DSCR | DSCR FAQs - Common Questions

Updated February 2026

DSCR & non-QM Loan FAQ

Quick Reference Guide | Common FAQs

ALWAYS work with the Investor as needs, requirements, and scenarios may vary.

Licensing & State Requirements

Q: Which states require a license to close DSCR or commercial loans?

A: Depends on how title is held:

• Personal Name → License required in ALL states.
• LLC → License required only in: CA, ID, MI, MN.

Q: We're not licensed in a state — can we still close a DSCR loan there?

A: Yes, but ONLY closing in an LLC. Closing in a personal name without a license is not permitted under any circumstances.

DSCR Loan Basics

Q: What is a DSCR loan and who is it for?

A: Non-QM investment property loan qualified on the property's rental income — NOT the borrower's personal income. No tax returns, W-2s, or pay stubs required. Ideal for investors, self-employed borrowers, and high-net-worth clients with complex returns.

Q: How is DSCR calculated?

A: DSCR = Gross Monthly Rent ÷ PITIA   (Principal + Interest + Taxes + Insurance + HOA)

• DSCR ≥ 1.0 = rent covers the full payment (preferred)
• DSCR < 1.0 = some programs still allowed with compensating factors
• Income source: Signed lease OR Form 1007 Market Rent Appraisal (no lease needed)

Q: What property types are eligible?

A: 1–4-unit residential investment properties, condos, townhomes. Some programs: 5–8-unit multifamily, short-term rentals (STR/Airbnb). 

⚠ Primary residences and second homes do NOT qualify. 1003 must state 'Investment' as the purpose.

Q: What are the general loan parameters?

• Loan amounts: typically, $100K–$3M+
• LTV: up to 80% purchase; 75–80% cash-out refi
• Min FICO: 620–680 depending on program
• Terms: 30-year fixed or ARM most common
• Rates: higher than conventional ones, this is non-QMon-QM
• Prepayment penalty: common, typically 1–5 years — must be disclosed and signed

Title Vesting & Entity Structure

Q: Can the borrower close in their personal name?

A: Only if you are licensed in that state. If unlicensed → must close in LLC. Full stop.

Q: What entity documents are required when closing in an LLC/Corp?

• Articles of Organization / Incorporation
• Operating Agreement (signed by all members)
• EIN Confirmation Letter (IRS Form SS-4)
• Certificate of Good Standing (dated within 30–60 days of closing)
• Background Check / OFAC for all key principals

Q: Does the LLC need to be formed in the property's state?

A: No. Many investors use DE or WY LLCs. The LLC may need to register as a foreign entity in the property state. Advise borrowers to consult their attorney on setup.

Common Scenarios & Quick Tips

Q: Borrower has no lease — can we still qualify the property?

A: Yes. Use Form 1007 (Comparable Rent Schedule) from the appraiser. The market rent from that form is used as gross income for the DSCR calc. No lease needed.

Q: Borrower wants 'Experienced Investor' pricing — what's needed?

A: Submit an Experience Letter or REO Schedule listing properties owned or flipped in the last 36 months. Without this, the borrower qualifies at standard pricing only.

Q: Can a gift be used for the down payment?

A: Program-specific — some DSCR products prohibit gifts entirely. Always check product guidelines before telling the borrower a gift is acceptable. If allowed, a Gift Letter and full sourcing are required.

Q: Do we need a 4506-C even though we're not verifying income?

A: Yes. Most non-QM lenders require 4506-C for fraud prevention purposes even when personal income is not part of the qualification. Get it signed early.

⚠ When in doubt on a scenario, check state licensing before anything else. Submitting to a non-lendable state or a state requiring a license you don't hold creates compliance exposure for everyone.