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DSCR Loans Tennessee: Quick Way to Build No-Doc Real Estate Portfolio
9 minute read
October 4, 2022

Real estate investors are taking advantage of Tennessee's strong economy and low tax rates to grow their portfolios.

DSCR loans in Tennessee allow investors to expand into a healthy rental market quickly, easily, and without needing income verification.

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What’s in this article?

Why get a DSCR loan in Tennessee?
How does a DSCR loan work?
How to calculate DSCR
Minimum DSCR to qualify
Tennessee DSCR loan guidelines
DSCR mortgage rates
5 best areas to invest in Tennessee
5 tips for Tennessee investors
Submit your DSCR scenario

Why get a DSCR loan in Tennessee?

Tennessee offers countless perks to real estate investors, including:

  • Cost of living and unemployment rates are lower than the national average
  • Exceptional healthcare facilities and a growing job market
  • No social security tax
  • A moderate climate of warm—not hot—summers and cool—not cold— winters

These advantages, among others, are a constant draw for new residents arriving daily, bringing with them an ever-increasing need for rental properties.

DSCR loans in Tennessee compare an investment property's cash flow against monthly payments—not an investor's personal income. This streamlined process is not only faster but more flexible and accommodating to full-time investors, self-employed borrowers, or anyone with a complex tax return.

See if you're eligible for a DSCR loan.

How does a DSCR loan work?

Because of the income verification required by traditional loans, many investors can face challenges trying to prove they have the financial ability to repay a loan.

DSCR loans in Tennessee offer a lending solution that focuses on an investment property's income, not the investor's income.

If your investment property generates enough cash flow to cover loan repayment, you could qualify for a DSCR loan—without the need for tax returns, pay stubs, W2s, etc.

Related: DSCR Loan Pros and Cons

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How is DSCR calculated?

A DSCR loan looks at a property's income and compares it to the monthly mortgage payments.

DSCR is always written as a decimal, such as 1.25 or 1.25x. A property with a DSCR of 1.25x generates 25% more income than necessary to cover monthly payments.

Higher DSCR ratios are always favored because they mean the property brings in even more money than it takes to service the debt. A property with a DSCR below 1.0 does not break even—it has a negative cash flow.

Here's how you calculate DSCR:

DSCR = Income / Payment

Let's look at an example:

A property that has a monthly income of $3,500 and a monthly mortgage payment of $3,000 has a DSCR of 1.16

How to determine DSCR income

For residential properties, DSCR uses the monthly rental income.

For commercial properties, DSCR uses the net operating income (NOI), i.e., gross income, less operating expenses.

How to determine DSCR payment

DSCR loans use PITIA to calculate monthly payment amounts for residential properties. PITIA stands for loan principal, interest, property taxes, interest, and any homeowner association fees (HOA).

Example: How higher rent can improve DSCR


Example: How lower payment can improve DSCR


Pro Tip: The higher a property's DSCR, the greater the chances of being approved for a DSCR loan in Tennessee. When considering investment properties, look for ways to increase property income and/ or reduce the monthly payment.

What is the minimum DSCR to qualify in Tennessee?

Lenders set their own DSCR requirements, which means the minimum DSCR to qualify in Tennessee will depend on who you work with. However, most lenders look for a minimum DSCR of 1.25x.

Some lenders consider lower DSCRs, while select lenders have no minimum DSCR.

Tennessee DSCR loan guidelines

Compared to traditional mortgages, DSCR loans are considerably much easier to qualify for.

While specific requirements can vary by lender, most DSCR lenders in Tenness use the following qualifications.

Loan-to-value (LTV) ratio: DSCR loans have a max LTV of 75-80% or a minimum down payment of 20-25%.

Credit score: Most DSCR loans in Tennessee require a credit score of at least 640, though some lenders may consider lower scores.

Verifying the property's future rental income: To verify that a property generates enough income to cover payments, an appraiser must complete the Fannie Mae Form 1007 (Single-Family Comparable Rent Schedule.)

Loan purpose: Investors can use DSCR loans to purchase new residential properties or refinance existing mortgages—standard or cash out.

Property types allowed: DSCR loans can be used for single- or multi-family residences up to 4 unit properties, condos, condotels, townhomes, and apartment buildings with 5+ units, among others. Check with your DSCR lender to see if they allow the type of property you're hoping to purchase.

Property use: Use DSCR loans to purchase long- and short-term rentals. DSCR loans cannot be used to purchase primary residences.

Loan type: DSCR loan types include 30-year fixed rates, 5-year adjustable rates, and interest-only ARMs. Check with your DSCR lender to see what loan types they offer.

Income and employment, debt-to-income (DTI) ratio: Lenders don't use income, employment, or DTI to determine eligibility for DSCR loans in Tennessee. Instead, they look at a property's cash flow and mortgage payment amount.

Maximum loan amount: Max loan DSCR loan amounts in Tennessee can be as much as $5 million.

Maximum properties owned: Most DSCR lenders do not limit the number of properties or loans a borrower can have.

Prepayment penalties: Most DSCR loans have prepayment penalties for borrowers who pay off the loan or refinance too quickly.

