DSCR Loans in California to Grow Your Investment Portfolio

Debt Service Coverage Ratio (DSCR) loans allow real estate investors to qualify for financing based on the income generated by their investment properties rather than their personal income. This makes DSCR loans an ideal choice for California investors seeking to expand their property portfolio with investment rental properties. The DSCR measures the property’s ability to cover debt payments through rental income offering another path to acquiring property for investors with non-traditional income sources.

California’s dynamic real estate landscape presents strong opportunities for investors interested in rental income through DSCR loans. Cities like Oakland, Long Beach, and Inglewood have seen significant gentrification in recent years attracting young professionals, tech workers, and creative industries.

driveway of Orange County duplex

These areas known for their proximity to larger hubs and a dynamic cultural scenes tend to have high rental demand. The property types range from single-family homes, condos, or duplexes and triplexes. Oakland’s Temescal neighborhood combines vibrant local businesses with an appealing mix of classic and modern homes. Long Beach’s Belmont Heights and Shores area also sees strong demand appealing to beachgoers and tourists alike. Inglewood benefits from the recent sports and entertainment developments and has positioned itself as a high-demand rental area. It is ideal for single-family and multi-family investments.

 

Why Choose a DSCR Loan?

DSCR loans are popular among real estate investors in California for several key reasons:


Available DSCR Programs

    DSCR over 1.0

  • – Rents cover the full mortgage payment (P.I.T.I)
  • – DSCR > 1.20 offers the best interest rates

    DSCR under 1.0

  • – Rental income does not cover the mortgage payment
  • – Allowed with 660 & above credit scores

Overall, California real estate is not a market to expect a cash flowing property. Most investors buy a property for equity appreciation instead of cash-flow. The results have been beneficial for most California investors as the gains in equity far surpass any mortgage payment shortfall.


DSCR Mortgage Requirements in California

The non-QM lender will focus mainly on the property's rental income to qualify.

Income Verification

  • – Tenant rental lease agreement(s)
  • – Appraisers market rent survey
  • – Your job is not required or verified

Credit

  • – No mortgage late payments in last 2 yrs
  • – Credit scores over 660
  • – Rental property experience preferred

Property types

  • – Single family home
  • – Condos, townhomes
  • – Duplex, triplex, or a fourplex

Down Payment

  • - 15% (1.25 DSCR & 760 credit scores)
  • – 20-25% down payment
  • – 30% down payment for foreign nationals

Compare a DSCR Loan vs. a Traditional Loan

Guidelines DSCR Traditional Loan
Minimum Credit Scores 640 680
Down Payment as Low as 15%1 20%
Mortgage Rates .75-1.50 above traditional .75 to 1.25 above primary homes
Income verification rental income rentals income & tax returns
Maximum Loan Limit $4,000,000 $3,000,000

1.  A down payment of 15 percent requires credit scores above 740, DSC ratios above 1.20, 9-12 months of reserves and a loan not over $3,000,000

 


Example of a DSCR Loan Transaction in California

Location: Los Angeles, CA

An investor in Los Angeles purchased a two-unit rental property in Silver Lake valued at $1.6 million. The property generates monthly rental income of $5,600.

With a DSCR loan the investor could qualify for financing by demonstrating that the property’s income is less than the monthly mortgage payment or covers it. We offer both types of DSCR loans. The DSCR is calculated by dividing the net operating income by the debt payment. Use our DSCR calculator.

In this case, the property’s income comfortably doesn't meet the lender’s DSCR 1.0 requirement which means the investor can still secure a loan using "no ratios". The key here is the investor avoided traditional income verification because it would not qualify to close the deal. The investor is likeley banking on property appreciation instead of cash flow.

Other areas and average rental income for investors

Oakland (Temescal, West Oakland)
Purchase Prices: $700,000 to $1.2 million for single-family homes and duplexes.
Typical Monthly Rent: $3,000 to $4,200 for a two-bedroom unit.
Triplex/Fourplex Rents: Rents range from $2,500 to $3,800 per two-bedroom unit providing strong cash flow potential.

