DSCR loan requirements: what a lender checks besides the rent

The requirements for a DSCR loan are the property’s rent compared with its full monthly payment, your credit and recent housing payments, verified money for the down payment, closing costs and reserves, an appraisal with a rent schedule, and a property nobody on the loan will live in. Some programs also ask for landlord experience. It is a business-purpose loan for investment property. Your personal income is not part of it, but the rest of the file is checked as it would be for any loan.

People often hear “no income verification” and picture a loan with no paperwork. This is how I explain what the lender actually looks at, so you can gather it before you ask for a quote.

The rent against the payment

This is the part that gives the loan its name. The lender divides the monthly qualifying rent by the full monthly payment: principal, interest, property taxes, insurance and any association dues. A result above one means the rent covers the payment with room to spare. At one, the rent just covers it. Below one, the rent falls short and fewer programs fit.

The qualifying rent is generally the lower of the lease and the appraiser’s market rent. Some programs count a lease that is higher than market rent when you can show the rent has actually been paid. How far the rent must cover the payment differs by program, so ask a loan officer about the property you have in mind. You can try your own numbers in the DSCR calculator, which counts taxes, insurance and association dues the way a lender does.

Credit and your housing payment record

Credit is checked for each borrower or guarantor, along with your recent mortgage or rent payments. If you have a late payment or a recent dispute, tell your loan officer early so it can be explained before it is found.

Money for the down payment, closing costs and reserves

You show where the money comes from. Bank or investment statements cover the down payment, the closing costs and the reserves. Reserves are the cash you still hold after closing. Incomplete statements are a common reason a file slows down, so send every page.

The property and the appraisal

The appraiser values the property and reports market rent on a comparable rent schedule, a standard form that compares it with similar rentals nearby. Fannie Mae’s guide (opens in a new tab) calls for the same kind of form to support rental income on its own loans.

What you buy shapes the file:

• A house, townhouse or condo let to a tenant is the simplest case.
• On two to four units, the rent of every unit counts, and nobody on the loan may live in any of them.
• A short-term rental, a vacant property or some condominiums can lower how much you can borrow against the value.
• Buildings of five to ten units and small mixed-use buildings are valued more like small commercial property, so the appraisal and the reserves ask for more.

Landlord experience

Where a program asks for it, you list the rentals you own now. The programs for larger buildings and mixed use want an experienced landlord. If you are new to renting out property, say so at the start so the loan officer can look for the programs that fit.

Who signs, and the business-purpose statement

A DSCR loan is for investment property only. You sign a statement that the loan is for business purposes and that nobody on the loan will live in the property, even part of the year. The federal Truth in Lending rules exempt credit that is primarily for business purposes (opens in a new tab), and their official interpretation (opens in a new tab) treats credit to buy, improve or maintain a rental the owner does not live in as business purpose. That is why the paperwork differs from a home loan.

Title can be in your own name or in a company such as a limited liability company. When a company holds title, the owners give a personal guarantee. I cover that in the article on borrowing in an LLC.

The documents to gather

For most investors, this is the starting list:

• statements for the down payment, closing costs and reserves;
• the current lease on a refinance, or the booking history for a short-term rental;
• the purchase contract, when you are buying;
• company documents, if a company will hold title;
• a list of the rentals you own, where the program asks about experience;
• photo identification for each borrower or guarantor.

You do not send tax returns or pay stubs for the income. For the full picture of how the loan works, see DSCR loans explained and our DSCR loans page.

Frequently asked questions

What are the DSCR loan requirements?

The rent compared with the full monthly payment, your credit and recent housing payments, verified money for the down payment, closing costs and reserves, an appraisal with a rent schedule, and a property nobody on the loan will live in. Where the program asks, some landlord experience.

Is a DSCR loan a no-income loan?

Your personal income is not documented and no debt-to-income ratio is used, so it is often described that way. It is not an undocumented loan: the rent, your credit, your assets and the appraisal are all verified.

Do I need tax returns for a DSCR loan?

No. The property’s rent takes the place of your income. Your credit, your assets and the appraisal are still checked.

How much does the rent have to cover?

How far the rent must cover the payment differs by program, so ask a loan officer about the property you have in mind. A licensed loan officer can compare the programs that fit it.

Follow our articles in Google Search:

(opens in a new tab)