DSCR Loans in California: The Key to Expanding Your Real Estate Portfolio
6 minute read
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January 20, 2025

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California is home to some of the country’s most lucrative real estate markets.

But securing quick financing for investment properties in high-demand markets can be complicated—especially for investors who don’t have traditional income documentation.

That’s where DSCR loans come in. These loans are designed specifically for real estate investors and allow borrowers to qualify for a loan based on a property’s income potential rather than their personal income.

Read on to learn how DSCR loans work in California, their requirements, and how investors can make the most of this flexible, efficient financing tool.

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What is a DSCR loan?

Debt service coverage ratio (DSCR) loans help investors scale their real estate portfolios without the constraints of traditional debt-to-income (DTI) requirements.

This type of loan measures a property’s ability to generate enough income to cover its debt obligations through a simple formula:

DSCR = Net Operating Income (NOI) / Total Debt Service

What’s included in NOI and total debt service?

Net operating income is the property’s rental income after deducting operating expenses such as maintenance, taxes, and insurance.

Total debt service is the total monthly mortgage payment, including principal and interest.

You can calculate DSCR using annual or monthly figures.

For example, if a property generates $5,000 in rental income per month and the total mortgage payment is $4,000, the DSCR is:

DSCR = 5,000 / 4,000 = 1.25

What is an acceptable DSCR?

A DSCR of 1.25 is considered strong. Most lenders want a minimum of at least 1.0, indicating the property generates just enough income to cover its debts.

In general, the higher the DSCR the better, because it’s less of a risk for both investors and lenders.

Why should investors choose a DSCR loan in California?

California’s market is among the most competitive and dynamic in the country due to strong rental demand and numerous investment opportunities driven by the following:

  • High home prices: Many residents can’t afford to buy a home, which drives demand for rental properties
  • Strong job markets: Tech hubs like Silicon Valley, biotech centers in San Diego, and entertainment industries in Los Angeles fuel migration and rental demand
  • Tourism and short-term rentals: The state’s most popular cities, including LA, San Francisco, and San Diego, attract millions of visitors annually and build demand for short-term rentals

According to Redfin, California’s median home sale price is $802,300, and the average rent is $2,481.

For investors, the California market translates to steady rental income and long-term appreciation—the ideal candidates for DSCR loans.

Scalability: How DSCR loans help investors grow their portfolios

One of the biggest benefits of DSCR loans is their ability to help investors expand their portfolios without the typical “red tape” of traditional financing.

Here’s why:

  • No personal income limitations: Qualification is largely based on rental income
  • Ability to finance multiple properties: Traditional lenders limit the number of mortgages an investor can hold
  • Faster closing times: Fewer income verification requirements allow DSCR loans to close more quickly than traditional mortgages (Park Place Finance can close in as little as seven days)
  • Flexibility with property types: Single-family, multi-family, condos and short-term vacation rentals are all eligible property types for DSCR loans

DSCR loans help investors move faster in competitive markets, which makes them an ideal tool in California.

DSCR loan requirements in California

If DSCR loans don’t rely on personal income and employment history, what do lenders need to see?

DSCR loan requirements vary by lender, but the following factors determine eligibility:

  • Minimum DSCR ratio: Some lenders allow a DSCR as low as 0.75, while others want to see at least 1.25 or higher
  • Down payment: A down payment of at least 20-25% is standard for DSCR loans, but may be higher with certain property types or borrowers with lower DSCRs
  • Credit score: Most DSCR lenders require a minimum credit score of 640-680
  • Property types: Investment properties only, including single-family rentals, multi-family properties, Airbnb, condos, and townhomes

Park Place Finance allows DSCRs as low as 0.75, with 80% purchase loan-to-value (meaning 20% down) and a minimum credit score of 660.

Documentation requirements for DSCR loans in California

You don’t need tax returns or income verification to qualify for a DSCR loan.

Instead, Park Place Finance requires the following documentation:

  • Purchase contract (if purchase)
  • List of real estate owned
  • Property insurance
  • Drivers license
  • Last two bank statements
  • Subject property lease
  • LLC/entity docs (if an LLC)
  • Loan payoff (if a refinance)

Discuss the required documentation with your lender ahead of time so you can collect all items prior to applying.

Interest rates and terms for DSCR loans in California

DSCR loan interest rates tend to be slightly higher than conventional mortgage rates due to the additional risk of these types of investments, but most lenders offer competitive rates.

For example, Park Place Finance’s DSCR loan rates begin at 6.50% APR.

The following factors may influence your interest rate:

  • Market conditions
  • Loan-to-value ratio (LTV)
  • DSCR
  • Credit score
  • Property type

In general, a higher DSCR, down payment, and credit score can result in a more favorable interest rate, while a lower DSCR, down payment, and credit score may increase your interest rate.

DSCR loan amortization and repayment options

The most popular DSCR loan option is the 30-year fixed rate, which offers stable monthly payments over 30 years.

Some lenders, including Park Place Finance, allow interest-only payments for a certain period of time.

This option boosts cash flow in the short term by reducing the borrower’s monthly expenses until principal payments begin.

Alternative financing options for California real estate investors

DSCR loans are an excellent tool for rental property investments, but what if you’re interested in other investment strategies?

Park Place Finance offers the following alternative financing options for California real estate investors in addition to DSCR loans:

  • Bridge loans: Short-term solution to help investors secure capital quickly
  • Fix-and-flip loans: Designed for investors who want to purchase distressed properties, renovate them, and quickly resell them for a profit
  • Construction loans: Ideal for investors who want to develop a property from the ground up

Many investors need multiple financing options for their projects.

For example, you may decide to fix and hold a property for rental income. In that case, you may want to use a fix-and-flip loan and refinance to a DSCR loan once renovations are completed.

Secure financing now for your next California investment property

Park Place Finance is your trusted hard money lender for your next California investment property.

With $1 billion in loans funded nationwide, we have the experience and expertise you need to succeed.

Ready to apply for a DSCR loan in California? Submit your application online or call us at (866) 407-1599.

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