DSCR 0.96 on New Loan vs. 1.25 on Assumed
Your rental's DSCR is 0.96 on a new loan or 1.25 on an assumed one. The 0.96 gives better cash flow today. The 1.25 positions your portfolio for the next deal.
You own a 4-unit property you bought two years ago for $415,000. The building is stabilized — all four units are leased, tenants are solid, and the neighborhood is quietly appreciating. You want to refinance out of your current hard money loan before the rate resets.
You've got two lender offers on the table:
- Lender A (new DSCR loan): $330,000 at 7.75% base rate, 30-year fixed. Property DSCR calculates at 0.96 (below 1.0). Lender still funds but adds a 1% rate premium, pushing your effective rate to 8.75%. Monthly P&I: $2,596
- Lender B (loan assumption): Assume existing $295,000 loan at 6.875%, 27 years remaining, DSCR of 1.25. Monthly P&I: $2,005. But the assumption includes PMI at $186/month the previous owner never removed
- Monthly gross rent: $4,200 across all four units ($1,050/unit)
- Monthly operating expenses (excluding debt): $1,700 (taxes, insurance, vacancy, repairs, PM)
Two loans. Same property. Very different portfolio signals.
You're planning to buy two more properties in the next 12 months. Your mortgage broker pulls you aside and explains something most investors learn too late:
- Lender A's 0.96 DSCR sits on your record. Every future DSCR lender will see a property that doesn't cover its own debt. Some lenders won't count it as a qualifying asset. Others will haircut your global income by the shortfall — $96/month negative that reduces your borrowing power on the next deal.
- Lender B's 1.25 DSCR signals a healthy, cash-flowing asset. Future lenders see surplus coverage and count it as portfolio strength.
Your next two deals depend on how this one looks on paper.
Take Lender A's 0.96 DSCR loan. You net $35,000 more in proceeds ($330K vs. $295K), and the extra cash funds the next acquisition directly. The property is only $96/month short of covering debt — you'll make it up when rents rise.
Assume Lender B's 1.25 DSCR loan. Sacrifice the extra proceeds and eat the $186/month PMI. A 1.25 DSCR on your portfolio makes the next two deals easier to underwrite — that positioning is worth more than $35K in cash.
Wait 6 months for rents to catch up. Two of the four units have leases expiring in 4 months. Market rents are $125/unit higher than current leases. At new rents, the DSCR on Lender A's loan jumps to 1.16 — clearing the 1.0 threshold and eliminating the rate premium.
Your Next Deal Is Already Underwriting This One
Option B is the right positioning, but Option C is the right play — if your timeline allows it.
Here's what makes DSCR lending different from conventional mortgages: nobody cares about your W-2 or your tax returns. The only thing a DSCR lender cares about is whether the property pays for itself. And when they look at your existing portfolio to decide whether to fund your next deal, they're reading every property's DSCR like a credit score. A 1.25 says "this investor buys right." A 0.96 says "this property is underwater on debt service."
It doesn't matter that the 0.96 is only $96/month short. DSCR lenders underwrite at the property level, and a sub-1.0 ratio is a red flag in every automated system they run. You're not explaining context to an algorithm. You're either above the line or below it.
So let's kill Option A. The $35,000 in extra proceeds feels significant. It's not. You're borrowing an extra $35K at 8.75% — the penalized rate — which costs $3,063/year in interest. And the 0.96 DSCR on your portfolio will cost far more than $35K when the next lender either declines your application or offers 75 basis points worse because your profile is soft. One sub-1.0 property shadows every acquisition for two years.
Option B works, but it's expensive patience. The PMI at $186/month is $2,232/year going to an insurance company for coverage you don't need. The 1.25 DSCR is clean, and future lenders will love it. But you're taking $35K less in proceeds, which means your next acquisition fund is thinner.
The PMI isn't permanent. After 12-18 months of payments, you can request removal once the loan-to-value drops below 80%. So the $186/month is a temporary tax on portfolio positioning.
Option C is the precision play. Two leases expire in four months. Market rents are $125/unit above current rates. Renew those tenants at market and your gross rent goes from $4,200 to $4,450/month:
- New NOI: ($4,450 - $1,700) x 12 = $33,000/year
- Lender A debt service (no premium, 7.75%): $2,364/month = $28,370/year
- New DSCR: $33,000 / $28,370 = 1.16
Comfortably above 1.0. You get the full $330K in refi proceeds, you eliminate the rate premium, you skip the PMI, and your portfolio tells future lenders you know how to operate.
But Option C has a prerequisite. Your hard money loan has a rate reset coming. If the extension fee is $3,300 (1% of $330K) and the reset adds 2 points for those 6 months, you're spending roughly $4,500 to buy time. That's barely less than 24 months of PMI ($4,464). And if tenants don't renew at market, you're back to the 0.96 problem.
The decision framework: Can you survive 6 months on your current loan without bleeding more than $5K? If yes, Option C wins. If no, Option B wins — sacrifice proceeds, refinance away the PMI in 18 months.
What you never do is take the 0.96. Your next deal is already underwriting this one.
- A DSCR below 1.0 doesn't just cost a rate premium today — it poisons your borrowing profile for the next 12-24 months of acquisitions
- Every refinance is underwriting two deals at once: the one you're closing and the one you haven't found yet
- PMI on an assumed loan is a solvable problem — refinancing it away after 12-18 months of payment history is routine, and the cost is temporary
- Waiting 6 months to refinance only works if your current loan terms survive the wait — check your hard money extension fees and rate reset dates first
- The cheapest monthly payment and the best portfolio move are almost never the same loan
