DSCR Loan Regulations in California: What Investors Need to Know

California’s competitive real estate landscape demands financing options tailored to property performance—not solely borrower income. DSCR (Debt Service Coverage Ratio) loans prioritize rental cash flow over W‑2s and tax returns. This guide clarifies current regulations, lender requirements, and investor best practices for DSCR loans in California.

1. What Is a DSCR Loan?

A DSCR loan evaluates whether a property’s net operating income (NOI) can cover debt obligations:

DSCR = Annual NOI ÷ Annual Debt Service (PITI/ITIA)

A ratio ≥ 1 means break-even; ≥ 1.2 is preferred by most lenders. These non‑QM loans omit traditional income docs like W‑2s or tax returns, making them ideal for self‑employed or multi‑property investors 

2. California‑Specific DSCR Regulations

2.1 Minimum DSCR Ratio

• Most lenders require DSCR ≥ 1.0, some allow 0.75–1.0 with compensating factors or “no‑ratio” options
  
• Many lenders prefer DSCR ≥ 1.2 to qualify for better terms .
  

2.2 Credit Score & Down Payment

• FICO 620–660 minimum; stronger credit often reduces costs
  
• Down payments typically 20%, though repeat or low‑ratio deals may require up to 30% .
  

2.3 Loan Amounts & LTV

• Loans range from $75,000 to $5M, depending on lender
  
• LTVs typically 75–80%; up to 85% possible on purchases
  

2.4 Eligible Properties

• Include 1–4 unit residential, condos/townhomes, multi‑family, mixed‑use, and short‑term rentals (e.g., Airbnb)
  

2.5 Ownership Structure

• Loans can be held in LLCs or corporations, a plus for liability and tax planning
  

2.6 Documentation & Valuation

• Use either appraisal rent schedules (Form 1007) or 12-month rental history
  
• Short‑term rent estimates may rely on AIRDNA Rentalizer tools
  

3. Why California Investors Prefer DSCR Loans

• No W‑2s or tax returns needed → streamlines approval
  
• LLC‑friendly → helps separate personal/business liabilities
  
• Supports portfolio growth by stacking loans on individual assets
  
• Faster closing, focusing on property income and value
  

4. Average Rates & Fees

• Fixed rates: ~6.5% APR
  
• Origination fees: 0–2% of loan
  
• Interest‑only options available, often requiring minimum FICO ≥ 640
  

5. Getting Approved: Step‑by‑Step

1. Analyze property cash flow – Calculate expected NOI and DSCR.
   
2. Check credit score & reserves – Ensure ≥ 620 FICO; save up to 6 months reserves if DSCR < 1.0
   
3. Choose lender & product – Compare rates, terms, and policy differences (ratio, IO, term).
   
4. Compile docs – Include lease agreements, appraisals/AIRDNA reports, entity docs, reserves.
   
5. Apply & underwrite – Lender verifies DSCR, title, insurance, and occupancy affidavit 1.
   
6. Close & fund – Expect quicker closing than traditional mortgages.
   

Ready to Apply?

• Contact us for a personalized rate quote or loan review today.
  
• Compare local lenders offering California DSCR products.
  
• Get your DSCR pre-approval now and secure your next investment property fast.
  

FAQ

Read Next

• Top DSCR Loan Programs in 2025: Rates, Terms & Lender Comparisons
• How to Use a DSCR Loan for Cash-Out Refinancing on Rental Properties
  

Final Thoughts

California DSCR loans empower real estate investors with flexibility, speed, and portfolio growth potential by focusing on property income rather than personal financials. By securing a strong DSCR, maintaining solid credit, and choosing the right lender, you can maximize investment potential while minimizing financing friction.

Ready to get started?

Apply now or request your rate to take advantage of California’s DSCR lending trends and begin scaling your portfolio.