DSCR Loan Interest Rates: What Drives Them and How to Lower Yours

DSCR loan interest rates typically range from 7% to 10% in today's market, sitting about 1-3% higher than conventional mortgage rates. But that premium buys you something valuable: the ability to qualify based on property cash flow instead of personal income.

Understanding what drives these rates—and how to influence them—can save you tens of thousands of dollars over the life of your loan.

What Determines Your DSCR Loan Interest Rate

DSCR loan pricing isn't arbitrary. Lenders use a risk-based pricing model that evaluates multiple factors to determine your rate.

Your DSCR Ratio Is the Primary Driver

The debt service coverage ratio itself is the most influential factor in your rate:

• DSCR ≥ 1.25: Best available rates, typically 7.0-8.5%
• DSCR 1.10-1.24: Mid-tier pricing, usually 8.0-9.0%
• DSCR 1.00-1.09: Higher rates, often 8.5-9.5%
• DSCR 0.75-0.99: Premium rates, 9.0-10.5% or higher

A property with a 1.50 DSCR might get a rate 0.75-1.00% lower than an identical property with a 1.05 DSCR. That difference costs about $100 per month on a $400,000 loan.

Credit Score Creates Rate Tiers

DSCR lenders care about credit, just differently than conventional lenders:

• 740+: Access to best rates
• 700-739: Typically 0.25-0.50% rate increase
• 680-699: Usually 0.50-0.75% higher
• 660-679: Expect 0.75-1.25% premium
• 620-659: Limited options, 1.00-2.00% higher rates

Some lenders don't offer DSCR loans below 660. Others go down to 620 but at significantly higher rates and with stricter terms.

Loan-to-Value (LTV) Ratio Impact

Lower LTV ratios signal less risk, earning better rates:

• LTV ≤ 75%: Standard pricing
• LTV 76-80%: Add 0.25-0.50% to rate
• LTV 81-85%: Add 0.50-1.00% to rate
• LTV 86-90%: Add 1.00-1.50% (if available)

Most DSCR lenders max out at 80% LTV. Those offering 85-90% LTV charge substantial premiums because the risk increases exponentially at higher leverage.

Property Type Pricing Adjustments

Single-family homes get the best rates. Everything else pays more:

• Single-family residence: Base rate
• 2-4 unit multifamily: +0.25-0.50%
• Condos: +0.25-0.75%
• Non-warrantable condos: +0.50-1.25%
• Rural properties: +0.25-0.50%
• Properties >1 acre: +0.25-0.50%

Lenders view apartments and condos as harder to sell if they need to foreclose. Rural properties and large lots face similar liquidity concerns.

Loan Amount Sweet Spots and Penalties

Lenders price loans based on size:

• Loan amounts $150,000-$1,000,000: Best pricing
• Loans under $150,000: Often +0.50-1.00% or minimum fees
• Loans $1M-$2M: Standard pricing or slight premium
• Loans above $2M: May require jumbo pricing

Small loans aren't profitable enough to justify standard pricing. Very large loans carry more absolute risk, requiring more reserves and higher standards.

Prepayment Penalty Terms

Accepting a prepayment penalty can lower your rate:

• No prepayment penalty: Base rate
• 3-year prepayment penalty: -0.25% to -0.50%
• 5-year prepayment penalty: -0.50% to -0.75%

The math works if you plan to hold the property beyond the penalty period. A 0.50% rate reduction saves $167/month on a $400,000 loan—$10,000 over five years.

Cash-Out vs Purchase Pricing

DSCR loans for cash-out refinances typically cost more:

• Purchase: Standard pricing
• Rate-and-term refinance: Standard pricing
• Cash-out refinance: +0.25% to +0.75%

Lenders view cash-out transactions as higher risk since you're extracting equity rather than investing new capital.

Current DSCR Loan Rate Environment

DSCR loan rates move with broader mortgage markets but maintain their premium over conventional rates.

How DSCR Rates Compare

As of early 2026:

• Conventional 30-year fixed: 6.0-7.0%
• DSCR 30-year fixed: 7.5-9.5%
• Hard money loans: 9.0-14.0%
• Commercial real estate loans: 7.0-9.0%

DSCR loans sit between conventional financing and hard money. You pay more than homeowner rates but less than short-term fix-and-flip money.

Why DSCR Rates Are Higher

The premium exists for several reasons:

1. No income verification creates uncertainty about borrower repayment capacity
2. Investment properties default at 2-3x the rate of primary residences
3. Secondary market pricing reflects investor demand for these loan pools
4. Smaller lending volume means less competition than conventional mortgages

Proven Strategies to Lower Your DSCR Rate

You're not stuck with the first rate quote you receive. Here's how to improve your pricing.

Optimize Your DSCR Ratio

The single most effective strategy is improving the property's cash flow metrics:

Increase the rent: Even a $100/month rent increase can move you up a pricing tier. If the property rents for $2,000 but market rent is $2,200, you're leaving money and better rates on the table.