Long Beach (Belmont Shore, Alamitos Beach)
Purchase Prices: $750,000 to $1.3 million for single-family homes and duplexes near the coast and downtown Long Beach.
Typical Monthly Rent: $2,800 to $3,500 for a two-bedroom unit.
Triplex/Fourplex Rents: $2,400 to $3,200 per unit making it suitable for both short- and long-term rentals.

Inglewood (Morningside Park, Downtown Inglewood)
Purchase Price range: $650,000 to $1 million for single-family homes and duplexes.
Typical Monthly Rent: $2,500 to $3,300 for a two-bedroom unit.
Triplex/Fourplex Rents: Two-bedroom units rent for $2,200 to $3,000 per month

ADU and Short-Term Rental Laws in California

Los Angeles
Los Angeles supports the use of ADUs as a key strategy to combat the housing crisis, offering opportunities for property owners to increase rental income and improve DSCR loan eligibility.

However, short-term rentals are tightly regulated by L.A. County STR ordinance in March 2024. Only primary residences qualify for short-term rental use.​

Orange County
Orange County permits ADUs, with city-specific regulations varying across the region. For example, Anaheim allows short-term rentals with a permit, but many other cities in the county, like Newport Beach and Huntington Beach heavily restrict or outright ban them.

San Diego
San Diego provides favorable policies for both ADUs and short-term rentals. While newly constructed ADUs are restricted to long-term rental use. Properties with older ADUs may qualify for short-term rentals under specific conditions[2] in San Diego County.

San Francisco
San Francisco enforces some of the most stringent short-term rental regulations in California. Properties must be the owner’s primary residence, occupied for at least 275 days annually, and registered with the city.

ADUs are generally excluded from short-term rental eligibility unless grandfathered under older policies.

The Takeaway: Investors should carefully research municipal guidelines to optimize their strategies for rental income and DSCR loan qualifications​. As you can see Understanding these restrictions or regulations is critical for investors planning to generate rental income​.

You have numerous choices because we can offer varioust Jumbo loan programs subject to underwriting approval.
Other loan alternatives include Asset Based Mortgages, Self-Employed No Tax Returns, Short-term Bridge Loan, loans for Vacation Homes.

Still have questions? Check these answers

  • What is the minimum DSCR ratio required for investment properties in California?

    In California, most lenders require a minimum DSCR of 1.20 for investment properties. However, some lenders will accept a DSCR as low as 0.75 for strong borrowers or in highly desirable California markets such as San Francisco or Los Angeles.

  • How does California's high property value affect DSCR loan qualification?

    California's notoriously high property values often result in higher rental rates, which can positively impact DSCR calculations. This means that even with higher mortgage payments, many California properties in desirable areas can still achieve favorable DSCR ratios due to the correspondingly high rental income.

  • Are DSCR loans available for short-term rentals in popular California tourist destinations?

    Yes, many lenders in California offer DSCR loans for short-term rentals. This includes properties in popular tourist areas like San Diego, Lake Tahoe, or Napa Valley. However, lenders may use more conservative income projections for short-term rentals compared to long-term leases.

  • What is the typical down payment required for DSCR loans in California?

    For DSCR loans in California, lenders typically require a down payment ranging from 20% to 30% of the property's purchase price. The exact percentage may vary based on the property type, location, and the borrower's overall credit and assets.

  • Can I use a DSCR loan to finance multi-family properties in California?

    Yes, DSCR loans in California are available for multi-family properties. It's typically up to 4 units but we have some lenders who allow up to 30 units for larger multi-family properties but some terms and requirements vary. Multi-family properties can be particularly attractive in California's competitive rental markets.


Disclosure: Minimum loan amount is $200,000 for residential non-QM loans. Loan programs are subject to change per lender at any time until the loan is approved and the rate is locked. Borrowers must be approved by underwriting. Not all applicants will qualify.