Case Study: When Termites Delay a DSCR Loan – The Story of Loan 1365 (Chen)
What happens when a structural issue shows up during underwriting? For borrower Chen, a termite discovery nearly derailed a time-sensitive purchase loan in North Carolina.
The Setup
In early April 2025, Chen began the loan process for a $315,000 investment property in North Carolina. Backed by Nadlan Capital Group, the loan aimed for 80% LTV with DSCR-based underwriting. All the early steps document collection, appraisal ordering, and coordination with insurance and title providers went smoothly.
Then came the appraisal.
The Unexpected Issue: Termites
On April 18th, the appraisal was completed and submitted without major red flags it was listed in “As-Is” condition. But two weeks later, after the loan moved to final underwriting post-rate lock, a senior underwriter flagged a line in the appraisal report noting termite-related structural damage.
That triggered a hard stop.
The lender informed the team that structural issues couldn’t be deferred until after closing. A termite inspection would be required immediately.
Borrower Pushback
Understandably, the borrower was frustrated. Why had this issue not come up earlier, when the appraisal was first reviewed?
The answer lies in how DSCR loans are processed:
- Initial underwriting focuses on DSCR ratio, rent roll, and LTV.
- Only at the final stage after rate lock is the file reviewed by a senior underwriter for detailed property condition analysis.
And that’s when the termite note was finally treated as a deal-breaker.
Attempting to Save the Deal
To keep the loan alive:
- The borrower’s agent obtained a repair quote and committed to fixing the issue.
- The lender agreed to re-review the file after the termite repairs were completed and documented with photos and invoices.
- A 1004D reinspection (appraisal update) was requested to verify repairs.
- The borrower pushed for written confirmation from the lender to guarantee that the loan would close once repairs were complete. The lender agreed to issue a pre-approval letter stating that the loan would fund pending acceptable repairs.
The Final Hurdles
Despite good faith on both sides, delays piled up:
- The reinspection took time to schedule.
- There were conflicting messages about whether Israeli-based signers could complete closing.
- The seller grew uneasy, putting pressure on the borrower for firm closing dates.
- The borrower briefly canceled the loan but later returned after clarifying escrow usage.
As of the end of June 2025, the termite repairs have been completed, proof submitted, and the reinspection payment link is pending. But one final obstacle remains: the lender has paused closings where one party is signing in Israel jeopardizing this deal once again.
Lessons Learned
This loan teaches critical lessons about DSCR lending and structural property issues:
- “As-Is” Appraisals Aren’t Safe from Scrutiny – Underwriters can and will flag structural notes, even if the appraiser doesn’t require repairs.
- Always Review Appraisal Reports Carefully – Don’t wait for underwriting to catch problems look for signs of damage yourself.
- Get Ahead of Repairs – If there’s even a hint of termites, proactively get a termite inspection and a quote.
- Plan Closings Around Lender Policies – Signing from outside the U.S. may create hidden obstacles.
Final Thoughts
Chen persistence, flexibility, and communication kept this loan alive through multiple setbacks. It also highlights the importance of responsive processing and transparent lender communication.
This case isn’t just about termites. It’s about what it takes to close a loan when the unexpected threatens to kill a deal. Sometimes, the smallest bug can cause the biggest delay. For direct financing consultations or mortgage options for you visit 👉 Nadlan Capital Group.
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