I’m Michael DiVita (DRE #01372066 | NMLS #241655), DiVita Home Finance (DRE #01818285 | NMLS #323700), Tiburon, CA. I’ve been in California mortgage lending since 2000 and founded DiVita Home Finance in 2007. When the bank says no, I find a way. Call (800) 239-1103. Closed October 2026.
The short answer: my clients bought a $1.6 million four-unit property in Los Angeles with 20% down on a DSCR loan, a 30-year fixed at 7.5% with the first 10 years interest-only. The four units rent for $11,000 a month, more than the full $10,265 payment including taxes and insurance, so the lender approved the loan on the property’s rents without underwriting the borrowers’ income. Title closed in their LLC, and the paperwork was minor.
The Numbers
| Item | Amount |
|---|---|
| Purchase price | $1,600,000 (four units, Los Angeles) |
| Down payment | 20% ($320,000) |
| Loan amount | $1,280,000 |
| Loan | DSCR, 30-year fixed at 7.5%, first 10 years interest-only |
| Interest-only payment | $8,000 a month |
| Property taxes | $1,665 a month |
| Insurance | $600 a month |
| Total payment (PITI) | $10,265 a month |
| Rents, all four units | $11,000 a month |
| DSCR | About 1.07 ($11,000 ÷ $10,265) |
How a DSCR Loan Approves the Property, Not the Borrower
DSCR stands for debt service coverage ratio. The lender doesn’t care about your tax returns or your debt-to-income ratio. They ask one question: do the rents cover the payment? Here the rents came in at $11,000 and the full payment, principal, interest, taxes and insurance, was $10,265. Since the rent was more than the actual PITI, this loan was approved without ever underwriting the borrowers’ income. The rents covered the debt service and this deal worked.
And we were able to use the interest-only payment to qualify the debt service. That’s what made the ratio work. Some lenders qualify interest-only DSCR loans on the fully amortizing payment instead, which would have been about $8,950 here, so lender choice matters.
Prepayment Penalties: The Trade-Off for a Better Rate
Here’s the thing with these. Unlike owner-occupied deals, lenders are allowed to throw in prepayment penalties on investment property, and most DSCR loans have one. The range:
- Low end: no prepayment penalty, or one year. Expect a higher rate.
- High end: up to five years, in return for a lower rate.
My clients chose a three-year prepayment penalty, a middle ground between rate and flexibility. If you think you’ll sell or refinance soon, pay for a shorter penalty. If you’re holding long term, a longer one can buy you a better rate.
Why Seasoned Investors Like DSCR Loans
I have self-employed investor buyers who could qualify going traditional underwriting, with tax returns and full income docs. But a lot of them like the ease of just qualifying the property, especially seasoned investors with dozens of properties. Full doc means every return, every lease and every mortgage statement on every property. It’s a paperwork nightmare.
DSCR lenders still check credit, the down payment and reserves, and they order an appraisal with a rent analysis. They just don’t ask for your personal income.
Closing in an LLC
Lastly, unlike some traditional lenders, you can close title in the name of your LLC. That’s great for an investor looking for a legal way to control liability from tenants. Talk to your attorney about how to set up the entity. See mortgages for LLCs and trusts.
One Thing to Plan For: Year 11
Interest-only for 10 years keeps the payment low, but it doesn’t last forever. When the interest-only period ends, the loan amortizes over the remaining 20 years, and principal and interest on $1,280,000 at 7.5% would be about $10,312 a month instead of $8,000. Investors plan for that with rent growth over the decade, a refinance or a sale. With a three-year prepayment penalty, they have plenty of room to do any of those.
What I Tell Investors Looking at DSCR Loans
- Run the ratio first. Rents divided by the full payment, including taxes and insurance. At 1.0 or higher, many lenders will look at it.
- Ask how the lender qualifies interest-only loans. The interest-only payment or the amortizing one can make or break the deal.
- Pick your prepayment penalty on purpose, based on how long you’ll really hold the property.
- Set up your LLC before you’re in contract.
One more note on size: four units is the most a property can have and still be financed as residential. Five or more units moves into commercial lending, with different terms.
This was an easy file to close, with minor paperwork. For an investor, that’s the point.
About this case study: I closed this loan myself in October 2026. The figures come from the actual file. The borrowers’ names and the property address are withheld for privacy. Terms like rate, interest-only period and prepayment penalty vary by lender, credit, down payment and property, so treat these numbers as an example, not a quote.
Frequently Asked Questions
Can I get a DSCR loan without showing income?
Yes. A DSCR loan qualifies on whether the property’s rents cover the payment, including taxes and insurance, rather than on your tax returns or debt-to-income ratio. Lenders still check credit, down payment, reserves and the appraisal.
Can a DSCR loan be interest-only?
Yes. On this file, a 30-year fixed at 7.5% had 10 years of interest-only payments, and the lender qualified the loan on the interest-only payment. Some lenders qualify on the fully amortizing payment instead, so ask.
Do DSCR loans have prepayment penalties?
Most do, because investment property loans are allowed to carry them. Options typically range from none or one year, at a higher rate, up to five years in return for a lower rate. These borrowers chose three years.
Can I close a DSCR loan in an LLC?
Yes. DSCR lenders generally allow title in the name of your LLC, which many investors use to help separate a rental property and its tenants from their personal assets. Talk to an attorney about the entity.
What DSCR do I need to qualify?
Many programs look for 1.0 or higher, meaning rents cover the full payment. This fourplex came in at about 1.07: $11,000 in rents against a $10,265 payment.
Related Resources
- DSCR Loans in California for Real Estate Investors
- Mortgages for LLCs and Trusts in California
- Non-QM Mortgages in California
- Self-Employed Mortgages in California
- Commercial Real Estate Loans in California
- DSCR Loans for Short-Term Rentals
Talk to Michael Directly
DiVita Home Finance | Tiburon, CA | In lending since 2000, founded DiVita Home Finance in 2007. Michael DiVita DRE #01372066 | NMLS #241655. Company DRE #01818285 | NMLS #323700.
💬 Text: (310) 849-9124
