Guide to Understanding Your Closing Statement for DSCR Loans

The settlement statement, whether labeled an ALTA Settlement Statement, HUD-1, or simply “Closing Statement,” is the master accounting sheet for your DSCR Loan closing. In DSCR lending, the lender and title/escrow company work together to make sure it is “balanced,” meaning every dollar in and every dollar out is accounted for and matches exactly.

A balanced statement will include the following major sections, each of which you should review line by line and should be received for review at least a couple of days before closing.

Settlement Statement Section 1: Loan Proceeds

This section shows the loan amount from your new DSCR Loan. This is the starting point for calculating how the funds flow.  Note that sometimes in real estate lending, particular financing for larger commercial or multifamily properties, there can be concepts called “holdbacks,” where a portion of the loan is “held back” by the lender to be doled out specifically for a certain use, such as a planned renovation or to pay leasing costs to fill the property.  However, there are no lender holdbacks for DSCR Loans, and this section should simply show the full loan amount (matching what’s on the loan documents).

Settlement Statement Section 2: Payoffs

The next section will show any existing mortgages or liens, i.e. the payoff amounts to any current lenders or lienholders. These should match the payoff letters ordered by title/escrow.  This section can also include any other property debts such as outstanding HELOC balances, judgment liens, tax liens or mechanics’ liens that must be paid off in conjunction with the new DSCR Loan.

Settlement Statement Section 3: Fees

This section covers fees due at closing and generally is split into three parts:

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1) Lender Fees

 These include any fees charged by the DSCR Lender or mortgage broker for originating and processing the loan.  Some lender fees that may commonly be seen on a settlement statement for a DSCR Loan include:

• Origination Fee / Points, which is a fee (often expressed as “points,” where 1 point = 1% of the loan amount) charged for issuing the loan. Paying more points can often lower the interest rate (i.e. “buying down the rate”); paying fewer points (or none) may mean a higher rate. DSCR Loans typically range from 0% to 3% depending on interest rates and origination points trade-offs.
• Underwriting / Processing Fee are fees that cover the lender or broker’s cost to review your application, analyze the property and borrower documentation, and prepare for closing. These fees are typically $750–$1,500 for DSCR Loans.
• Document Preparation / Administrative Fee are fees charged for creating loan documents, either in-house or via a third-party doc prep service. They are usually only around $150–$400, since documents are generated mostly via templates and don’t require or allow much customization.
• Wire / Funding Fee or the cost for the lender to send loan proceeds via wire transfer to the title company may also be included here and if so, commonly amounts to something like $25–$75.

2) Title / Escrow Company Fees

These fees are to the title company for handling the settlement, ensuring clear title, and issuing title insurance. These vary by state, county and loan size.

• Settlement / Escrow Fee is a typical fee charged for managing the closing process, disbursing funds, coordinating payoffs and ensuring all documents are signed and recorded. Often amounting to between $500–$1,500, these can vary significantly and even be higher in states where attorneys must conduct closings.
• Title Insurance Premium is a one-time premium for the lender’s title insurance policy, which protects the lender against defects in title (e.g., undiscovered liens, errors in legal description).  The amount is usually filed with the state and tightly regulated (i.e. title companies all must charge about the same amount) and scale with the loan amount, often $2.50–$5.00 per $1,000 of coverage.
• Endorsement Fees are additional title insurance protections that a DSCR Lender may require for specific risks, such as zoning, access, or survey matters. These typically run around $25–$150 per endorsement.
• Courier / FedEx Fees are fees that cover overnight or same-day delivery of documents and payoff checks. They will usually be $25–$100.

3) Government Recording & Transfer Fees

These are fees paid to county or local governments for recording the new lien and in some areas for transferring property ownership.

• Recording Fees are fees charged by the county recorder’s office to officially record your mortgage or deed of trust and any related documents. These are typically $50–$200 per document.
• Transfer Taxes / Documentary Stamps are assessed by certain states, counties, or municipalities when real property is transferred (usually only on purchases or certain refinances). Rates can vary widely from as low as 0.1% to over 1% of the purchase price or loan amount.

Settlement Statement Section 4: Upfront Escrows

If your DSCR Lender requires escrows for property taxes and insurance (common but not a universal requirement), initial escrow deposits for property taxes and property insurance will show up in this section.

• Initial Property Tax Escrow Deposit is going to be two months’ worth of property tax escrow amounts plus any cushion needed to prepare for any upcoming lump sum property tax installment due dates.
• Initial Property Insurance Escrow Deposit is going to also typically be two months’ worth of property insurance escrow amounts.  There is less likely to be an additional “cushion” for property insurance (particularly for purchases) since usually a years’ worth of coverage is prepaid at or by close, but in cases where an annual payment is upcoming, the initial property insurance escrow may be a bit more than two months’ worth of payments.

Settlement Statement Section 5: Credits

Credits are amounts applied against total costs at closing, reducing the cash needed to bring to the table on acquisitions or rate-term refinances. On your settlement statement, they’re shown as positive amounts, typically offsetting the fees found in section three.

• Seller Credits are credits negotiated as part of a purchase contract; these can cover specific costs like repairs, title fees or general closing costs.  These can also include things such as property tax credits to account for the portion of the year that the seller owes taxes for but hasn’t paid yet.

• Earnest Money Deposit (EMD) will show up here for acquisitions.  It is the “good faith deposit” made typically right after the PSA signed (typically ~1% of the purchase price of the property). In these cases, it’s credited toward your down payment and or closing costs at settlement (since it all becomes “one number” for “cash to close,” it doesn’t really matter if credits offset down payments or closing cost fees).
• Prepaid Rents and Security Deposits for acquisition transactions in which there are tenants and leases in place at the property are transferred to the new property owner.

Settlement Statement Section 6: Prepaid Interest (Stub Interest)

Prepaid interest, also called “stub interest,” covers the daily interest that accrues from your closing date through the end of that month. It ensures that the first regular payment covers a full month’s interest, not a partial month.  For example, consider a DSCR Loan closes on June 10 with an interest rate of 7.500% and a loan balance of $500,000. The daily interest is about $102.74 ($500,000 × 0.075 ÷ 365). If there are 21 days left in June, the prepaid interest is $2,157.54 ($102.74 × 21), paid at closing. The first full payment will then be due August 1, covering all of July’s interest (and any principal if amortizing).

Settlement Statement Section 7: Cash to Close / Cash to Borrower

This is the bottom-line figure that tells you exactly what is either owed at closing (if you’re bringing money in, for acquisitions and certain rate-term refinances) or the cash received at closing, for cash-out refinances and other rate-term refinances.  This “bottom-line” number is essentially a long arithmetic problem flowing from the top section.  

For acquisitions, it essentially starts with the purchase price, subtracts the new loan amount and any credits and adds all the associated fees, escrows and prepaid interest to find the total cash number needed to “wire in” to complete the purchase.  For refinances, it is a similar math problem, but starts with the new loan amount and subtracts any and all payoffs (including a current mortgage loan), as well as fees, escrows and prepaid interest, and then adds back any credits to determine how much money is released in proceeds.  If this number is negative, it is a rate-term refinance (sometimes nicknamed “cash-in” refinance), where to secure the new DSCR Loan, additional funds must be wired in to cover the shortfall.

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