The Quick Read: You pick a rental whose appraised market rent covers the full monthly payment, put down typically 20%–25% on a purchase, show credit and reserves, and the lender reviews the property’s rental income instead of your paycheck. The Triangle makes a good worked example because taxes, insurance, and HOA dues differ enough between Raleigh and Durham to move the coverage number.
- The coverage number is monthly rent divided by PITIA, the full payment of principal, interest, taxes, insurance, and any HOA dues.
- Most purchase files land at 75%–80% LTV (loan-to-value, the loan as a share of the property’s value), subject to lender guidelines.
- Credit of about 660 works for most programs. A 620 floor exists in parts of the network, and 700+ opens the strongest leverage tiers.
- The appraiser’s rent opinion, not your projection, usually sets the qualifying income.
- Clearing 1.00 does not mean the deal makes money. Repairs, vacancy, and management sit outside the calculation.
How Does a DSCR Loan Work on a Purchase?
A DSCR loan qualifies a rental on the property’s rent compared with its payment. DSCR stands for debt service coverage ratio. A result of 1.00 means rent equals the payment. Above 1.00, rent covers it with room to spare. Below 1.00, it does not.
DSCR Calculator
Run the numbers in your market
Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 29, 2026
Prefilled with starting assumptions — enter your own rent or nightly figures, taxes, insurance, and HOA for a more accurate picture.
Program parameters update from Lendmire’s centralized guideline source. Taxes and insurance are editable estimates.
As of Oct 29, 2026 · General Freddie Mac market benchmark, not a Lendmire loan offer. Rent, nightly rate, occupancy, taxes, and insurance are editable estimates. Short-term rental figures are estimates only and vary significantly by season, property type, management approach, and local short-term-rental rules — confirm local regulations before relying on them. Qualifying income for short-term rentals varies by program — some use appraisal market rent, others use documented STR history or projections — and is confirmed in underwriting. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
Your personal income documents are not the center of the file. The loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. Credit, reserves, and the property itself still get reviewed. You will not hand over tax returns, but you will hand over plenty of paper (more on that below).
Here is how to read the number:
| DSCR result | What it means | Typical effect |
|---|---|---|
| Below 1.00 | Rent is short of the payment | Select-lender path, adjusted terms |
| About 1.00 | Rent roughly equals payment | Where many select programs start |
| Well above 1.00 | Rent clears payment with cushion | Better pricing and leverage tend to open |
Across the wholesale network of DSCR lenders Lendmire works with, 1.00 is where many select programs start. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. Stronger ratios generally open better pricing and higher leverage. That holds in Raleigh, Durham, or anywhere else. For the full background, see Lendmire’s complete DSCR loans guide.
What Does the Lender Count as Rent?
The appraiser’s market rent estimate is the figure that matters most. For a single-family rental, the appraiser completes Form 1007, the rent schedule. For a two-to-four-unit property, the report is Form 1025, which supports rent for each unit. These are just standard appraisal forms. They do not make the loan an agency loan.
If you have a signed lease, it helps. But many programs lean on the appraiser’s market rent, and some use the lower of the lease and the market figure. A lease well above market will not carry the file. A vacant property is underwritten on the appraiser’s number alone.
The appraisal does two jobs at once:
1. It sets value, which drives LTV. If value comes in under your contract price, the loan is sized on the lower figure and you fund the gap.
2. It sets market rent, which drives coverage. A lower rent opinion pulls the ratio down.
Both numbers land after you are under contract. Plan for a miss on either one before you make an offer.
Why the Triangle Works as a Worked Example
Raleigh and Durham sit close together, yet the cost side of the ratio differs between them. Durham’s purchase prices run lower than Raleigh’s, but its rents do not fall in step. That gap is what makes screening a deal worth the effort.
For market color, Zillow’s rental data puts average Durham rent across all property types near $1,900. Different datasets measure different property mixes, so pick one definition and stay with it, because the appraiser’s rent comps are what the lender actually uses.
What Changes the Denominator on a Triangle Deal?
Taxes, insurance, and HOA dues all sit in PITIA, so each one moves your coverage number. This is where Triangle deals get decided.
Property tax. North Carolina has no single statewide property tax rate, so each county and city sets its own. A guide to Triangle tax rates shows Durham’s combined county-and-city rate running somewhat higher than Raleigh’s. So the cheaper-to-buy Durham property can carry a heavier tax line. The same guide notes an upcoming Wake County revaluation, which means a purchase underwritten on today’s tax bill could see that line change. A parcel on the Wake side of Durham is its own small case, so check the actual jurisdiction on each listing.
Landlord insurance. Rental dwelling policies are a different product from standard homeowners policies, and the two have moved differently. North Carolina’s insurance commissioner settled on an average 10% increase over two years for dwelling policies, about 5% per year. The Rate Bureau had originally asked for 68.3% over two years. The settlement is the number that applies. Averages vary by territory and rating factors, so get a real quote before you finalize your screening.