Cash reserves: Most DSCR lenders look for cash reserves totaling six months of mortgage payments. However, lower DSCRs may require cash reserves of up to twelve months.

Closing in the name of an LLC: Most lenders allow borrowers to close in the name of an LLC.

Seller-paid closing costs: Most DSCR lenders allow sellers to pay a portion of closing costs.

See if your deal meets DSCR requirements.

DSCR mortgage rates Tennessee

DSCR loan rates are usually 1%-2% above that of traditional mortgages. Many investors consider the slightly higher mortgage rates to be a worthwhile expense for not having to provide income verification.

DSCR Loan guidelines and fast facts. All about Debt Service Coverage Ratio loans.

The five best areas to invest in Tennessee

More than 6.9 million people call The Volunteer State home, and state-wide, more than a third live in rental properties. Tennessee offers a variety of potential investment opportunities in locations that range from small towns, like Hendersonville, to world-class cities like Nashville and Memphis.

Median home prices in Tennessee have jumped by almost 25% since last year and are expected to continue rising.


Tennessee's state capital, Nashville, offers a vibrant economy and professional sports and is home to the nation's 9.5 billion dollar country music industry. Music City USA has a population of around 1.2 million, up 1.5% since last year.

Nashville also earned a spot among SmartAsset's best places to purchase an investment property.

  • Median sale price: $495,000
  • Median rent (3-bedroom): $2,295
  • Renter-occupied households: 47%
  • Median household income: $62,515


Situated in east Tennessee's beautiful Appalachian mountain range, Knoxville's cost of living is almost 18% less than the national average and is considered one of the country's "hidden gems" by the National Realtors Association.

  • Median sale price: $340,000
  • Median rent (3-bedroom home): $1,953
  • Renter-occupied households: 63%
  • Median household income: $59,250


Sitting on the banks of the mighty Mississippi River, Tennesse's second-most populous city is home to a strong entertainment industry that includes Graceland, Beale Street, the Rock and Soul Museum, and countless live venues.

Memphis also hosts professional basketball (Memphis Grizzlies) and numerous family-friendly events at the FedEx Forum, all attracting visitors to the city year-round, making it a great location for short-term rentals like Airbnb for VRBO

  • Median sale price: $155,268
  • Median rent (3-bedroom home): $1,447
  • Renter-occupied households: 56%
  • Median household income: $59,250


Nestled in the Appalachian foothills, along the Tennessee river, Chattanooga is a transportation hub for travelers in the southeastern US. Birmingham (AL), Huntsville. (AL), Atlanta (GA), and Knoxville (TN) are all within 200 miles of Chattanooga.

  • Median sale price: $285,178
  • Median rent (3-bedroom home): $1,975
  • Renter-occupied households: 40%
  • Median household income: $59,250


The desirable suburb of Hendersonville is home to an excellent education system and offers a slower pace than Nashville. For country music fans, Hendersonville offers the bonus of famous potential neighbors. Past and present Hendersonville residents include Taylor Swift, Ricky Skaggs, Kelly Clarkson, Johnny Cash, and Ed Sheeran.

  • Median sale price: $504,812
  • Median rent (3-bedroom home): $2,095
  • Renter-occupied households: 40%
  • Median household income: $75,146

Five tips for real estate investors in Tennessee

Let’s look at five tips to consider if you're thinking about investment properties in Tennessee.

Plan to spend more

Most first-time investors fail to leave room for unanticipated expenses. When purchasing an investment property in Tennessee, it's always a good idea to have a financial buffer. With extra funds set aside, you can cover any expenses or updates necessary before renting your new property out.

Understand what local renters want

Tennessee's economies vary widely from education to healthcare to entertainment and professional sports. Understanding the subtleties of local neighborhood economies will help you understand what renters in these neighborhoods are looking for.

Urbanites in Nashville would appreciate the convenience of a modest 1-bedroom condo, whereas a growing family in Hendersonville would need more bedrooms.

Partner with a local expert

A local realtor is essential for facing challenges that can come your way tied to municipal or state landlord regulations. A local realtor can also offer valuable insight on up-and-coming neighborhoods, positioning you for a maximum ROI.

Buy what you know

If you have first-hand experience with condos or single-family homes, you'll be better positioned to evaluate properties within these categories. Consider buying what you know to lessen the learning curve.

Remember your renter

Before you start making changes or upgrades to a property, take some time to consider who will be renting the place. If you make upgrades that demand a rental price above what renters expect for a given area, you could face challenges finding tenants or have to reduce the rent—and chip away at potential profit.


What is the minimum DSCR for Tennessee?

Most DSCR lenders look for a minimum of 1.25 DSCR for loans in Tennessee.

What is the minimum down payment for a DSCR loan?
What's the minimum credit score for s DSCR loan?
Is it hard to get a DSCR loan in Tennessee?

Submit your DSCR scenario to get started

If you're considering an investment property but can't meet documentation requirements for traditional loans, DSCR loans could be the right financing tool to help you expand your portfolio.

Get started with a professional DSCR quote and scenario analysis.

Submit your DSCR loan scenario.

Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.