Investment Property Financing · Los Angeles
DSCR Loans in Los Angeles
A DSCR loan qualifies your Los Angeles rental on the rent it collects, not on your tax returns, W-2s or debt to income ratio. We compare more than 100 wholesale lenders to find the ones that will write it at your price and your rent. NMLS #1277693.
How a DSCR Loan Works
You want another rental, and your tax returns make you look like you earn far less than you do. A DSCR loan sets those returns aside and asks one question: does the property pay for itself? DSCR stands for debt service coverage ratio, and it is the rent divided by the full monthly payment.
That payment is more than principal and interest. Lenders call it PITIA, which means principal, interest, property taxes, insurance and any HOA dues. Say a duplex rents for $4,000 a month in total and the full payment comes to $3,800. Divide the rent by the payment and you get a ratio of about 1.05.
The rent comes from your signed leases. If the place is empty, the appraiser estimates market rent on a form called a rent schedule, and that number becomes your qualifying rent. You can see the whole picture on our main DSCR loan page.
What DSCR Ratio Do Lenders Want?
Most investors ask this first, because the ratio decides which lenders will even look at the deal. A ratio of 1.0 means the rent covers the payment exactly, with nothing left over. Most lenders want at least that, and many save their best pricing for 1.25 or higher.
Below 1.0 is not the end of it. Some lenders write those loans when you put more down or keep more money in the bank after closing. A smaller group offers a no ratio loan, where the rent does not have to cover the payment at all, in exchange for a bigger down payment and a higher rate.
This comes up constantly in Los Angeles, because rents here have not kept pace with prices. A house that looks like a solid rental can drop below 1.0 once taxes and insurance land in the payment. Run the numbers in our DSCR calculator before you write an offer, not after.
What You Need to Qualify
You do not need tax returns, W-2s, pay stubs or a debt to income ratio, which is the whole reason most people choose this loan. What you do need is credit, cash and a property that rents. Here is what lenders typically look at.
- A rental, not a home. The loan is only for investment property. You cannot live in it.
- Credit score. Most DSCR lenders set a minimum somewhere in the 600s. A higher score usually earns a better rate and a smaller down payment.
- Down payment. Plan on at least 20 percent down with most lenders, and often 25 percent or more with a lower score, a lower ratio or a larger loan. Lenders call this LTV, or loan to value, so 20 percent down is an 80 percent LTV.
- Reserves. Lenders want money left in the bank after closing, counted in months of payments. A bigger loan usually means more months, and some lenders let retirement accounts count toward it.
- LLC paperwork, if you use one. Many lenders let you take title in your LLC. Have the operating agreement and proof the company is in good standing ready early.
Why Investors Here Choose DSCR Loans
A lot of Los Angeles borrowers earn real money that a bank cannot see on paper. Income from 1099s, K-1s or LLC distributions often shrinks after deductions, and a conventional lender qualifies you on what is left. A DSCR loan skips that math, so your write offs stop costing you the next property.
It also removes the ceiling most investors hit. Conventional lenders count every mortgage against your personal debt to income, and somewhere around the fourth or fifth rental there is no room left. On a DSCR loan, each property stands on its own rent.
Small multifamily can work in your favor too. On a two to four unit building, every unit's rent counts toward the ratio. If your own income is the problem and you want to live in the property, a bank statement loan qualifies you on 12 to 24 months of deposits instead.
What to Check on a Los Angeles Rental First
Buyers here lose deals to things that have nothing to do with their credit. A lender can only count rent the property legally earns, so three questions are worth answering before you make an offer.
- Is the unit under rent control? Los Angeles has its own local rent rules on top of the state law. A tenant paying well under market sets your ratio at the rent they actually pay.
- Can it run as a short term rental? Some lenders count Airbnb income, usually from 12 months of booking history. Check what the city allows at that address before you plan around it.
- Is the loan above the conforming limit? The FHFA sets that limit each year, and plenty of rentals here go past it. Not every DSCR lender writes jumbo loan sizes, so the price narrows your list fast.
How a DSCR Loan Compares With a Conventional Loan
You pay for the convenience of skipping income paperwork. DSCR rates usually run higher than conventional investment rates, and many DSCR loans carry a prepayment penalty for the first few years. In return you get no tax returns, no debt to income limit and title in your LLC.
Closing speed depends mostly on the appraisal, title and how fast your LLC documents come together. There is no income to verify, so that part of a normal mortgage simply drops out. We give you a real estimate once we know the property and the lender.
When a DSCR Loan Is the Wrong Choice
If your tax returns already show enough income, take the conventional investment loan. It is almost always cheaper, and we will tell you so on the first call. The same goes if you plan to live there, because owner occupied loans cost less.
A property that needs serious work is another poor fit, because it cannot rent until the work is done. A hard money loan in Los Angeles gets you in, and you refinance into a DSCR loan once the place is fixed and rented.
Questions Investors Ask About DSCR Loans
Can I use a DSCR loan on a home I plan to live in?
No. A DSCR loan is only for a property you rent out, and the lender will ask you to confirm that in writing. If you want to live in one unit of a duplex and rent the other, look at an owner occupied loan instead. It will usually cost less and ask for a smaller down payment.
Do DSCR loans have a prepayment penalty?
Many do. A prepayment penalty is a fee you pay if you sell or refinance within the first few years. On most DSCR loans you can choose a shorter penalty or none at all, and the trade is usually a higher rate. If you might sell or refinance soon, tell us before we compare lenders, because it changes which offer is actually cheapest.
Are DSCR rates higher than conventional rates?
Yes, usually. The lender is skipping your income documentation, so it prices in a little more risk. Your credit score, your down payment, the ratio itself and the penalty you choose all move the rate. The lender sets the rate when you apply, so we do not quote one over the phone. We put your numbers in front of several lenders and show you each offer side by side.
Will a lender count the rent from a rent controlled unit?
Yes, but it counts the rent you actually collect. A lender reads the signed lease and the appraiser's rent schedule, and a long held tenant paying well under market sets your ratio at that lower rent. Some buyers plan around market rent and find the payment does not clear. Send us the leases before you make an offer and we will run the ratio on the real rent.
Is Advanced Funding Solutions the lender on a DSCR loan?
No. We are a mortgage brokerage, so we compare more than 100 wholesale lenders and send your loan to the one that fits. That lender approves it, sets the final terms and funds it. Our job is picking the right lender, handling the paperwork and keeping the loan moving until it closes. You deal with us the whole way through.
More on DSCR and Investor Loans
Send Us the Price and the Rent
Tell us what the property costs, what it rents for and how much you plan to put down. We run the ratio, tell you which lenders will write it, and show you what would need to change if it falls short. There is no application and no cost for that first look. We have 25 years of mortgage experience and work from our office in Calabasas. Advanced Funding Solutions, NMLS #1277693, is a licensed mortgage brokerage in California. All loans are subject to credit, income, asset, property, and underwriting approval.
Advanced Funding Solutions, NMLS #1277693 · Licensed in California · Equal Housing Opportunity