A DSCR loan (Debt Service Coverage Ratio loan) helps real estate investors qualify for financing based on property income, not personal income. In Texas, this type of loan is popular for rental property investors. But how do you qualify?
This step-by-step guide explains everything clearly. You’ll learn the process, documents needed, and common mistakes to avoid. Let’s get started.
For more context on DSCR loans in different states, check out our guide on DSCR loans in Florida.
What Is a DSCR Loan?
A DSCR loan is based on the property’s income versus its debts. Lenders look at how much money the property earns and whether it’s enough to cover the loan payments. This loan type is common for rental properties, short-term rentals, and commercial units.
Key formula:
DSCR = Net Operating Income (NOI) / Debt Payments
If the DSCR is 1.0, the property earns just enough to pay the loan. A higher DSCR means more income than debt.
Read more about the requirements for DSCR loans.
Step-by-Step: How to Qualify for a DSCR Loan in Texas
Step 1: Know the DSCR Loan Requirements
Before applying, understand what lenders in Texas expect.
Most lenders require:
- A minimum DSCR of 1.0 to 1.25
- A property with rental income
- A down payment of 20–25%
- A credit score of 620 or higher
- Proof of rental income or projected rent
- Clean property title
You do not need to show W-2s, tax returns, or employment history. The loan is based on the income of the property, not you.
You can also consider DSCR options in rural areas of Texas.
Step 2: Check the DSCR of Your Property
Before applying, calculate the DSCR. This tells you if the property qualifies.
How to calculate it:
- Add up the monthly rental income (use lease or market rent).
- Subtract monthly expenses (taxes, insurance, maintenance).
- Divide the net income by the proposed monthly loan payment.
Example:
Rental income: $3,000
Expenses: $500
Net income: $2,500
Loan payment: $2,000
DSCR = $2,500 / $2,000 = 1.25
This is acceptable.
Step 3: Gather the Required Documents
Even though you don’t need income proof, lenders still require:
- Property appraisal
- Lease agreements (if already rented)
- Rent schedule or market rent report
- Proof of insurance
- Purchase contract (if buying)
- Title report
- ID (driver’s license or passport)
Step 4: Choose the Right Property
Not every property will qualify. Lenders want properties that can pay for themselves.
Ideal properties include:
- Single-family rentals
- Duplexes or triplexes
- Small apartment buildings
- Short-term rentals (Airbnb, VRBO)
Avoid properties that:
- Have high vacancy rates
- Need major repairs
- Are in declining neighborhoods
Step 5: Find a DSCR Lender in Texas
Not all lenders offer DSCR loans. Focus on lenders that serve Texas and understand rental properties.
Where to look:
- Local credit unions
- Real estate investment lenders
- Online lenders specializing in DSCR loans
- Mortgage brokers with investor experience
Here are a few Texas-specific DSCR lenders:
- New Silver’s DSCR loans in Texas
- Griffin Funding – Texas DSCR loans
- District Lending – DSCR loans in Texas
Compare lenders on:
- Minimum DSCR requirement
- Interest rates
- Down payment
- Prepayment penalties
- Loan-to-value (LTV) ratio
Step 6: Prepare Your Down Payment
Most lenders in Texas require 20% to 25% down. The exact amount depends on the property and your credit score.
Tips to prepare:
- Use savings, equity from another property, or investment funds
- Avoid last-minute borrowing
- Be ready to show where the funds came from (bank statements)
Step 7: Apply for Pre-Approval
Getting pre-approved shows sellers you’re serious. It also gives you a loan estimate.
You’ll need:
- Property address (or target area)
- Estimated rent or lease income
- Purchase price
- Credit report
The lender will review your application and give you a pre-approval letter with estimated terms.
Step 8: Order an Appraisal with Rent Schedule
The lender will order an appraisal to assess the property’s value and rent.
Texas DSCR lenders use:
- Standard appraisal
- Form 1007 Rent Schedule (shows expected market rent)
This confirms the property’s income potential.
Step 9: Final Loan Approval and Closing
Once the lender reviews all documents and the appraisal looks good:
- You’ll receive final approval
- You’ll sign closing documents
- You’ll pay your down payment and closing costs
- The lender funds the loan
From start to finish, the process takes about 2 to 4 weeks, depending on the lender.
DSCR Loan Example in Texas
| Property Type | Monthly Rent | Monthly Loan Payment | DSCR | Qualifies? |
|---|---|---|---|---|
| Dallas Duplex | $3,200 | $2,400 | 1.33 | Yes |
| Houston Condo | $1,500 | $1,600 | 0.94 | No |
| Austin Rental | $2,800 | $2,200 | 1.27 | Yes |
Pros and Cons of DSCR Loans
You can read more in this full breakdown of the DSCR loan pros and cons.
Pros
- No personal income verification
- Faster loan approval
- Ideal for rental investors
- Easier access to multiple properties
Cons
- Higher down payment required
- Interest rates are slightly higher
- DSCR must meet lender standards
- Not for owner-occupied homes
Mistakes to Avoid
- Underestimating expenses: Be realistic about repairs, taxes, and vacancies
- Choosing a weak location: Low rent areas may not qualify
- Ignoring lender rules: Each lender has different DSCR thresholds
- Skipping the rent schedule: Without it, the lender can’t verify income
FAQs
Q: Can I use projected rent if the property is vacant?
Yes. Lenders use market rent reports like Form 1007 for vacant properties.
Q: What credit score is needed?
Most lenders require 620–680, but some may approve lower with a higher down payment.
Q: Can I buy a property through an LLC?
Yes. Many investors use LLCs for DSCR loans. Check that your lender supports it.
Q: Can I refinance with a DSCR loan?
Yes. You can use DSCR loans to refinance and pull equity from investment properties.
Conclusion
How to qualify for a DSCR loan in Texas? Start by learning the requirements, checking your property’s DSCR, gathering your documents, and working with the right lender. These loans are made for real estate investors who want to grow without personal income limits.
Focus on properties that generate steady income, prepare your down payment, and follow each step carefully. With the right plan, qualifying for a DSCR loan in Texas becomes a clear and achievable process.