When you’re investing in real estate, finding the right loan is crucial. If you’re considering a DSCR (Debt Service Coverage Ratio) loan, you may wonder how flexible are the rules and guidelines. Are all DSCR lenders the same? The short answer is no.

Let’s dive into the details and see how DSCR loans work and what flexibility you can expect.

DSCR Loan Rules Vary by Lender

Unlike traditional loans, which are tightly regulated by Fannie Mae or Freddie Mac, DSCR loans are different. Each lender has its own set of rules. This means that what works with one lender might not work with another.

For example:

• Some lenders will only approve loans for 1-4 unit properties.
• Others may allow financing for condos, short-term rentals, or even commercial properties.
• Some may offer lower down payments, while others might require more equity.

Example: Short-Term Rentals

Not every lender will finance a short-term rental property like an Airbnb. But some lenders specialize in these types of loans. If you’re looking to finance a short-term rental, you’ll need to find a lender that’s open to these kinds of properties.

Credit Score and DSCR Ratios Can Vary Too

Another big area of variation is credit scores and DSCR ratios.

Here’s what to expect:

• Some lenders may approve borrowers with a credit score as low as 620.
• Others may require a higher score, such as 680 or 700.
• The DSCR ratio requirement can also change. Some lenders want at least a 1.1 DSCR, while others may be more flexible.

Example: Credit Score Flexibility

Imagine you have a credit score of 650. One lender might deny you, but another could approve your loan with a slightly higher interest rate. Shopping around for the right lender is key here.

Types of Properties That Can Be Financed

Another area where flexibility shines is the types of properties that qualify for DSCR loans. While many lenders stick to simple 1-4 unit properties, others venture into more unique investments.

Some lenders will approve loans for:

• Mixed-use properties (part commercial, part rental)
• Rural properties
• Larger properties like 24-plexes
• Portfolio loans (multiple properties under one loan)

Example: Mixed-Use Properties

Let’s say you have a building that’s both retail space and residential units. Some lenders won’t touch this. However, there are DSCR lenders who specialize in mixed-use properties.

Loan Amount Limits

Minimum and maximum loan amounts also vary from lender to lender. Some lenders have a minimum loan size of $150,000 or even $300,000. Others may be more flexible and accept loan amounts as low as $50,000.

Example: Small Loans

If you need financing for a smaller project, like a $75,000 loan in a rural area, many lenders won’t help. But there are DSCR lenders out there who specialize in smaller loans.

Pricing and Interest Rates Differ, Too

On top of all the flexibility with the rules, pricing also varies. One lender might offer you a lower interest rate for the same type of loan, while another could charge more based on their guidelines and risk assessment.

Example: Interest Rate Differences

Let’s say you’re shopping for a DSCR loan for a 4-unit property. You could find one lender offering a 6% interest rate, while another lender quotes you 7.5% for the same loan type.

Why Shopping Around Matters

As you can see, DSCR loan guidelines are far from universal. That’s why it’s important understand how flexible the rules and guidelines are for different lenders. Whether you have a smaller project, a rural property, or a unique portfolio, there’s a lender out there who will work with you.