DSCR Loans in Michigan 2025: Complete Guide for Real Estate Investors

Debt service coverage ratio (DSCR) loans have become one of the most sought-after financing tools for real estate investors in Michigan. 

Whether you’re acquiring a single rental property in Detroit or scaling a multi-unit portfolio in Grand Rapids, DSCR loans can provide flexible terms and faster approvals than traditional mortgages. 

In this guide, we’ll explain what DSCR loans are, how they work in Michigan, their advantages and limitations, and what you should know before applying. 

We’ll also highlight market trends, lender expectations, and tips for maximizing your investment potential.

Understanding DSCR loans for Michigan investors

A DSCR loan is designed for income-generating properties. Lenders qualify borrowers primarily on the property’s ability to cover its debt payments, not on the borrower’s personal income. 

The DSCR formula is:

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

A DSCR greater than 1.0 means the property generates enough income to pay its mortgage and operating costs. 

Most lenders prefer a DSCR of 1.20 to 1.25 for favorable terms, though some programs accept ratios as low as 1.0 or even 0.75 for strong market opportunities. 

This makes DSCR loans attractive for self-employed borrowers, investors with multiple properties, and those with non-traditional income sources. 

DSCR loans also appeal to out-of-state buyers who rely on professional property management to maintain cash flow.

Why Michigan investors choose DSCR loans

Michigan’s diverse rental markets make DSCR loans particularly attractive:

• High rental yields in Detroit, with a 2025 Rentometer analysis ranking it first among large U.S. cities at 21.95% gross yield.
• Steady appreciation in markets like Grand Rapids, Lansing, and Kalamazoo.
• College town stability in Ann Arbor and East Lansing, where student demand drives consistent occupancy.
• Economic growth from industries like automotive, electric vehicles, healthcare, and tech, boosting rental demand.
• Lower entry costs compared to coastal markets, allowing investors to acquire more units for the same capital.
• Strong rental demand is driven by both long-term tenants and seasonal visitors in tourist-heavy regions.

Key DSCR loan terms in Michigan

If you’re considering a DSCR loan in Michigan, here are common eligibility benchmarks:

• Loan-to-value (LTV): Up to 80%
• Down payment: Typically 20–25%
• Credit score: Minimum 620–660
• DSCR threshold: 1.20–1.25 preferred; some lenders accept 1.0 or 0.75 in select cases
• Loan amounts: $100,000 to $3M+
• Interest rates: Often starting in the mid-6% range and varying based on factors like credit score, property type, and loan-to-value ratio
• Terms: Fixed and adjustable-rate options; interest-only payments available for maximizing cash flow
• Prepayment options: Many lenders offer flexible early payoff terms, though some may include prepayment penalties.

Types of properties eligible for DSCR loans

DSCR loans in Michigan can be used for a variety of investment properties, including:

• Single-family rentals
• 2–4 unit multifamily properties
• Larger apartment complexes
• Short-term rentals (with proof of income history)
• Mixed-use buildings with residential components

Owner-occupied homes do not qualify for DSCR loans. For vacation rentals or Airbnbs, lenders may require a 12–24 month rental history or verified occupancy rates.

How to calculate your DSCR

1. Determine your gross rental income from leases or market rent estimates.
2. Subtract operating expenses like taxes, insurance, maintenance, and property management fees.
3. Divide net operating income (NOI) by your total annual debt service (principal and interest payments).
4. Compare your ratio to the lender’s minimum requirement.

For example, if your NOI is $60,000 and your annual debt service is $50,000, your DSCR is 1.2, which typically qualifies for most Michigan DSCR loan programs. 

Tracking DSCR regularly can help ensure your property remains in compliance with loan terms and maintains strong cash flow.

Benefits of DSCR loans for Michigan investors

• No personal income verification: Ideal for self-employed borrowers or those with complex finances.
• Faster closings: Competitive markets like Detroit demand speed.
• Scalability: Finance multiple properties without debt-to-income restrictions.
• Flexible use: Works for both long-term and short-term rental strategies.
• Portfolio diversification: Use DSCR loans to invest in different Michigan markets simultaneously.
• Access to larger deals: Qualify based on property income, enabling bigger purchases than traditional lending allows.

Potential challenges to consider

While DSCR loans offer many advantages for Michigan real estate investors, they also come with unique considerations:

• Higher interest rates: DSCR loans often have slightly higher rates compared to conventional mortgages, reflecting the increased lender risk.
• Larger down payment requirements: Expect to provide 20–25% down, which can impact your available capital for other projects.
• Property cash flow expectations: If your DSCR falls below lender thresholds, you may face higher rates or reduced loan amounts.
• Prepayment penalties: Some DSCR loans include fees for paying off the loan early, so review terms carefully.
• Market volatility risks: Changes in rental demand or property values can affect your DSCR and future refinancing options.

By understanding these potential hurdles before you apply, you can prepare stronger loan packages and align with lenders who best match your investment strategy.

Steps to get a DSCR loan in Michigan

Securing a DSCR loan in Michigan is a straightforward process when you understand what lenders look for and prepare your documentation in advance:

1. Identify a strong rental property in a high-demand Michigan market.
2. Gather financial documents, including leases, tax records, rent estimates, and property expenses.
3. Work with a DSCR loan specialist who understands Michigan’s markets.
4. Apply and get pre-approved to move quickly when you find the right deal.
5. Close and manage your investment to maintain strong cash flow and DSCR ratios.
6. Keep a cash cushion to protect against vacancy periods or unexpected expenses.
7. Stay informed on Michigan’s rental rates and appreciation forecasts to optimize your strategy.

Michigan markets where DSCR loans shine

• Detroit: High-yield opportunities in emerging neighborhoods
• Grand Rapids: Steady appreciation and low vacancy rates
• Ann Arbor: Strong demand from university students and faculty
• Kalamazoo: Affordable entry points with solid rental returns
• Lansing: Government and education employment centers drive stable demand
• Traverse City: Seasonal rental potential in a popular tourist market
• Holland: Growing short-term rental market fueled by tourism along Lake Michigan

Why DSCR loans are a game-changer for Michigan investors

DSCR loans in Michigan give investors a streamlined path to building or expanding their portfolios. 

By focusing on the property’s cash flow, they remove many of the income verification hurdles of traditional mortgages. 

With the right property and a lender experienced in Michigan’s markets, DSCR financing can unlock growth potential and long-term profitability.

Ready to explore DSCR financing for your Michigan investments? Start your application with Park Place Finance.