Our guide reviews the current interest rates for DSCR loans and helps you determine which rate you qualify for.
As of November 2024, DSCR loan interest rates are between 7.00% and 8.50%.
The main factors that impact DSCR loan rates include:
If you'd like to see what interest rates you qualify for, you can use our DSCR loan pricer to generate a quote within seconds.
You don’t have to book a call with a lender and wait several business days for a quote.
Simply enter your credit score, the type of property you're looking to buy, and the property's location, and we’ll give you three quotes containing your interest rates, monthly payments, and available buydowns.
You can play around with the LTV, loan amount, and monthly rental income to see how each affects interest rates. If you like one of these quotes, select it, enter your contact information, and we’ll approve your loan and send you a term sheet within a few hours.
From here, you can access our documents portal and submit all necessary paperwork, including proof of insurance, entity documents, and bank statements. You don’t have to provide tax returns or proof of employment, nor do we consider your debt-to-income ratio.
Finally, we'll have an appraiser verify the property's value, send you the final loan terms, and fund your loan. This process typically takes between 14–30 days. In certain circumstances, we can even close in as little as 7 days.
It's also worth noting that Constitution Lending is a direct lender. We're using our own capital to fund your loan; we aren't brokers who connect you with a third-party lender. This means you get an official answer on whether you qualify as soon as you submit documents through our portal. We know our loan requirements (because we created them), so we don't have to underwrite for a week in order to tell if you qualify or not.
Many brokers don't know what requirements the lender has, so they can only give you a yes or no after the lender has finished underwriting your loan application. This can cause your loan to fall through at the last minute.
Although DSCR loans are underwritten on an investment property’s ability to settle monthly expenses (mortgage payments, taxes, insurance, etc.), borrowers’ credit scores still influence interest rates. Lenders want to know that borrowers have a history of paying their loans on time.
Therefore, the higher your credit score, the lower the interest rates you qualify for. Lenders see borrowers with high credit as lower risk because they’re less likely to default on their loans.
Conversely, borrowers with low credit are deemed higher risks. Due to this increased risk, lenders typically charge more interest.
An LTV ratio, measured as a percentage, compares the loan amount to the appraised value of a property. For example, if you’re purchasing an investment property worth $1 million using a $800,000 loan and a $200,000 down payment, your LTV would be 80%.
LTV is a key factor in determining interest rates because it shows lenders how much equity a borrower has in the property.
Lenders charge less interest to borrowers applying for lower LTV loans because these borrowers put more of their own money into the property. If the property loses value or the borrower defaults, the lender has a greater buffer to recover potential losses.
Higher LTV loans are riskier since the borrower has less equity. If borrowers default or the value of the property decreases, the lender may not be able to recover the full loan amount. To mitigate this risk, lenders increase interest rates.
DSCR is a metric that measures how well an investment property can meet its debt obligations. It’s calculated by taking a property’s net operating income (NOI) and dividing it by total debt service. For instance, if a property generates $1,500 per month in rental income and its expenses are $1,000, it has a DSCR of 1.5.
Generally, the higher your property’s DSCR, the lower your interest rate. Lenders view positive cashflow properties as low risk because the borrower can pay the mortgage, insurance, taxes, and other expenses using the rental income and still have money left over for vacancies.
Cashflow neutral or negative properties may not be able to pay for unexpected expenses and, therefore, have a higher risk of defaulting. To account for this risk, lenders charge more interest.
However, this doesn’t mean you can’t qualify for a DSCR loan if your property has a negative DSCR. For instance, Constitution Lending can issue DSCR loans even if a property’s income only covers 75% of its expenses.
Read more: DSCR Loan Requirements: 5 Key Factors Lenders Consider
Prepayment penalties are fees borrowers pay when they want to settle their loans or do a cash-out refinance shortly after getting the loan. Prepayment penalty terms usually range from one to five years.
For instance, with a 5-4-3-2-1 prepayment penalty structure, a borrower would pay 5% of the loan balance as a penalty when paying off or refinancing the loan in the first year, 4% of the loan balance in the second year, and so on.
The reason why lenders add prepayment penalties to DSCR loans is because if borrowers refinance their loan after one year, for example, the lender loses out on future interest payments. So, these prepayment penalties are in place to help the lender make up for some of their losses.
However, the smaller these prepayment penalties are and the shorter the prepayment penalty time frame, the more incentivized borrowers are to refinance their loan if they qualify for lower interest.
