Investor guide · DSCR loans
DSCR loans for Texas investors, from an investor.
My wife and I have flipped more than 50 homes and own more than 20 rentals around Houston. DSCR loans are how a lot of investors keep growing once tax returns stop telling the whole story.
What a DSCR loan is
DSCR stands for debt service coverage ratio. Instead of qualifying on your W-2s or tax returns, you qualify mostly on whether the property’s rent covers its payment. That’s why self-employed investors, people with lots of write-offs, and anyone growing a portfolio use them.
How the ratio works
DSCR = monthly rent ÷ monthly payment (principal, interest, taxes, insurance, and HOA)
Example: a house rents for $2,400 a month and the full payment is $2,000. $2,400 ÷ $2,000 = 1.20. The rent covers the payment with 20% to spare.
Many lenders want a ratio of 1.0 or higher, and the best pricing usually goes to 1.20 and up. Some programs allow less than 1.0 with a bigger down payment.
What to expect
- Down payment: typically 20% to 25% for a purchase
- Credit: pricing improves a lot as scores go up
- Rent: from a current lease or the appraiser’s market rent estimate. Some programs accept short-term rental income
- LLCs: most DSCR lenders let you close in your LLC
- Prepayment penalty: common, often stepping down over 3 to 5 years. You can often pay a higher rate to shorten or remove it
- Reserves: a few months of payments in the bank after closing
- Uses: purchases, rate-and-term refinances, and cash-out refinances (the refinance step of BRRRR)
The Houston catch: taxes and insurance
Rentals don’t get a homestead exemption, so property taxes on an investment home in Houston can run close to the full 2% to 3% rate. Add windstorm or flood insurance in some areas and a deal that looks great on rent can miss the ratio. I run every deal with the real tax rate, an insurance quote, and the flood zone before you make an offer.
Other investor loans we arrange
- Conventional investment property loans when your tax returns support it (often the lowest rates)
- 2 to 4 unit properties, including house hacking where you live in one unit
- Cash-out refinances to pull equity for your next property
Send me a deal. I’ll run it.
Address, price, and rent are enough to start. I’ll send back the ratio, the down payment, and the loan options that fit.
Thank you for your response. ✨
General information only, not a commitment to lend or tax advice. DSCR loans are business-purpose loans for non-owner-occupied property. Ratios, down payments, rates, and prepayment terms vary by lender, property, and credit, and are subject to underwriting.
