Eligible Property Types
DSCR loans can finance most investment property types, but each comes with specific requirements and considerations. Understanding these nuances will help you choose the right properties for your portfolio.
1. Single-Family Homes (SFH)
Most Common Choice
Requirements: Property must be rented to unrelated tenants. Owner-occupied properties don't qualify.
- Easiest to appraise and underwrite
- Largest pool of potential tenants
- Best resale market if you need to exit
- Minimum DSCR typically 1.00x
2. Small Multifamily (2-4 Units)
Duplex, triplex, and fourplex properties are excellent for DSCR loans because multiple income streams reduce vacancy risk.
Example: Duplex Analysis
| Income Source |
Monthly Rent |
Risk Factor |
| Unit A |
$1,500 |
50% vacancy risk if vacant |
| Unit B |
$1,500 |
50% vacancy risk if vacant |
| Total |
$3,000 |
25% total vacancy risk |
Special Considerations:
- Each unit must have separate lease agreements
- Some lenders require 6-month rent history
- Vacancy allowance typically 5-10% depending on market
3. Condominiums and Townhomes
Condos and townhomes can qualify, but additional requirements apply:
Condo Requirements
- Warrantable condos only: Building must be on lender's approved list
- HOA review: Association budget and bylaws must be reviewed
- Owner-occupancy ratio: Typically 50%+ owners must live in building
- Rental restrictions: HOA must allow rentals (check CC&Rs)
- Insurance coverage: Building must have adequate master policy
4. Manufactured Homes
Mobile and manufactured homes can qualify with specific criteria:
- Must be permanently affixed to foundation
- Built after 1976 (HUD code compliance)
- Minimum 800 square feet
- Land must be owned, not leased
- Property deed must include both home and land
Large Multifamily Properties (5+ Units)
Properties with 5 or more units are considered commercial real estate and have different requirements:
Commercial Classification
- Minimum DSCR: 1.20x - 1.25x
- Down payment: 25-30% minimum
- Rent roll required: Detailed income and expense statements
- Commercial appraisal: Income approach valuation
- Management consideration: Professional management may be required
Mixed-Use Properties
Properties combining residential and commercial space can qualify if:
- Residential income represents 51%+ of total income
- Commercial tenants have established lease history
- Property is zoned for mixed-use
- Separate entrances for residential and commercial areas
Property Types That Don't Qualify
Ineligible Properties
- Primary residences: Must be investment property
- Second homes/vacation homes: For personal use
- Short-term rentals: Airbnb/VRBO properties (some exceptions)
- Non-warrantable condos: Buildings with litigation or financial issues
- Co-ops: Cooperative housing not typically accepted
- Properties over 1 million sq ft: Too large for most DSCR programs
- Special purpose properties: Gas stations, churches, etc.
Short-Term Rental Considerations
The short-term rental market (Airbnb, VRBO) is rapidly evolving for DSCR loans:
Challenges with STR Properties:
- Income volatility makes cash flow hard to predict
- Local regulations may restrict or ban STRs
- Higher operating expenses (cleaning, supplies, management)
- Seasonal income patterns
Some Lenders Now Accept STR If:
- Property has 2+ years of STR income history
- Located in established STR markets
- Income is averaged over 24-month period
- Local regulations explicitly allow STRs
Property Selection Strategy
Best Properties for DSCR Loans
- Single-family homes in rental neighborhoods - Easy to rent, appraise, and sell
- Small multifamily (2-4 units) - Multiple income streams, lower vacancy risk
- Properties in landlord-friendly states - Easier evictions, fewer regulations
- Turn-key rentals - Immediate cash flow, minimal rehab needed
- Properties with existing leases - Proven income stream for underwriting