HOA dues. Townhome and condo dues count in PITIA. A modest monthly dues figure can swing a thin deal from just above 1.00 to just below it. Ask for the HOA documents early, because some associations also restrict rentals.
How Do You Buy the Rental, Step by Step?
Think of the purchase as one sequence with a few things running in parallel.
1. Pre-qualify. Share your credit profile, intended purchase price, and planned LTV. A broker can confirm which programs fit before you shop. Most programs want a credit score around 660, a 620 floor exists in parts of the network, and 700+ unlocks the strongest leverage.
2. Screen the listing before you offer. Estimate the market rent from comps. Add estimated taxes, insurance, and HOA dues to the payment. Check that rent divided by payment clears your target coverage. Then work backward: given expected rent, what is the highest price that still clears?
3. Write the offer and open the due-diligence period. Use this window for inspection, HOA documents, and an insurance quote.
4. Order the appraisal. It returns both value and rent. This is the step that can change the whole file.
5. Underwrite and clear conditions. The lender reviews credit, reserves, property, entity papers if any, and the appraisal.
6. Close and vest title. The title is held in your name or in an entity, subject to lender program eligibility.
A typical file includes the purchase contract, ID, credit authorization, the appraisal with rent schedule, an insurance quote, reserve statements, and entity documents (articles, operating agreement, EIN) if you buy through an LLC. Requirements are program-dependent. If you are a W-2 earner and your spouse is self-employed, Lendmire’s piece Can a W-2 and Self-Employed Couple Buy a Rental on a DSCR Loan? covers how that household fits.
What Does a Passing Deal Look Like Versus a Failing One?
Run the numbers on a Durham townhome with no HOA surprises. Say the appraiser’s rent comes back at a level that covers the full payment at roughly 1.25x. That sits comfortably inside the range where better terms tend to open. A reserve cushion for vacancy still matters, because the ratio ignores it.
Now picture the same townhome with HOA dues you did not know about at offer time. Dues enter the denominator and the same rent now yields something closer to 1.05x. Add a rent opinion that comes in a little under your projection, and the file slips to about 1.00x or just under it.
You have four ways to fix a short ratio:
- Put more money down. A larger down payment lowers the payment and can lift coverage. It does not erase the leverage caps, credit floors, or reserve rules.
- Negotiate the price down so the payment falls.
- Choose a property with stronger rent for its carrying costs.
- Look at a sub-1.00 path. Programs below 1.00 coverage are available through select lenders in the network, with leverage and terms adjusted. That tends to mean lower LTV, so expect more cash down.
The strongest files clear both tests: enough equity and enough rental coverage.
Where the General Rule Breaks
Some situations do not follow the standard purchase path.
Short-term rentals. The rent schedule form was not built for nightly-rate income, so these files rely on other income evidence. Select programs allow short-term-rental purchases up to 75% LTV, with refinances around 70% and cash-out at 70% for short-term-rental collateral. Expect a 640+ score and about 12 months of hosting history. Coverage floors are 1.00 on purchases and refinances. Short-term rental rules can vary by city, county, HOA, and property type, so investors should confirm local rules before relying on projected rental income. Lendmire’s piece How to Buy a Short-Term Rental When the Permit Does Not Transfer walks through that problem. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Two-to-four units. The file rides on Form 1025 and per-unit rent support. Expect the same coverage logic with more paper.
Condos and townhomes. HOA dues land in the payment, and rental caps can limit your plan.
Property types that are not offered. Manufactured homes (single- and double-wide), log homes, and barndominiums are not offered through these DSCR programs.
LLC vesting. Buying through an LLC is common, but it is not required. An LLC also does not make the loan non-recourse. Most DSCR loans carry a personal guarantee, which means you are personally on the hook.
Occupancy. DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. Federal consumer-credit rules carve out business-purpose credit, which is part of why lenders can underwrite to the property. It also means you cannot use one of these loans for a home you plan to live in.
DSCR vs. conventional financing
There are two common ways to finance an investment property, and they qualify you differently — here’s how investors weigh them.
Why investors choose it
- Qualifies on the property’s rental income — no personal tax returns, W-2s, or pay stubs needed to document income.
- No personal debt-to-income ceiling to clear, so existing mortgages and obligations don’t cap your borrowing the same way.
- Can be closed in an LLC, keeping the property inside a business entity.
- Built for scaling — not held to the limit on number of financed properties that conventional financing applies.
- Underwriting centers on the deal: generally qualifies when the rent covers the payment, a 1.00x coverage ratio being a common baseline (confirmed in underwriting).
- Designed specifically for investment property, including long-term and, where the program allows, short-term rentals.
Where it’s strong
- Often the lowest ongoing financing cost for a buyer who fully qualifies on personal income — a fit for a first property or a cost-first purchase.
Trade-offs for investors
- Requires full personal income documentation and must fit within a debt-to-income limit — salary, existing debts, and other mortgages all count.
- Typically held in your personal name rather than a business entity.
- Caps how many financed properties you can carry, which can become a ceiling as a portfolio grows.
- Evaluates you as a borrower as much as the property, which usually means more paperwork.
