The Quick Read: IO ARM and fixed DSCR loans size down on a non-warrantable unit because two limits apply: the rent-based coverage test sets the payment the unit can carry, while the property type caps leverage at 75% and the loan at $1,500,000 on a purchase, subject to underwriting, so interest-only helps the ratio but never lifts the cap. The structure you pick changes the payment the ratio is tested against. The building’s status sets the ceiling that no structure can raise. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
- Interest-only lowers the tested payment, so coverage improves, but the balance does not shrink.
- Non-warrantable status caps leverage and loan size. It does not make a deal unfinanceable.
- HOA dues sit inside the coverage test and do not shrink under any structure.
- An ARM and an interest-only period are two separate payment events, and each needs its own stress test.
Key Terms Defined
DSCR (debt service coverage ratio): the property’s qualifying monthly rent divided by its full monthly obligation.
ITIA: interest, taxes, insurance and association dues, the obligation used when a loan is interest-only.
PITIA: principal, interest, taxes, insurance and association dues, the obligation used when a loan amortizes from day one.
Recast: the point where an interest-only period ends and the balance begins to amortize over the remaining term.
ARM reset: a change in the loan’s interest rate after the fixed introductory period ends, following an index.
Non-warrantable: a condo project that fails the standards for sale into the agency secondary market, a label about the building and not about the unit’s quality.
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Rate source: Freddie Mac 30-yr average via FRED® — Federal Reserve Bank of St. Louis · effective Oct 15, 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 15, 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.
What Does Non-Warrantable Actually Mean?
Non-warrantable describes the building’s financing eligibility in the agency market. It says nothing about whether the unit is a good rental. Enact lists the usual triggers: high investor or single-entity ownership, excess commercial space, pending litigation involving the association or developer, and unmet presale minimums.
GoverningDocs analyzed more than 1,900 association documents. It found the most common triggers are delinquent dues above 15%, inadequate reserve funding and high investor concentration. Failing any single project criterion makes the whole building non-warrantable. If the association fixes the problem, a lender can review the project again.
DSCR underwriting does not run on those agency standards. The project is still reviewed, and the findings still matter. Across the wholesale network, a non-warrantable condo is treated as a condo with a lower ceiling, not as an exception program. Through select programs, leverage tops out at 75% and the loan at $1,500,000, subject to underwriting.
How Does the Loan Size Get Set, Step by Step?
Four checks run in sequence, and the smallest result wins.
1. Project review. The lender looks at the building first: investor share, reserves, litigation, delinquent dues and commercial space. Those answers decide whether the unit gets the non-warrantable treatment.
2. Coverage test. Rent used for lender review is divided by the monthly obligation. At the 1.00 benchmark, rent covers the full obligation, and that earns full leverage on most files. Coverage below 1.00 is a real path through select programs, but LTV and terms adjust, subject to underwriting.
3. Leverage ladder. The ordinary ladder steps down with balance. On a purchase, it runs 80% to $1,000,000 and 75% from there to $3,000,000. On a cash-out, it runs 75% to $1,000,000 and 70% to $1,500,000.
4. Property-type cap. A non-warrantable unit is held to the lesser of the ladder and the 75% and $1,500,000 cap.
Credit and reserves ride alongside. The program floor is 660 on most files. Reserves typically run six months on the subject property, or twelve for first-time investors. On an interest-only loan, reserves are measured on ITIA.
The sequence explains why a unit “sizes down.” The coverage test can pass while the cap still trims the loan.
How Does the Rent-to-Maximum-Loan Math Work?
Work backward from rent. Start with the rent used for lender review, which is typically the lower of the lease rent or the appraiser’s market rent. Divide it by the coverage you need to find the largest obligation the unit can carry. Subtract taxes, insurance and association dues. What remains is the room for principal and interest, or for interest alone.
That last step is where the structure matters.
- On a fully amortizing loan, the remaining room must cover principal and interest. A given balance costs more per month, so the balance that fits is smaller.
- On an interest-only loan, the remaining room covers interest only. The same room supports a larger balance.
On a condo, the dues come out first. A building with high dues leaves less room for debt, whatever the structure. Interest-only cannot touch that line. This is why two units with identical rent can size very differently.
