Why are DSCR loan rates higher than conventional mortgage rates?
DSCR loans are non-QM - they don't go through Fannie/Freddie, so investors require a yield premium for the credit risk and lower liquidity.
DSCR loan rates run roughly 0.50%-1.00% higher than conventional 30-year fixed investment rates for three structural reasons. First, securitization market: conventional loans are sold to Fannie Mae and Freddie Mac, the two largest mortgage investors in the world, providing massive liquidity and tight spreads. DSCR loans are non-QM and sold into private-label MBS pools that require a higher yield to attract capital. Second, qualification model: conventional underwriting requires verified personal income with DTI < 45%. DSCR underwriting accepts no personal income docs and relies on the property's rent to cover the loan. That trade - skipping income verification - is the entire reason the borrower is using DSCR, but the investor pricing this risk requires a premium. Third, vesting: DSCR loans commonly close in an LLC, which removes the personal recourse a conventional Fannie/Freddie loan carries. The lender prices that limited recourse into the rate. The premium varies day-to-day with non-QM secondary market spreads - in some weeks the gap is 0.50%, in others closer to 1.00%. For investors who would not qualify on income, can't use a 10th conventional, or want LLC vesting, the rate premium is the price of access to the product.
People also ask
Does the DSCR vs conventional rate gap ever shrink?
Yes. The gap narrows in bull credit markets and widens during stress. Recent ranges have been 0.50-1.50%, with the long-term average closer to 0.75%.
Can I buy down the DSCR rate?
Yes. Pay discount points (typically 1 point = ~0.25% rate reduction) to buy the rate down. Most DSCR programs allow 0-3 points.
Got a specific scenario?
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