What brokers need to understand before their first DSCR loan
“Some lenders might say, ‘I’m only using what the market rent on the appraisal says, and that’s what I’m using for my underwrite,’” he said. “Some lenders might say, ‘I’m using that, but I’ll true it up by 10% if there’s a verified lease in place with a tenant that’s up to 10% higher than that.’ You might lend at this leverage to a 740 credit score, but somebody might be five points lower in leverage to that same credit score.”
How and where to execute deals
The rate lock process, he said, is another area where assumptions from conventional lending do not always carry over. It is easy for a broker who is used to agency products to assume a rate lock works the same way everywhere, and that assumption can end up costing a client money they did not expect to spend.
“Some brokers might not realize that there is a kind of traditional rate lock process associated with these DSCR loans, and ask about what that lender’s rate lock process is,” he said. “All of our rate locks are for 30 days, and there’s no charge for it. Some might charge for a rate lock. Some might say this is our baseline, but you can pay more or less depending on the length of it. Some might charge for an extension. Some might not.”
Goodwin said there’s one more thing worth confirming before trusting a new lender with a client’s file, and it has nothing to do with the underwriting guidelines themselves. That question is less about what a lender says it will do and more about whether it has been tested.
“Understand the ability of that lender to execute for the customer,” he said. “There’s a lot of capital coming into this space, which does mean that there are new lenders that are emerging that might not have proven track records or might not have fantastic processes built out or good technology built out. It’s a lot of different things there. Understand that you just have to ask your questions and do your diligence.”
