DSCR Loan vs Traditional Loan – What’s BEST For You?

There are a variety of loans available to investors. Some of these include a traditional 30 year fixed, hybrid 40 year fixed, 5 year interest only, 10 year interest only and even adjustable. Depending on your cash flow and what you are needing, you can create the flexibility you need to succeed. Today we are going to discuss DSCR vs traditional loan. What’s best for you? Let’s take a look!

What is a prepay penalty?

When applying for a DSCR loan vs a traditional loan you need to take into consideration that a DSCR has prepay penalties.These are standard 3 or 5 year prepay penalty that will be charged if you refinance, sell, or pay the loan off in full before the 3 or 5 year mark. This is normally a 3, 2, 1 structure. Just to clarify, 3% would be charged if the loan is paid within the first year, 2% the second year, and 1% the third year. Traditional loans however do not have a prepay penalty. Instead investors can come and go as they please. Before considering a DSCR loan, take into consideration the duration that you will need the loan for. It could potentially cost you a significant amount to get out of the loan if you decide to pay it off early.

Understanding rates for a DSCR vs a traditional loan.

When we are looking at a traditional loan vs a DSCR loan the rates will vary. A DSCR loan could be up to a half point higher than a traditional loan. A DSCR loan typically has a higher interest rate. This is because the lender does not verify your income when you apply. Instead they calculate whether or not the property will cash flow. A traditional loan on the other hand does verify your income over a two year period. This provides them the security they need to offer a lower rate. Income verification is difficult for many real estate investors because they write as much off as possible on their taxes. A DSCR can help these investors to get a good loan as long as they have good credit.

Would you like to learn more about DSCR loans? Contact us today to see if a DSCR loan is the best for you! 

Watch our most recent video to find out more about DSCR Loan vs Traditional Loan – What’s BEST For You?