DSCR Loans for California Investment Properties
A DSCR loan is a mortgage for real estate investors that qualifies you based on the rental income the property generates, not your personal income.
DSCR stands for Debt Service Coverage Ratio. It measures whether the rent covers the mortgage payment. If the rent is high enough relative to the debt, you qualify.
Who it's a good fit for
DSCR loans are for real estate investors who want to grow their portfolio without tying up their personal income documentation. If you are self-employed and your tax returns show low income, or you already have several rental properties and your DTI is maxed out, DSCR lets you qualify on the property alone. It is also good for investors who buy through an LLC, since DSCR lenders allow entity ownership.
Who it's not a fit for
DSCR loans are not for primary residences. If you are buying a home to live in, you need a conventional, FHA, or VA loan. DSCR loans are also not a fit if the property does not generate enough rental income to cover the mortgage. If the rent is too low, the DSCR will be below 1.0 and most lenders will not approve the loan.
Requirements
Minimum Credit Score
640 or above (varies by lender)
Down Payment
20 to 25 percent minimum
Minimum DSCR
1.0x minimum, though most lenders prefer 1.25x or higher
Reserves
6 months of PITI typically required
Pros and cons, stated honestly
Advantages
Things to consider
Costs involved
DSCR loans are portfolio products, so rates are higher than conventional investment property loans. However, there is no mortgage insurance, which helps offset the higher rate. Closing costs are similar to other investment property loans, typically 2 to 5 percent of the loan amount. The key number to watch is the DSCR itself. A DSCR of 1.0 means the rent exactly covers the mortgage. Most lenders want 1.25 or higher, meaning the rent covers the mortgage plus a 25 percent cushion. I help you analyze the property before you make an offer to make sure the numbers work.
The process and rough timeline
Analyze the Property
1 to 2 daysBefore you make an offer, I help you run the DSCR calculation: projected rent divided by the monthly mortgage payment. We check if it meets lender minimums.
Get Pre-Approved
2 to 3 daysI shop your scenario across DSCR lenders. We verify your credit and reserves, and I issue a pre-approval.
Find a Property and Make an Offer
Varies by investorYou find an investment property that meets the DSCR requirements. Your pre-approval shows sellers you can close.
Appraisal and Rent Survey
7 to 10 daysThe lender orders an appraisal and a rent survey to confirm the projected rent is realistic for the market.
Close and Start Collecting Rent
30 to 40 days totalYou sign, the loan funds, and the property is yours. No personal income docs needed.