How investors usually choose: a first or single property often optimizes for the lowest financing cost; portfolio builders often optimize for leverage, vesting in an LLC, and scaling past conventional caps. The right answer depends on your goals, the property, and current guidelines — both paths run through select lenders in Lendmire’s wholesale network, with eligibility and terms confirmed in underwriting.
How Much Cash Do You Need?
Plan for the down payment, closing costs, and reserves. On most purchase files, LTV lands at 75%–80%, which means 20%–25% down. The calculator on this site can turn those percentages into dollars as an illustrative estimate.
Reserves are the cash left over after closing. They are commonly around 6 months of PITIA. Conservative rate-and-term refinance files at modest leverage under $1,500,000 can see reserves waived. Loans above that size typically step up to about 9 months. Reserves vary by lender, leverage, loan size, and transaction type, so treat any single number as a starting point.
Standard programs run up to $3,000,000. Above $2,500,000 the network generally holds to 30-year fixed structures. The 30-year fixed is the spine of the product. Extended terms (40-year) and interest-only periods are available through select lenders in the network, and ARM structures exist for investors who want them.
Mistakes That Cost Triangle Buyers
- Screening on the listing price and a rent guess, without a tax and insurance estimate.
- Forgetting that Durham’s higher combined tax rate can offset its lower prices.
- Treating a 1.00 coverage number as proof of positive cash flow.
- Skipping the HOA documents until after the appraisal.
- Assuming an LLC protects you personally.
- Relying on the lease rent for lender review when the appraiser’s rent figure is lower.
When Is a DSCR Loan the Wrong Tool?
If you plan to live in the property, this is the wrong loan. If your deal only works at a coverage number far below 1.00 and you want high leverage, a standard purchase file will be a poor fit. A conventional loan can suit buyers with strong documented income who want a lower payment on a long hold, though it carries its own limits on the number of financed properties and requires full income documentation. Run both paths before you commit.
After You Own It
Hold the actual numbers against your underwriting. Compare real rent, real insurance, and real tax bills to what you screened. If you later pull equity, the cash-out refinance tops out around 75% LTV across most of the network, with about 6 months of seasoning the common expectation. Seasoning is the waiting period a lender wants after you buy before you refinance. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
Key Terms Defined
DSCR: The ratio of a property’s monthly rent to its monthly payment.
PITIA: Principal, interest, taxes, insurance, and association dues, which together make up the monthly payment used in the ratio.
LTV: Loan-to-value, the loan amount as a percentage of the property’s appraised value or price.
Rent schedule: The appraiser’s estimate of market rent, completed on Form 1007 for one unit or Form 1025 for two to four units.
Reserves: Liquid cash a borrower keeps after closing, measured in months of PITIA.
Seasoning: The waiting period between buying a property and refinancing it.
Recourse: A loan where the borrower is personally liable if the property does not cover the debt.
Next Step
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. Lendmire is a broker that arranges these loans through select lenders in its wholesale network, serving 41 markets including Washington, D.C. Programs change, every file is underwritten individually, and nothing here is a commitment to lend.
Frequently Asked Questions
Do I need tax returns or pay stubs to buy a Triangle rental on a DSCR loan?
Not for qualifying income. The file qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. You still provide ID, credit authorization, reserve statements, the purchase contract, an insurance quote, and entity documents if you buy through an LLC.
How much down payment should I plan for?
Most purchase files sit at 75%–80% LTV, meaning roughly 20%–25% down. A larger down payment can lift coverage by lowering the payment. It does not override credit floors, reserve rules, or property eligibility. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
What credit score do I need?
Most programs want around 660. A 620 floor exists in parts of the network, and 700+ unlocks the strongest leverage tiers. Exact eligibility depends on the lender, the property, and the loan size.
Can I buy a short-term rental in Raleigh or Durham this way?
Yes, through select programs. Expect a 640+ score, about 12 months of hosting history, and purchase leverage up to 75% LTV. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
What if the appraiser’s rent comes in lower than the listing says?
The lower figure drives the ratio. Your options are more cash down, a lower price, a different property, or a select-lender path for coverage below 1.00 with leverage and terms adjusted. Screening conservatively before you offer is the best protection.
About Lendmire
A DSCR-focused mortgage broker, Lendmire (NMLS# 2371349) places investor financing across 41 markets — 40 states plus Washington, D.C. — with DSCR eligibility generally reviewed by the lender on property cash flow instead of tax returns, subject to lender guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Zillow Rental Manager, Durham market trends
2. Hornet Homes, Triangle property tax guide
3. Insurance Journal, North Carolina dwelling insurance settlement
4. NC Department of Insurance, dwelling policy rate request
5. CFPB, Regulation Z §1026.3, Exempt Transactions
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: DSCR Loan vs Hard Money Loan for a Rental Under 75K · DSCR vs Conventional Loan for a Former Home Turned Rental · Buying a First Rental on a DSCR Loan vs Buying a Home First
Guides: DSCR Loans in Raleigh, NC · DSCR Loans in North Carolina
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.