DSCR Loan Interest Rates Today [July, 2024]

As of April 22, 2024, DSCR loan interest rates range from 8% to 8.50%, with variations depending on lender-specific terms and individual borrower profiles. Learn more about current rates and understand the factors that influence them.

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As of [Apr 22, 2024], DSCR loan interest rates range from 8% to 8.50%, with variations depending on lender-specific terms and individual borrower profiles.

When getting a DSCR or any other loan, interest rates are a major factor that decides the overall cost of the loan. If you are getting a DSCR loan for your investment property, interest rates can have a huge impact on your investment’s overall profitability.

In this article, I’ll share the latest DSCR loan interest rates. I’ll also discuss what factors affect your DSCR loan interest rate and how you can get a lower interest rate.

Let’s start!

Key Takeaways:

⁕ DSCR loan interest rates are typically 1% to 2% higher than conventional mortgage rates.

⁕ Your exact DSCR loan rate depends on various factors like your lender, DSCR ratio, credit score, and experience level.

Current DSCR Loan Interest Rates [July, 2024]

As of Apr 22, 2024, the starting average DSCR loan interest rate is 8%, given the ideal lending conditions, such as a good DSCR ratio, favorable LTV, and strong credit score. This rate is just the baseline, and your exact interest rate could be higher or lower depending on your financial profile and lender.

Month over Month average DSCR loan interest rates graph

This average DSCR loan interest rate is a general estimation based on 30-year fixed conventional mortgage rates. Typically, DSCR loan rates are 1%- 1.5% higher than conventional mortgage rates due to the unique nature of DSCR loans and the associated increased risk for the lender.  

In October 2023, interest rates were at record highs in the last decade but started to fall after November 2023. 

Those high DSCR loan interest rate trends were keeping many real estate investors wondering whether it was wiser to wait or proceed with their investment plans. 

Now, interest rates are lower than last year; as we predicted through our survey last year, property prices will shoot up once rates go down.  

We conducted a survey among our network of real estate experts, agents, and lenders to gauge market sentiment. Here are the results: 

Poll on Mortgage rates in the US

43.1% of the respondents said “yes”, i.e. prices will go up when rates drop. 29.8% of respondents said “no”, waiting for rates to drop, and lastly, 23.3% said “no”, we are in a recession. 

Additionally, in another poll about future interest rate trends, approximately 85% of respondents do not foresee rates returning to their former lows in the near future. 

The market experts also say this is the new normal of the housing market, as the Fed will not cut interest rates right away. (Source: NBC News

Poll on mortgage trends in the US

Here’s my advice to help you decide on whether you should wait or buy, given high DSCR loan interest rates: 

As they say, “Marry the house, date the rates,” investors should buy to start building equity. Moreover, the high prices and mortgage rates will keep the competition out, and you might land a better deal. 

Instead of waiting, you start building the equity in your property, and you can always refinance if rates go further down, which is highly unlikely in the near future.  

Before making the final call, review the numbers with your investment strategy. If the numbers work for you, go ahead.  

Want to know more about the rates? Here is how the DSCR loan interest rate is calculated. 

How can you calculate your DSCR loan interest rate?

To estimate current DSCR loan interest rates, add DSCR loan rates spread to the latest 30-year fixed conventional mortgage rates. This is an estimation only, and your lender will decide your exact DSCR loan interest rate after reviewing your profile. 

DSCR loan interest rate = Freddie Mac 30-year fixed mortgage rate + Incremental DSCR loan rate spread

As of [Apr 22, 2024]: 

  • Freddie Mac 30-year fixed mortgage rate = 7.1%  
  • Incremental DSCR loan rate spread = 1% – 1.5% 

For good competitive terms, the DSCR loan interest rate is approximately 8%. Keep in mind this rate is for most competitive terms, and your exact rate may increase based on the factors below.

Factors that shape DSCR loan interest rates 

Here are the factors that influence the DSCR loan interest rates. Understand these factors to optimize your profile and get better interest rates.

1. DSCR Ratio 

The Debt Service Coverage Ratio (DSCR) is a metric used to assess the income-generation capability of a property against its debt obligations. To calculate DSCR in the context of real estate financing, you divide the property’s annual/monthly gross rental income by its total annual/monthly debt obligations, which includes Principal, Interest, Taxes, Insurance, and HOA

For example, if a property's gross income is $120,000 yearly and the total debt obligation is $100,000, the DSCR will be 1.2. This number means the property generates 20% more income than its total debt obligations. 

A DSCR of 1 or higher is required to get a DSCR loan, as it shows sufficient income to pay for its mortgage and other necessary expenses. 

Alongside loan approval, the DSCR ratio also impacts interest rates. A higher DSCR ratio shows stronger income potential, which allows lenders to offer lower rates. 

On the other side, a lower DSCR ratio means underperforming property and higher risk for the lender, making them increase the rates to compensate for the risk. 

Here is a representation of how DSCR loan rates are adjusted with different DSCR ratios. 

DSCR loan interest rate adjustment based on DSCR ratio

2. Credit Score 

A DSCR loan is focused on a property’s income capability for loan qualification, and a credit check is necessary to ensure decent loan repayment behavior and reliability in case things go wrong. 

A high credit score shows your financial discipline, and you may qualify for the loan with the most competitive loan terms, including the lowest interest rates possible. 

Here is a tabular representation of how different credit score ranges and LTV affect your interest rates. The table below shows the rate adjustments based on credit score and LTV. For example, if your credit score is 700 and the LTV is 70%, the lender will increase the base rate by 0.5%.  

Note that this table is just an estimate, and the actual adjustment may vary based on your lender’s terms.  

DSCR loan interest rate adjustment based on credit score and LTV

While there is a minimum credit score requirement of 620 for DSCR loan qualification, some lenders also work with lower credit scores, given you pay higher down payment and interest rates. Hence, maintain or improve a good credit score to get lower interest rates. 