So, to address the possibility that borrowers may refinance their loans early on without significant penalties, lenders will increase interest rates.
While it may sound counterintuitive, the smaller the mortgage loan amount you’re applying for, the more interest lenders normally charge.
This is because processing loans involves very similar administrative costs and risk assessments, regardless of the loan’s size. However, larger loans are more profitable since they allow lenders to earn more interest.
So, to make all the paperwork and loan processing worth it, lenders typically increase interest rates for smaller loans.
Some DSCR lenders may charge a higher rate if a borrower has no experience owning rental property.
DSCR lenders could also reduce the maximum LTV you can qualify for by around 5% if you have zero real estate investing experience.
However, with Constitution Lending, we don’t increase interest rates for new real estate investors or lower the maximum LTV they’re eligible for.
When looking for a DSCR lender to partner with, we suggest going with a direct lender who can issue instant loan approval and term sheets.
A common problem we — and many real estate investors we talk to — face when buying investment properties is loans falling through at the last minute. Investors will get a green light from loan officers as they submit their documents, but when it's time to close, the loan officers come back with a rejection letter.
This happens because real estate investors rely on brokers to source their funding. These brokers aren't lending you their money but are rather acting as intermediaries between you and another lender.
Often, these brokers don’t have a deep understanding of the specific requirements set by the lender. So, they have to ask the lender to begin underwriting before they can return to the borrower with a definitive yes or no.
This is one of the main reasons why we founded Constitution Lending.
As direct lenders, we create our own loan requirements because we fund your loan. We can get back to you with a definitive answer as soon as you submit the necessary documents because we know exactly what boxes a borrower has to tick. We don't have to underwrite for a week before informing you about your loan status, preventing those frustrating last-minute rejections.
When competing with cash buyers, you can't afford to wait several weeks before a lender finances your loan.
In our experience, a good way to tell how fast a lender can close is by looking at how quickly they can approve your loan and issue a term sheet.
We recommend avoiding lenders who take several days to get back to you with an approval letter and term sheet because it's likely that underwriting and loan closing will also be a lengthy process.
With Constitution Lending, we issue loan approval and term sheets as soon as you choose one of our quotes and enter your contact details. You don't have to wait several days for a loan officer to phone you.
Read more: 5 Best DSCR Lenders (2024 Comparison)
You can calculate DSCR interest rates using the following formula:
DSCR interest rate = 5 year U.S. treasury "risk-free rate" + Borrower credit spread
The higher your credit score, the lower interest rates you qualify for. This is because lenders view borrowers with low credit as a higher risk and more likely to default than borrowers with high credit. To compensate for this increased risk, they usually increase interest rates.
Most DSCR lenders offer a maximum LTV of 75% to 80%. This means you need a down payment of at least 20% to 25% to qualify for most DSCR loan programs.
DSCR mortgages are typically more expensive than conventional loans. They have higher interest rates, origination fees, and prepayment penalties. Additionally, a DSCR loan requires a minimum down payment of 20% to 25%.
A debt service coverage ratio loan (DSCR) is a type of loan product underwritten on a property's cash flow and ability to cover its loan payments, not the borrower's financials, such as personal income and debt-to-income ratios. This makes them good financing options for real estate investors with high debt-to-income ratios wanting to grow their rental portfolios.
Most lenders consider a DSCR of above 1.0 as a good ratio because it shows that a property can settle all debt payments with the rental income. However, you can qualify for a DSCR loan even if your property can't pay all its debt obligations.
Many private lenders issue rental loans if a property can pay at least 75% of its monthly payments, or in other words, has a DSCR of 0.75.
In order to qualify for a hard money DSCR loan, your rental property should be able to settle a minimum of 75% of its debt obligations (i.e., have a DSCR of at least 0.75). You also need a down payment of 20% to 25% and good credit, preferably above 720. However, you don't need to provide proof of income or worry about your debt-to-income ratio.
Constitution Lending is a direct, hard money lender financing investment properties for over 10 years. During this time, we’ve helped hundreds of borrowers buy single and multi-unit investment properties, condos, commercial real estate, and short-term rentals, as well as navigate successful fix and flip projects.
You can use our DSCR calculator to learn what interest rates you qualify for, and we’ll close your loan within seven to 14 days.
| Qualification | Requirement |
|---|---|
| Minimum and maximum loan amount | $150,000 to $3,000,000 |
| Type of property | Non-owner occupied single-family, multi-family, and 5-8 unit properties |