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 Greater Houston.
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 |
|---|---|---|
| $2,730 | $2,100 | 1.30 |
| $2,100 | $2,100 | 1.00 |
| $1,890 | $2,100 | 0.90 |
What decides the ratio in Houston
- Property tax. Use full market value without a homestead exemption, and add any MUD tax. See our guide to Texas property tax for Houston investors.
- Insurance. Wind, hail and flood coverage are expensive. Get quotes for the exact address early. See our guide to Houston flood rules.
- HOA dues. Master-planned communities have them, and some restrict leasing.
- Long-term rent. Short-term rentals need city registration and are barred by many deed restrictions, 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 property outside the floodplain, or one elevated above it, usually costs less to insure.
Terms are on the DSCR rental loans page.