DSCR Loans: Financing Colorado Rental Properties With Rental Income

If you invest in rental property, you may have run into a frustrating problem: your tax returns do not show how much income you really have, especially after write-offs. A DSCR loan offers another way to qualify.

What DSCR means

DSCR stands for debt service coverage ratio. It compares a property's rental income to its monthly housing payment, including principal, interest, taxes, insurance and any HOA dues. If the rent covers the payment, the property may qualify on its own merits.

Who DSCR loans are for

• Investors who want to qualify without using personal income or tax returns

• Self-employed borrowers whose taxable income is reduced by deductions

• Buyers growing a portfolio who are running up against conventional limits

• Some short-term rental investors, depending on the lender

What to expect

DSCR loans are non-QM loans, which means guidelines vary from lender to lender. In general you can expect a larger down payment than a primary residence loan, pricing that is typically higher than conventional financing, and reserve requirements. Because guidelines vary so much, comparing several lenders is especially valuable.

Local rules matter

Before you buy, check the local rules for rentals in the city or county where the property is located. Many Colorado communities have licensing, zoning or occupancy rules, especially for short-term rentals. A great loan does not help if the property cannot be rented the way you planned.

Personal experience

I have operated short-term rental properties myself, so I understand the questions investors ask about cash flow, reserves and financing. I am happy to help you run the numbers before you make an offer.

Next steps

If you are considering a rental purchase or a refinance on an existing rental, reach out with the property details and I will help you compare DSCR and conventional options side by side.

This article is general information, not a commitment to lend. Loan programs and guidelines change, and all loans are subject to credit approval and underwriting. Jason Valant, NMLS #2780983. DNVR Lending, LLC, NMLS #2403751. Equal Housing Opportunity.