonly a 5-4-3-2-1 or 3-2-1 step-down. Lenders differ on the default, the cost to shorten or remove it, and how a sale is treated versus a refinance.

3. 03

   DSCR floor and rent counting

   Minimum ratios differ, as does lease-in-place versus the appraisal's market rent, and whether short-term rental income counts.

4. 04

   LTV caps by credit tier

   Maximum leverage is tiered by credit score, and the break points vary widely.

5. 05

   Seasoning

   Title and value seasoning. Some lenders require 6 to 12 months; some programs none.

6. 06

   Reserves and loan minimums

   Months of payments held after closing, and the smallest loan written. A $150,000 minimum doesn't help a $90,000 rental.

7. 07

   Property types and portfolio limits

   Rural properties, condos and condotels, 2–4 units, short-term rentals, and caps on financed properties.

Eight questions to ask — and get answered in writing

1. 01

   Rate and points for my exact scenario?

   Address, rent, credit tier, LTV, loan amount. A quote without points is not a quote.

2. 02

   Which prepay is that priced with?

   And what does changing it cost? Ask for the same quote with a shorter prepay, or none.

3. 03

   What DSCR floor applies, and how is rent counted?

   Lease, market rent, or short-term rental income. Ask what happens if the appraisal's rent comes in low.

4. 04

   What LTV does my credit tier allow?

   And where does the next tier break?

5. 05

   Is there title or value seasoning?

   Both, either, or neither.

6. 06

   How many months of reserves?

   And do other assets count toward them?

7. 07

   Can I vest in an LLC?

   And is there a cap on financed properties?

8. 08

   Does pricing require a hard pull?

   It shouldn't. A soft pull or a stated score is enough.

Red flags

• A rate quoted without points
• Verbal-only terms — ask for a written term sheet or loan estimate
• A hard pull demanded just to see options
• A prepayment penalty that first appears at closing
• A lender that can't say how rent will be counted before you pay for an appraisal

The DSCR box here

• 47 states (not South Dakota, North Dakota, or Vermont); no hard pull to see options
• Loan range $75,000 to $3,000,000
• 20% minimum down on purchases (80% max LTV)
• No hard FICO minimum; the credit tier caps LTV, and below 620 caps at 50%
• Vest personally or in an LLC; no cap on financed properties
• No title seasoning on refinances of $100,000 or more, on the current appraised value: 75% cash-out, 80% rate-and-term
• Works with 1031 and reverse 1031 exchange timelines
• Land-contract refinances available, with 6 months of seasoning

Good to know.