Here is the catch. A larger balance that fits the coverage test is not automatically a larger loan. The 75% leverage cap and the $1,500,000 loan cap sit above the coverage math. Once the cap binds, extra coverage room does nothing for loan size. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Fixed, IO Fixed, ARM and IO ARM Compared
The right structure depends on which number is tight: coverage, hold period or exit. The table shows the mechanics. Availability of each structure varies by lender and by file, so ask what is offered before building the model.
| Structure | Payment tested | Coverage at close | After the change | Best fit |
|---|---|---|---|---|
| Fixed, amortizing | PITIA | Lowest of the four | No change | Long hold, thin margin |
| Fixed, interest-only | ITIA | Higher | Recast at period end | Coverage-tight unit |
| ARM, amortizing | Per lender method | Varies | Rate resets | Short hold |
| IO ARM | Per lender method | Higher | Recast and reset | Short hold, firm exit |
Interest-only periods run up to 120 months on 30- and 40-year terms through the network’s portfolio program, at 75% maximum leverage, qualified on ITIA. Interest-only comes with a trade-off: no principal paydown. Bankrate calls interest-only ARMs risky and notes that you build no equity unless the property appreciates.
ARMs add a question about how the lender qualifies the file. Some lenders review the file on the starting rate. Others test a higher stress rate. On a borderline file, that choice can make the fixed loan the stronger fit. Ask how the ARM is qualified before you count on its coverage.
One Unit, Four Structures
Picture a non-warrantable condo in a building with meaningful monthly dues. The ratios below are hypothetical, built to show direction and not to describe any market. Leverage is held at 70% on a purchase, which sits under the 75% cap.
| Structure | Coverage at close | Coverage after change |
|---|---|---|
| Fixed, amortizing | About 0.98x | About 0.98x |
| Fixed, interest-only | About 1.15x | About 0.98x after recast |
| ARM, amortizing | About 1.04x | Moves with the index |
| IO ARM | About 1.20x | Two events, both can pull it down |
The fixed amortizing loan lands just under 1.00x. Select programs review below-1.00 files, but LTV and terms adjust, subject to underwriting. The interest-only fixed loan clears comfortably at close. Its coverage returns to the amortizing level once the recast happens, because the balance has not shrunk.
Now raise the dues. Every row slides down together, because dues sit in all four denominators. Interest-only improves coverage, but only on the interest line. It does nothing to the dues line.
Which Constraint Binds First?
On a non-warrantable unit, one constraint usually sets the loan before the others do. The table shows the order to check.
| Constraint | What it limits | Typical binding case |
|---|---|---|
| Project review | Whether the file proceeds | Litigation, thin reserves |
| Coverage test | Payment the rent can carry | High dues, modest rent |
| Leverage cap | 75% of value | Strong rent, high price |
| Loan-amount cap | $1,500,000 | Luxury unit |
| Reserves | Cash held after closing | First-time investor |
For a modest unit with high dues, coverage binds first. Interest-only is the lever that helps. For a luxury unit with strong rent, the loan cap binds first, and interest-only does nothing. A unit priced well above $2,000,000 cannot fit under the $1,500,000 cap at ordinary leverage, so the buyer brings more equity than the 25% the percentage cap implies.
Two appraisals are required above $2,000,000. A non-warrantable loan stays under the cap, so that requirement does not apply to it.
What Happens at the Recast and the Reset?
The two events in an IO ARM are separate, and each needs a stress test.
The recast. When the interest-only period ends, the payment rises even if nothing else moves. The CFPB handbook on adjustable-rate mortgages says a longer interest-only period means a bigger increase, because the same balance amortizes over fewer remaining years. On a 30-year term with a 120-month interest-only period, the balance amortizes over the remaining 20 years.
The reset. An ARM’s interest rate follows an index once the introductory period ends. The CFPB’s key terms glossary lists 3, 5, 7 and 10 years as the common fixed periods, with annual adjustment the most common after that.
Run the stress test in order:
1. Recompute coverage after the recast, holding the rate flat.
2. Recompute again with a higher rate and the same balance.
3. Add any increase in dues or insurance.
4. Ask whether the unit still covers its obligation at the end.
A unit that clears at close and fails the stress test relies on a sale or refinance to stay solvent. That is a plan, but it should be a plan on purpose.
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.
Choosing by Hold Period and Exit
A long hold favors a fixed loan, with an interest-only period only if coverage needs it. The payment is known, and there is no reset to manage. A short hold with a firm exit can justify an ARM or interest-only, because the investor leaves before the payment steps up.
Non-warrantable units complicate the exit. The buyer pool is narrower, because the next buyer faces the same financing limits. The CFPB handbook warns against assuming a sale or refinance will be available before the payment steps up. On a non-warrantable unit, that warning carries more weight.
Prepayment terms matter too. If a prepayment structure runs longer than the introductory period, an early sale costs more. Match the two before choosing.
Here is a way to think about it. If the unit works only on interest-only coverage, ask what the exit looks like if you cannot sell. If the answer is “refinance into something similar,” confirm the next lender will do the same.
