Last updated: August 2025
If you’re a real estate investor in Texas, especially one focused on rental properties, you’ve likely run into the limits of traditional mortgage options. That’s where DSCR loans come in. These investor-focused loans use rental income instead of your tax returns to determine eligibility.
Whether you’re building a short-term rental portfolio in Austin or rehabbing duplexes in Houston, this guide walks through how DSCR loans work, who they’re for, and what makes them a powerful tool for investors in the Lone Star State.
What is a DSCR loan?
DSCR stands for debt service coverage ratio, a financial metric that compares a property’s monthly income to its monthly debt obligations.
Lenders use this ratio to determine if the property generates enough cash flow to cover its mortgage payment.
In plain terms: if your rental income covers the mortgage, you’re good.
Unlike conventional loans, DSCR mortgages don’t require income verification via W-2s, pay stubs, or tax returns. Instead, approval hinges on the property’s ability to pay for itself.
These loans are typically used for investment properties, not primary residences, and are often part of a broader portfolio strategy.
Whether you own two properties or twenty, DSCR financing can be a tool to keep growing without running into conventional loan limits or red tape.
Why Texas investors use DSCR loans
The Texas real estate market is fast, diverse, and competitive. Whether you’re buying in Dallas, San Antonio, or Waco, DSCR loans offer several advantages:
- No tax return hassle – Ideal for self-employed borrowers or investors with complex tax profiles
- Speed matters – In hot markets, the ability to close fast can make or break a deal
- STR flexibility – Short-term rental income (Airbnb, Vrbo) can often be used in DSCR calculations
- Portfolio scaling – DSCR loans allow you to own multiple financed properties without the conventional cap
Texas also benefits from landlord-friendly laws and a growing population, making it a prime market for both short-term and long-term rentals.
Many investors use DSCR loans to acquire properties in areas with strong job growth, tourism, or proximity to universities and military bases.
How DSCR is calculated in a Texas rental deal
The basic formula is:
DSCR = Monthly gross rental income ÷ Monthly PITIA (principal, interest, taxes, insurance, association fees)
A DSCR of 1.0 means the property breaks even. Most lenders prefer a DSCR of 1.1 to 1.25 or higher, depending on the risk profile.
Acceptable forms of income documentation may include:
- Executed leases for long-term rentals
- Short-term rental income estimates (AirDNA, Schedule E, 12-month bank statements)
- Market rent analysis from an appraiser
If your DSCR is high, you may even qualify for better pricing or lower reserve requirements.
For properties that don’t quite hit the mark, some lenders offer flexible terms if the investor has strong assets or experience.
DSCR loan requirements you should know
While these loans are flexible, they still come with guidelines. Common requirements include:
- Minimum credit score: Typically 640–660+
- Minimum DSCR: Usually 1.0 to 1.2, depending on lender
- Down payment: 20–25% is common
- Property types: 1–4 units, condos, townhomes, non-warrantable OK in some cases
- Loan amounts: Often capped near $2M–$3M per property
These loans are generally for business-purpose borrowers, meaning your name may appear under an LLC and not personally. This offers certain protections and tax efficiencies but requires careful setup.
If you’re newer to investing, it’s important to know that some lenders may offer DSCR options for first-time landlords, but you’ll want to work with a team that explains the risks and steps clearly.
Benefits and tradeoffs for investors
Benefits:
- No personal income verification
- Fast approvals
- Favorable for self-employed and repeat investors
- Works for both long- and short-term rentals
- No cap on total properties financed
Tradeoffs:
- Slightly higher rates than traditional loans
- Stricter appraisal standards
- Larger reserves or down payments may be required
For many investors, the tradeoffs are worth the speed and flexibility, especially in cash-flow-rich areas like East Texas, coastal markets, or university towns.
DSCR loans also offer a path forward when tax returns don’t tell the full story. This is a common situation for those reinvesting heavily in properties.
How to qualify and close faster in Texas
Texas investors can streamline the process by preparing ahead:
- Organize property docs: Leases, rent rolls, AirDNA data, expense summaries
- Know your credit and reserves: Ensure your profile aligns with lender expectations
- Use an LLC or entity if needed: Some DSCR lenders require a business-purpose setup
- Stay aware of local zoning: Especially if using short-term rentals
It’s also wise to track your property’s real and projected income and expenses. The better your documentation, the faster underwriters can greenlight your file.
Choosing the Right Lender for DSCR Loans in Texas
Not all lenders offer DSCR loans — and even fewer truly understand the Texas rental market.
At Salute Mortgage, we help real estate investors across Texas — from military landlords in Killeen to short-term rental hosts in Fredericksburg — secure financing that works with their cash flow, not against it.
As a veteran-founded lender, we bring discipline, speed, and clear communication to every deal. That means:
- Fast, transparent closings — often in as little as 21 days*
- Straight answers on requirements, rates, and timelines
- In-house Homebird real estate team to help you find and evaluate properties
- Guidance on using rental income — including short-term rentals — in your DSCR calculation
Our goal is simple: keep your deals moving and your portfolio growing, with no unnecessary roadblocks.
Get Started Today
If your rental income covers the mortgage, you may be closer to approval than you think.
Get your DSCR loan quote today and see how your property stacks up — with a lender who understands Texas investors.
*Requirements vary by borrower and property. All loans are subject to credit and underwriting approval.
