A DSCR loan qualifies on the property’s rent instead of your income. That removes the tax returns and the debt to income ratio. It does not remove the requirements.
What a DSCR loan is, who it suits and how it compares with a conventional loan are covered in DSCR loans explained. The ratio itself, line by line, is in how DSCR is calculated. This post is the checklist: what we look at on a rental loan file, item by item, so you can see where your file stands before you write an offer.
The short version, as our rental program publishes it:
- Credit: a 620 minimum score
- Leverage: up to 80% LTV, so at least 20% down on a purchase, plus closing costs
- Property: SFR, condo, townhome or 2-4 units on the rental DSCR product, non-owner occupied
- Experience: first time investors accepted on the rental DSCR product; landlord experience required on the portfolio and multifamily term products
- Vesting: an LLC is routine
- Documents: the lease or a market rent analysis, the appraisal, entity documents and proof of funds
- Minimum ratio and reserves: not published, so ask for both
- Loan size: set per property
- Short term rental income: permitted, with documentation
Rates run from 6.50% to 9.99% on the Non-QM tier, on 5, 7, 30 and 40 year fixed terms. Rates, terms and pricing are subject to change, and every loan is subject to underwriting.
Credit: a 620 minimum score
The published floor is 620 on all three rental products: the rental DSCR loan, the rental portfolio loan and the multifamily term loan. On the rental DSCR loan, DTI is not calculated, because your income is not part of the test. Your credit report still is.
Above the floor, the score stops being a yes or no and becomes a pricing input. Where a loan lands inside the published range depends on credit together with leverage, experience and property type. If something on your report needs explaining, such as a late mortgage payment, raise it on the first call.
Leverage: 80% LTV and the down payment it implies
Our rental products lend up to 80% of the property’s value. On a purchase, that means a down payment of at least 20% of the price, with closing costs on top. On a refinance there is no down payment, but the cap still applies: at least 20% of the value stays in the property as equity.
A hypothetical example, with round numbers:
- Purchase price: $500,000
- Maximum loan at 80% LTV: $400,000
- Down payment: at least $100,000
- Closing costs: on top of the $100,000
Two things can push the cash higher. If the appraisal comes in at $480,000, the cap applies to that value: the loan becomes $384,000 and the down payment $116,000. And if the rent supports a smaller loan than the cap allows, the smaller loan wins and the difference comes from you. Closing costs vary by file, so ask for the whole figure in writing before you count your cash.
Property, occupancy and experience, product by product
Three products sit under our rental program, and the property and experience rules differ between them.
- Rental DSCR loan: SFR, condo, townhome and 2-4 units. First time investors are accepted. Non-warrantable condos are permitted too, and the non-warrantable condo page explains why a building fails the conventional test.
- Rental portfolio loan: SFR, condo, townhome, 2-4 units and multifamily, with a portfolio of rental properties or units in one fixed rate loan. Landlord experience is required.
- Multifamily term loan: multifamily, condos and mixed use. Landlord experience is required.
The program is written for non-owner occupied property: an investment you do not live in. On a 2-4 unit building, that means you do not live in any of the units. If you plan to live in one of them, this is the wrong program, and we will point you to the right one.
Landlord experience means a history of owning rental property. Have a schedule ready: each address, what you owe on it and what it rents for.
Vesting in an LLC
A DSCR loan is a business purpose loan, and closing it in an LLC is routine. The entity is the borrower. The lender still looks through to the people who own it, and the members usually sign a personal guaranty.
What we need from the entity:
- The articles of organization, filed
- The signed operating agreement
- Evidence of good standing in the state of formation, and registration in the property’s state if that state requires it
- The tax identification number
- Who owns the entity, and who is authorized to sign for it
Form the entity before you apply, and make sure its name matches exactly on the purchase contract, the loan documents and title. Vesting an investment loan in an LLC covers guaranties, title and timing in detail.
The documents we ask for
Nothing in the file proves your income. It proves the property, the rent, the entity and your cash.
- The application.
- The rent. A signed lease for each leased unit. On a vacant property, a market rent analysis stands in for the lease. On a property with several units, add a rent roll.
- The appraisal. It sets the value the 80% is measured against, and on a rental it carries a market rent opinion.
- Entity documents, as listed above.
- Proof of funds. Recent bank or brokerage statements showing the down payment, the closing costs and any reserves.
- Insurance. Get a quote early, because the premium sits inside the payment the rent has to cover.
On a refinance, add the details of the loan being paid off, and ask how the program treats seasoning: how long you need to have owned the property before the lender uses the new appraised value rather than what you paid. Recently listed properties are OK on the rental DSCR product, which matters if the house was on the market before you decided to keep it.
The ratio, reserves and loan size
Two requirements are not published on our site: the minimum ratio and reserves. Ask for both before you write an offer.
The ratio. DSCR compares the property’s rent with its full monthly payment: principal, interest, taxes, insurance and any association dues. Each program sets its own minimum, so the number that matters is the one on the program you are applying to. Ask for ours with your property’s numbers in hand, then run the arithmetic yourself in the DSCR calculator.
Reserves. The cash you still hold after closing. Ask what your file needs and count it alongside the down payment and closing costs.
Loan size. Each loan is sized per property: the smaller of 80% of the value and the loan the rent can carry at the program’s ratio. The final number depends on the appraisal, the rent and the full payment, so treat any early figure as an estimate.
Short term rental income
Short term rental income is permitted on our rental DSCR loan, so a furnished nightly rental does not have to qualify on a long-term lease estimate. The income has to be documented: a market rent analysis for the property, and its booking history where it has one. A property with no history is underwritten on the market evidence.
Two checks come before the loan. Confirm that the city or county allows short term rentals at that address, and that any homeowners association does too. A property that cannot legally rent by the night is a long-term rental to the lender. Short term rental loans covers the documentation and the risks in detail.
Requirements by state: California, Arizona, Texas and Florida
We lend nationwide, and California and Arizona are our home markets. Our rental program publishes one set of terms rather than a version per state, so the checklist above is the same whether the property is in California, Arizona, Texas or Florida.
What does change by state is the payment. Property taxes, insurance premiums and association dues are local, and all three sit in the payment the rent has to cover. Use real figures for each, not the listing’s.
In California, check three lines first: the property tax you will pay as the new owner, a current insurance quote and any special assessments. The California section of DSCR loans explained walks through each, and our San Diego DSCR loans page adds the local ones, including the city’s caps on short term rental licenses. ADU income is permitted on the rental DSCR product, which helps on a California property that has one.
Check your file against the list
Bring the checklist to the first call: your score range, the property and its price or value, the lease or the expected rent, the entity you will close in and the cash you hold. We will tell you the minimum ratio and reserves that apply, which of the two limits sets the loan size and what is missing from the file.
The published terms are on the rental property loans page. Submit a loan request or call (619) 617-2797.
