A DSCR loan approves a rental on its income instead of yours. In the DC area, strong rents meet high prices, so knowing exactly what goes into the ratio matters.
The ratio
Divide the monthly rent by the monthly payment. The payment counts principal and interest, property tax, insurance and any condo or homeowners association fee.
| Rent | Payment | DSCR |
|---|---|---|
| $4,550 | $3,500 | 1.30 |
| $3,500 | $3,500 | 1.00 |
| $3,150 | $3,500 | 0.90 |
We prefer 1.0 or better. Strong borrowers can qualify below 1.0 with a larger down payment, and there is a no-DSCR option up to 75% loan-to-value at a higher rate.
Getting the inputs right in DC
- Rent. Use long-term market rent. DC does not license short-term rentals in investment properties. See our guide to DC short-term rental rules.
- Property tax. Most DC rentals are taxed at $0.85 per $100. Keep the property occupied or exempt so it is not taxed as vacant. See DC’s vacant property tax.
- Two units. A legal basement apartment or two-unit conversion counts both rents, with the right certificate of occupancy.
- Association fees. Include the full condo or HOA fee and any special assessment.
Rules that affect the rent
- Licensing. A DC rental needs a Basic Business License with a rental housing endorsement and registration with the Rental Accommodations Division. Montgomery and Prince George’s counties also license rentals.
- Rent stabilization. DC rent control covers buildings of five or more units built before 1976 unless an exemption applies, such as a natural person owning four or fewer rental units.
- TOPA. It matters when you sell a building with two or more rental units. See our TOPA guide.
Ways to make the numbers work
- A larger down payment lowers the payment.
- An interest-only period lowers the payment in the early years, and you can qualify on the interest-only payment.
- A 5-year prepayment penalty usually prices lower than a 3-year one.
- Adding a legal second unit, where zoning allows, can add rent.
Terms are on the DSCR rental loans page.