A DSCR loan qualifies a rental on whether its rent covers the payment, not on your personal income. For investors with several properties, self-employed income or an LLC, that is often the simplest way to finance a rental in the metroplex.
The ratio
DSCR = monthly rent ÷ monthly payment, where the payment includes principal, interest, property taxes, insurance and homeowners association dues. We prefer 1.0 or higher.
| Rent | Payment | DSCR |
|---|---|---|
| $2,860 | $2,200 | 1.30 |
| $2,200 | $2,200 | 1.00 |
| $1,980 | $2,200 | 0.90 |
What decides the ratio in Texas
- Property tax. Use full market value without a homestead exemption. See our guide to Texas property tax for investors.
- Insurance. Hail and wind coverage is expensive, and an older roof raises the premium. Get a quote early.
- HOA dues. Newer subdivisions often have them, and some associations restrict rentals.
- Long-term rent. Short-term rental rules are restrictive or unsettled in Dallas, Fort Worth and Arlington, so we use leases or market rent.
Ways to make the numbers work
- A larger down payment lowers the payment.
- An interest-only period lowers the payment in the early years, and you can qualify on the interest-only payment.
- A 5-year prepayment penalty usually prices lower than a 3-year one.
- A new roof can lower the insurance premium.
Terms are on the DSCR rental loans page.