For more on how these structures compare at the top of the size ladder, see Lendmire’s piece How to Pick IO ARM or Fixed for a Blanket Super Jumbo DSCR Loan.
Where the General Rule Breaks
The pattern above holds on most files. These cases bend it.
- Litigation is not treated the same everywhere. Some lenders in the network look at what the dispute is about. Routine association matters read differently from structural or safety claims.
- Status can change mid-transaction. A building can slip into non-warrantable status when litigation or reserve funding changes. Get the questionnaire answers early.
- Condotels are a separate category. Hotel-like operations are handled apart from ordinary condos. Through select programs, condotels run to 75% on a purchase and 65% on a refinance, with a $1,500,000 cap and $250,000 cash-in-hand, subject to underwriting.
- Short-term rentals add a layer. A short-term rental on a non-warrantable unit needs the association and the municipality to allow it. Rules are set locally and change, so permission is documented for the specific property. Short-term-rental files also require coverage of 1.00 or higher and an experienced investor, and they run to $2,000,000 at most.
- Qualification methods differ. Lenders in the network test interest-only coverage differently, and some stress the ARM rate. A file that fails at one program can pass at another.
Interest-only and ARM structures change the ratio, not the leverage or loan-size ceiling. That is the rule that holds when the others bend.
A Checklist Before You Make an Offer
1. Ask the association for the project questionnaire and read the litigation, reserve and investor-concentration answers. 2. Confirm the dues and any pending special assessments. 3. Confirm short-term-rental rights if the plan depends on them. 4. Run coverage on the fully amortizing payment and the interest-only payment. 5. Compare the loan you need with the $1,500,000 cap and the 75% leverage cap. 6. Stress the recast and, for an ARM, the reset. 7. Write down the exit and confirm it still works with a narrow buyer pool. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
The complete DSCR loans guide covers the baseline program mechanics behind each step.
Frequently Asked Questions
Can a non-warrantable condo get a DSCR loan?
Yes, through select programs in the wholesale network. The label blocks agency financing, not DSCR underwriting. Leverage typically tops out at 75% and the loan at $1,500,000, subject to underwriting and the building’s project review.
Does interest-only let me borrow more on a non-warrantable unit?
It improves the coverage ratio, but it does not lift the leverage cap or the loan cap. If coverage is your binding limit, interest-only can help. If the cap binds first, it will not change the loan size.
Do HOA dues count in the coverage test?
Yes. Dues sit in the monthly obligation on both fully amortizing and interest-only loans. High dues reduce the room for debt on any structure.
Is an ARM tested at the same coverage as a fixed loan?
Not always. Some lenders qualify an ARM on the note rate, and others test a higher stress rate. Ask how the file is qualified before relying on the ratio.
What credit and reserves does a non-warrantable condo need?
The program floor is typically 660, and reserves run about six months on the subject property, or twelve for first-time investors. On interest-only loans, reserves are measured on ITIA.
Next Step
If you are buying or refinancing a high-balance rental property and want to see how the numbers work, Lendmire can help you compare super jumbo DSCR loan options based on the property income, the loan balance, credit profile, leverage, and investor goals. As a mortgage broker, Lendmire arranges business-purpose financing through select lenders in its wholesale network across 41 markets, including Washington, D.C., and every program is subject to underwriting and is not a commitment to lend. Reach the team at 828-256-2183 or through the quote page.
For current guidelines and terms, see Lendmire’s super jumbo DSCR loan programs page.
Lendmire’s self-employed mortgages page presents both super jumbo programs, bank statement and DSCR, side by side.
About Lendmire
Lendmire (NMLS# 2371349), a non-QM mortgage broker serving investors in 41 markets including Washington, D.C., helps structure DSCR scenarios commonly evaluated around a property’s rental income rather than personal income paperwork, subject to lender guidelines. A Scotsman Guide Top Mortgage Workplace in 2025 and 2026, Lendmire places loans through wholesale investor lenders and is not a direct lender.
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References
1. Enact, What Makes a Condominium Non-Warrantable
2. GoverningDocs, Non-Warrantable Condo: What It Means
3. Bankrate, Basics of Adjustable-Rate Mortgages
4. CFPB, Consumer Handbook on Adjustable-Rate Mortgages
This article is part of Lendmire’s super jumbo DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can One DSCR Lender Finance Four Units in a Condotel Tower? · How Much Down Payment Does a Large-Balance DSCR Loan Need? · Super Jumbo DSCR IO ARM vs Fixed After an SBLOC Payoff
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.