Choose a longer initial fixed period: Some lenders calculate DSCR using the ARM margin rate rather than the initial fixed rate. If you're considering a 5/6 ARM, the lender might qualify you at the margin (e.g., 3.5% over the index) which could show a higher DSCR.

Make property improvements: Adding a bedroom or bathroom can justify higher appraised rent, improving your ratio. A $15,000 bathroom addition that increases monthly rent by $200 might improve your DSCR from 1.10 to 1.28.

Increase Your Down Payment

If you're at 75% LTV, consider going to 70%:

• At 75% LTV: 8.5% rate on $300,000 = $2,307/month
• At 70% LTV: 8.0% rate on $280,000 = $2,054/month

The payment is $253 lower despite only 5% more down ($20,000). You recoup that extra down payment in about 6.5 years through lower payments, and you own the property with more equity from day one.

Improve Your Credit Score

A 20-point credit score improvement can save meaningful money:

Pay down credit card balances: Utilization above 30% hurts your score. Paying cards to under 10% utilization can boost your score 15-40 points in one billing cycle.

Fix credit report errors: One in five credit reports contains errors. Dispute inaccuracies that might be suppressing your score.

Time your application: Apply when your credit utilization is lowest. If you pay cards on the 15th but they report to bureaus on the 1st, you might show high utilization even though you pay in full monthly.

Shop Multiple Lenders

DSCR loan pricing varies significantly between lenders:

Rate shopping the same scenario with five lenders might produce quotes from 7.75% to 9.25%. That 1.50% spread costs $350/month on a $400,000 loan.

Use a mortgage broker: They submit to multiple lenders simultaneously, letting you compare offers without multiple credit pulls (inquiries within 45 days count as one pull).

Compare apples to apples: Make sure quotes include all fees and points. A 7.75% rate with 2 points ($8,000 on $400,000) might cost more over time than 8.25% with no points.

Consider Paying Points

Discount points let you buy down your rate:

One point (1% of the loan amount) typically reduces your rate by 0.25%. On a $400,000 loan:

• Paying 1 point: $4,000 upfront, rate drops from 8.5% to 8.25%
• Monthly savings: $67
• Break-even: 60 months

If you plan to hold the property beyond five years, points make financial sense.

Leverage Relationship Pricing

Some portfolio lenders offer better rates to borrowers who:

• Have multiple loans with the lender
• Maintain deposit accounts at their institution
• Bring significant assets under management

A bank offering 8.75% to new borrowers might offer 8.25% if you move $250,000 in deposits to them and establish a relationship.

Accept a Prepayment Penalty

If you're confident you'll hold the property long-term, accepting a prepayment penalty can lower your rate by 0.25-0.75%.

Run the numbers carefully. A 5-year prepayment penalty with 0.50% rate reduction saves $10,000 in interest over five years on a $400,000 loan. But if you need to sell in year three, the penalty might be 2% of the remaining balance—around $7,800.

Choose Your Loan Structure Carefully

Fixed-rate loans command higher rates than adjustable-rate mortgages:

• 30-year fixed: Highest rates, maximum stability
• 5/6 ARM: 0.25-0.75% lower, fixed for 5 years then adjusts
• 7/6 ARM: 0.125-0.50% lower than 30-year fixed

If you plan to refinance or sell within 7 years, an ARM saves money without meaningful rate risk during the fixed period.

When to Lock Your Rate

DSCR loan rate locks typically last 30-60 days:

Lock immediately if rates are rising or you found excellent pricing. Most lenders charge for locks beyond 45 days—expect $400-$800 for a 60-day lock.

Float if rates are falling and you have time. Some lenders offer "float-down" provisions that let you lock but capture a lower rate if they fall. These typically cost 0.125-0.25% or $500-$1,000 flat.

Consider the refinance option: If rates are high but you need to close now, take the current rate and plan to refinance when rates improve. Just factor in refinance costs ($3,000-$6,000) when calculating whether this strategy makes sense.

Red Flags in Rate Quotes

Watch for these warning signs when comparing offers:

Rates significantly below market: If everyone quotes 8.5% but one lender offers 7.25%, read the fine print. They might be quoting the ARM margin instead of the fully-indexed rate, or hiding fees in other places.

Unclear fee structures: Total fees should be itemized. Vague "processing fees" or "underwriting fees" above $1,500 are often junk fees.

Bait-and-switch tactics: Some lenders advertise low rates then claim your scenario "doesn't qualify" and push you toward higher rates. Get written quotes showing your specific scenario.

Bottom Line

DSCR loan interest rates respond to factors you can influence. Focus on your DSCR ratio first—it has the biggest impact on pricing. Improve your credit score, shop multiple lenders, and understand the trade-offs between down payment, points, and prepayment penalties.

A borrower who takes time to optimize these factors might secure an 8.0% rate where a less-prepared borrower pays 9.25%. On a $400,000 loan held for 10 years, that 1.25% difference equals $60,000 in interest savings.

The effort you invest in understanding and improving your rate directly converts to money in your pocket.