What Is a Texas DSCR Loan?

Understanding Texas DSCR loans starts with familiarizing yourself with what the debt service coverage ratio (DSCR) actually is. DSCR is a ratio that shows the ability of the rental income of a property to cover the annual debt of a property. A good DSCR of 1.0 or higher indicates that a property is generating enough income to pay off its debt obligations. When applying for a DSCR loan, your DSCR will play a big role in determining whether you qualify for the loan and the rates and terms you’re able to secure. 

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

Texas debt service coverage ratio loans are investment property loans in Texas used to help investors secure home financing without having to apply for traditional Texas home loans. A DSCR loan is a type of non-QM loan that allows investors to streamline the typical qualifying mortgage process and benefit from more flexible underwriting requirements. At Griffin Funding, we offer several other types of non-QM loans in addition to DSCR loans.

Who Are DSCR Loans for?

One thing that’s important to note is that debt service coverage ratio loans in TX are specifically designed for borrowers who are investing in real estate. You can’t use DSCR loans to purchase owner-occupied property, which means it’s not a loan you can use to buy a house that you plan to live in. This is because the rental income the property earns is how the loan is repaid.

DSCR loans are often highly beneficial for property investors who have had trouble securing other types of loans because they offer more flexible lending criteria. Additionally, investors can qualify for DSCR loans without providing proof of income. Instead of providing proof of income, borrowers qualify for DSCR loans based on the property’s DSCR and other financial metrics, such as credit score and down payment amount. These loans can also be used for short-term rentals and long-term rentals like multi-family housing.

Texas DSCR Loan Benefits

Texas DSCR Loan Benefits

If you’re looking for a real estate investment loan in Texas, there are many reasons you might consider a DSCR loan. Maybe you’re having trouble securing another type of loan, or perhaps you need the approval process to move faster than traditional loans take. 

DSCR loans in Texas are more flexible than other loans, so they’re a popular choice for investors. You don’t have to provide proof of income or employment history verification, and closing times may even be faster.

One of the benefits of securing a DSCR loan with Griffin Funding is the fact that interest-only loans are available as well. These investment property loans in Texas allow you to make payments toward the interest for the first several years, then your monthly payments are recalculated and you’ll start paying toward the principal. Griffin Funding offers fixed-rate loans on a 40-year or 30-year term.

How Is DSCR Calculated?

Understanding how DSCR is calculated is key to determining whether you should apply for a DSCR loan in Texas. 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. 
  • 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 may still need to contribute a certain percentage of the property’s purchase price.

What DSCR Do Lenders Look for?

What DSCR Do Lenders Look for?

When you’re applying for a loan, it’s important to understand that lenders are looking for a particular DSCR. For most lenders, that number is 1.25. A DSCR of 1.25 shows lenders that your rental income is high enough that you should be able to make your loan payments when they’re due.

At Griffin Funding, our requirements for DSCR loans in Texas are a lot more flexible. You can secure one of our debt service coverage ratio loans in Texas with a DSCR as low as 0.75. However, it’s important to keep in mind that your loan terms will vary based on your DSCR. A DSCR of 0.75 requires 12 months of reserves, while a DSCR of 1 or higher requires just 6 months of reserves. In some cases, Griffin Funding will consider no ratio DSCR loans with a larger down payment.

Borrowers must also meet minimum credit score requirements and provide a down payment of at least 20% in order to qualify for a DSCR loan in Texas.

Other Texas Loan Options for Borrowers with Low DSCR 

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.
  • Recent credit event loans: If something happened recently that had a negative effect on your credit score, you may still be able to qualify for recent credit event loans that take that into account.
  • 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.

Begin the application online or request a free quote today!

Apply Now

Areas We Serve

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

  • Austin
  • Dallas
  • Houston
  • San Antonio
  • Fort Worth
  • El Paso
  • Corpus Christi
  • Laredo
  • Arlington
  • Plano

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 apply online today.

Frequently Asked Questions: Texas DSCR Loans

What is the minimum down payment for a DSCR loan in Texas?

The minimum down payment for a DSCR loan in Texas can vary based on the lender and specific terms of the loan. DSCR loans may offer flexibility in down payment requirements. However, the typical down payment requirement is 20% of the purchase price of the property. 

It’s crucial to work closely with lenders to determine the specific conditions of the loan, as down payment requirements can depend on factors like the borrower’s financial profile, the type of property you’re financing, and the lender’s policies. 

Is it hard to get a DSCR loan in Texas?

The difficulty in obtaining a Texas DSCR loan can depend on various factors, including the borrower’s financial situation, creditworthiness, experience in managing income-generating properties, and, of course, the DSCR of the property. 

While DSCR loans are designed for commercial real estate and typically focus on the property’s income potential, lenders still have criteria borrowers must meet. To be successful with a DSCR loan in Texas, it’s crucial to work with lenders experienced in DSCR loans, provide comprehensive documentation, and ensure that the property aligns with the lender’s requirements. 

Can I qualify for a DSCR loan in Texas as a first-time investor?

Yes, qualifying for a DSCR loan in Texas as a first-time investor is certainly possible as long as you meet the minimum requirements. At Griffin Funding, we are happy to work with first-time investors who are interested in applying for DSCR loans in Texas. We can answer any questions you may have about this type of financing and help set up a loan that’s tailor-made to your needs.