Why are DSCR rates higher than conventional rates?
DSCR loans are non-QM products held by private capital, not securitized through Fannie/Freddie. Pricing is roughly 1-2% above conventional investment.
DSCR loan rates run roughly 1-2% above conventional investment-property rates for the same FICO and LTV. Three reasons: (1) DSCR loans are non-QM (Qualified Mortgage) products and cannot be sold to Fannie Mae or Freddie Mac. They are held in private capital pools (REITs, hedge funds, life insurance companies, family offices) which require higher yields than the agency MBS market. (2) Underwriting risk profile - DSCR loans are non-recourse in many cases, lent to LLCs, and made to investors who may walk from the loan if the property fails. The capital pool prices for the higher abandonment risk. (3) Smaller-volume market - agency conforming has trillions in liquidity; DSCR has billions. Less liquidity = higher coupon required to clear. Pricing has compressed dramatically since 2018 (early DSCR rates were 3-4% above conventional), and the gap continues to narrow as institutional capital enters the market. For investors prioritizing scaling beyond conventional caps, the rate premium is usually justified by the program flexibility.
People also ask
When does DSCR pricing equal conventional?
In high-cap-rate markets with strong DSCR (1.40+) and 75% LTV, the rate gap can shrink to 0.5%. The premium remains because of structural market differences, but execution can be remarkably close.
Will DSCR rates drop below conventional eventually?
Unlikely. The structural cost differences are persistent. However, DSCR rates track conventional rates closely; both rise and fall with the broader rate environment.
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