DSCR Loans in Texas

Areas We Serve

Griffin Funding can help you invest in property across the state of Texas, including the following areas and more:

What Is a DSCR Loan and How Does It Work in Texas?

A DSCR loan is a type of investment property financing that uses the property’s rental income to determine loan eligibility rather than relying on the borrower’s personal income.

The debt service coverage ratio (DSCR) measures how well the property’s income covers its debt payments, and a good DSCR — typically 1.0 or higher — means the rental income is sufficient to pay the loan. Using a DSCR calculator can help you understand your property’s ratio and whether you qualify for this type of loan.

Use our DSCR calculator to determine what your DSCR is and if you qualify for an investment property loan. 

Texas DSCR loans are a popular option for investors who want to avoid the stricter requirements of traditional Texas home loans. These loans fall under the category of non-QM loans, which offer more flexible underwriting and streamlined approval processes.

At Griffin Funding, DSCR loans for rental properties in Texas are just one of several non-QM loan options designed to help real estate investors secure financing with less hassle.

Who Are DSCR Loans for?

DSCR loans in Texas are designed for real estate investors and can’t be used to purchase an owner-occupied home. They’re ideal for borrowers looking to qualify based on property cash flow rather than personal income.

You may be a good fit for a DSCR loan if you:

• Are investing in rental property (short-term or long-term)
• Want to qualify without providing proof of income
• Have been denied traditional loans due to self-employment or variable income
• Plan to purchase or refinance multi-family or single-family investment properties
• Have a strong credit score and can provide a sufficient down payment
• Are focused on building a real estate investment portfolio

If you’re considering a DSCR loan in Texas, take a look at the pros and cons of this type of loan to see if it’s right for you.

Pros:

• No tax returns or pay stubs needed: No income or employment history verification required.
• Streamlined application process: Faster approval and closing timelines.
• Flexible qualifying requirements: Ideal for self-employed investors or those with non-traditional income.
• Interest-only options available: Interest-only Texas DSCR loan options available through Griffin Funding.
• Personal income isn’t factored in: Based on property cash flow, not personal income.

Cons:

• Higher interest rates: May come with higher interest rates than conventional loans.
• Larger down payment: Typically requires a larger down payment (often 20–25%).
• Only investment properties: Limited to investment properties—not for primary residences.
• Pre-payment penalties and/or fees: Some lenders may charge additional fees or require reserve funds.

How Is DSCR Calculated?

In order to calculate your DSCR, lenders use a simple formula to figure out the ratio of rental income to debt. Here’s the formula for DSCR:

Debt service coverage ratio (DSCR) = annual rental income ÷ annual debt

Your rental income is determined using lease agreements and the rent schedule of a licensed appraiser; the lower of the two numbers is your rental rate. Your annual debt is the total amount you pay each year in principal, interest, taxes, insurance, and HOA fees. We take your total annual rental income and divide that by your total annual debt, and that gives us your DSCR. This number is then used to qualify you for the loan.

DSCR Calculation Example

If your rental income is $45,000 and your annual debt is $30,000, your DSCR is 1.5. This is a high enough DSCR to secure just about any loan, and you’ll likely secure good loan terms as well.

For an annual rental income of $15,000 and an annual debt of $20,000, you’ll end up with a DSCR of 0.75. A DSCR of 1 indicates that your rental income and annual debt are the same, while anything lower than 1 means your rental income is less than the debt accrued by that property.

DSCR Loan Requirements in Texas

Common DSCR Loan requirements borrowers must meet to qualify for a DSCR loan include: 

• Property type: DSCR loans are typically designed for income-generating properties, such as residential and commercial real estate, including single-family residences or multi-family residential properties. 
• DSCR: Lenders assess the property’s DSCR, with a higher DSCR generally preferred for loan approval. At Griffin Funding, we can work with borrowers who have a DSCR of less than 1.
  
• Stable rental income: Borrowers must demonstrate stable and sufficient income from the property to cover the mortgage payments. Lenders may analyze historical and projected rental income. 
• Property valuation: The property’s value and appraisal are crucial factors. Lenders may require a professional appraisal to determine the property’s current market value. 
• Creditworthiness: While DSCR loans often focus more on the property’s income, lenders may still evaluate the borrower’s creditworthiness.
• Down payment: While DSCR loans may offer flexibility in down payment requirements compared to other commercial loans, borrowers still need to put down at least 15% of the property’s purchase price.

Even if your DSCR is too low for you to secure debt service coverage ratio loans in TX, there are other similar loans you may be able to apply for. Here are some other loan programs that may be an option for you:

• Asset-based loans: You can secure a loan based on assets rather than income with asset-based loans. These assets may include investment accounts, retirement accounts, liquid assets, and more.
• Bank statement loans: Instead of providing W-2s and pay stubs for proof of income, bank statement loans allow you to use your bank statements to qualify for a loan.
• Conventional loans: These loans can be used for real estate investment if you meet the lender’s credit and income requirements. While they may require a larger down payment (typically 15–20%) and have stricter documentation standards, conventional loans offer competitive interest rates and can be a good option for qualifying borrowers.
• Interest-only loans: Interest-only loans allow you to pay toward interest for a set period of time, then adjust your payments to start paying toward the principal.

Download the Griffin Gold app today to explore your options.

Apply for a Texas DSCR Loan

DSCR loans in Texas are one of the best ways for real estate investors to finance additions to their portfolio. If you have questions about our DSCR loan program, call Griffin Funding at (855) 394-8288 to learn more or simply get started online today.