3. LTV (Loan-to-Value) 

The Loan-to-Value (LTV) ratio shows how much of a property is financed through borrowing. 

For example, an 80% LTV ratio means you borrowed 80% of the property’s purchase price and paid 20% of the down payment. 

Lenders consider the LTV ratio for the risk analysis, and a lower LTV ratio is preferred, meaning you paid a higher down payment. 

If your LTV is high, it shows you have less equity in the property and increases risk for the lender. Lenders adjust the interest rates accordingly to offset the increased risk. 

Refer to the table above to understand how LTV ratios further affect DSCR loan interest rates. 

4. Investor Experience 

This is no financial metric but an important one that lenders consider during DSCR loan application evaluation. If you have a track record of successful investments, you are more likely to generate potential income from your property than someone just starting. 

Generally, DSCR lenders require a minimum experience of 1 year, but having more can get you favorable loan terms. However, this is not a mandatory requirement, and new investors can qualify for a loan but with comparatively higher rates. 

5. Short-term Rentals/Airbnb 

Short-term rental properties have inconsistent income due to various factors like occupancy rates, seasonal demand, competition, etc. This makes the income projection hard for the lender and has a higher perceived risk. 

You must have understood by now that higher risk in lending means higher rates, cash reserves, more down payment, etc. 

The DSCR loan interest rate for a short-term rental property might be 0.5% to 1% higher than a similar property rented out on a long-term basis

Investors should weigh the potential for higher revenue against the increased cost of borrowing to determine if short-term rentals align with their investment strategy. 

6. Mortgage Type 

The most common mortgage types are fixed-rate and adjustable-rate. Fixed-rate mortgages have constant interest for the entire loan term, whereas adjustable-rate mortgages have varying rates according to the lender’s terms and the index they follow. 

However, there is also a third type, interest-only. With this type, you only pay the interest on the loan, not the principal, for a pre-decided time. Lenders may increase the rate by about 0.2% to 0.5% if you opt for an interest-only mortgage. 

This adjustment compensates for the additional risk, as borrowers are not building equity in the property through principal repayments. 

7. Refinance 

When refinancing or cash-out refinancing, lenders charge higher rates compared to the initial property financing. Generally, this adjustment is around 0.2%

This rate increase is mainly due to the higher risk associated with refinancing, particularly with cash-out options. In such cases, lenders are essentially extending additional credit based on the property’s equity, which can increase their risk exposure. 

These factors play a role in shaping your final DSCR loan interest rates. Rethink your borrowing strategy according to these factors to get lower interest rates. 

HomeAbroad is an investor-centric, technology-enabled platform that offer DSCR loans at competitive loan terms. We study your case to mold our loan terms and maximize your investment returns. The complete process is online and our mortgage officer will there to handhold you throughout the process.

We’re not just bragging. Hear from Michael, a first-time real estate investor who bought an investment property in Austin, TX, about how we helped him.

I was nearly at my wit’s end trying to find a lender for my new rental property in Austin. It seemed like every door I knocked on had no clue about DSCR loans or simply wasn’t offering them. That’s when I stumbled upon HomeAbroad. They understood my investment plans and offered me the most profitable loan terms. Honestly, without HomeAbroad, I might still be searching!  

Michael Thompson, Austin, Texas

Real Estate Investor

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Found another lender who’s offering the lowest interest rates? Don’t rush; look for these red flags to ensure there are no hidden terms and conditions. 

Check these factors when your DSCR lender offers low interest rates 

While a lower interest rate is desirable, other aspects of the loan agreement may increase the overall cost or affect its suitability for your investment strategy. Here’s what to carefully consider: 

  • Hidden fees
  • Penalties
  • Total loan cost
  • Lender’s efficiency
  • Lender customer service

HomeAbroad is an investor-centric platform, and we offer DSCR loans with complete transparency and no hidden fees or penalties. We study your case to offer the best loan terms that provide optimum returns. Contact us to get a quote.

You’re all set. To summarize, DSCR loan interest rates are generally higher than conventional mortgage rates, but they offer much more flexibility and are often the only financing option for certain investors. DSCR loans are expensive, but with right strategy, investors can still generate significant returns.

Frequently Asked Questions

  1. Is the DSCR loan worth the higher interest rate?

    DSCR loans allow investors to qualify based on the property’s income rather than their personal income. These loans offer great flexibility and the ability to finance multiple properties at once, making them worth considering despite the higher rates.

  2. How do interest rates affect DSCR?

    Higher interest rates increase your monthly payments, which means higher debt against income, resulting in lower DSCR. Similarly, lower interest rates result in smaller monthly payments, enhancing your property’s cash flow and increasing the DSCR.

  3. What does “interest rate cap” mean in the context of DSCR loans?  

    ‘Interest rate cap’ is the maximum limit to which the interest rate can adjust during a specified period. This is applicable to adjustable-rate mortgages.

  4. Can I secure a low-interest rate with a poor credit score?

    As mentioned in this article, a lower credit score means higher rates. However, you can get a co-signer with a good credit score to get the DSCR loan with better interest rates. 

  5. How to lock DSCR loan interest rate?

    When you apply for a loan, the lender helps you lock in the interest rates. You can lock the rates for a certain period, and it comes with a fee.

  6. Can I buy down the rate on a DSCR loan?

    Yes, you can buy down the rate on a DSCR loan through pay points. You pay an upfront fee to your lender to reduce the interest rates.

About the author:
Amresh is the Founder & CEO of HomeAbroad. With over 14 years of mortgage industry experience, he specializes in foreign national mortgages and Non-QM mortgages. He is also a licensed mortgage originator (NMLS # 2549148).

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