DSCR Loan Requirements California 2024: What You Need to Know
Complete California DSCR Loan Guide
Explore our comprehensive guide covering all California markets, requirements, FAQs, and neighborhood analyses for LA, San Diego, San Francisco, Orange County, and Sacramento.
View Complete CA GuideDSCR loan requirements in California have evolved significantly in 2024, offering more flexibility for real estate investors while maintaining prudent lending standards. Whether you're a seasoned investor or making your first investment property purchase, understanding these requirements is crucial for securing the best financing terms.
2024 Key Changes
- • Minimum DSCR ratios now start at 0.75 (down from 1.0)
- • Credit score requirements relaxed to 620 minimum
- • New "no-ratio" programs for strong borrowers
- • Expanded property types including STRs and mixed-use
Core DSCR Loan Requirements for 2024
DSCR Ratios
- 1.25+: Best rates, all lenders
- 1.0-1.24: Standard rates
- 0.75-0.99: Higher rates, larger down
Credit Scores
- 740+: Premium pricing tier
- 680-739: Standard pricing
- 620-679: Available with conditions
Down Payment
- 20%: DSCR 1.25+ only
- 25%: DSCR 1.0-1.24
- 30-40%: DSCR below 1.0
Property Requirements & Eligible Types
Eligible Properties
- ✓ Single-family homes (SFR)
- ✓ 2-4 unit properties
- ✓ Condos (warrantable)
- ✓ Townhomes
- ✓ Short-term rentals (Airbnb/VRBO)
- ✓ Mixed-use (residential portion)
- ✓ Non-warrantable condos (select lenders)
Property Conditions
- • Must be investment/rental property
- • No owner-occupancy allowed
- • Property must be rentable condition
- • Clear title required
- • Maximum 10 properties per borrower
- • Located in California
- • Minimum value $150,000
New for 2024: Expanded Property Types
California DSCR lenders now accept a wider range of property types:
- • Rural properties: Up to 10 acres with residential use
- • Luxury STRs: Properties over $2M with proven rental history
- • Student housing: Near major California universities
- • Accessory Dwelling Units (ADUs): When included with main property
Documentation Requirements (Simplified for 2024)
Required Documents
- ✓ Government-issued ID
- ✓ Credit authorization
- ✓ Purchase contract or refi application
- ✓ Rent roll or lease agreements
- ✓ 2 months bank statements
- ✓ Property insurance quote
- ✓ Entity docs (if applicable)
- ✓ HOA docs (if applicable)
NOT Required
- ✗ Tax returns
- ✗ W-2s or pay stubs
- ✗ Employment verification
- ✗ Personal income docs
- ✗ DTI calculations
- ✗ Business financials
Pro Tip: Having digital copies of all documents ready can reduce your approval time from 48 hours to as little as 24 hours. Most lenders now accept DocuSign and digital submissions.
2024 Loan Terms & Limits in California
| Loan Feature | 2024 Terms |
|---|---|
| Minimum Loan Amount | $150,000 |
| Maximum Loan Amount | $5,000,000 (up to $10M for portfolio loans) |
| Loan Terms | 30-year fixed, 5/1 ARM, 7/1 ARM, 10/1 ARM |
| Interest-Only Options | Available for 10 years on ARMs |
| Prepayment Penalties | 0-5 years (varies by lender) |
| Cash-Out Refinance | Up to 75% LTV |
| Rate Buy-Downs | Available (typically 0.25% per point) |
Current Interest Rates (September 2024)
30-Year Fixed
- • DSCR 1.25+: 6.99% - 7.49%
- • DSCR 1.0-1.24: 7.49% - 7.99%
- • DSCR 0.75-0.99: 8.49% - 9.49%
5/1 ARM (Interest-Only)
- • DSCR 1.25+: 6.49% - 6.99%
- • DSCR 1.0-1.24: 6.99% - 7.49%
- • DSCR 0.75-0.99: 7.99% - 8.99%
Reserve Requirements by Scenario
DSCR 1.25+ with 740+ Credit
3 months PITIA reserves required. Can include retirement accounts at 70% value.
DSCR 1.0-1.24 or 680-739 Credit
6 months PITIA reserves required. Must be liquid (checking, savings, money market).
DSCR Below 1.0 or Credit Below 680
12 months PITIA reserves required. Additional 6 months for each additional property owned.
Special DSCR Programs for California Investors
Portfolio Blanket Loans
Finance multiple properties under one loan with better terms:
- • Minimum 5 properties
- • Up to $10M total financing
- • Single monthly payment
- • Cross-collateralization benefits
- • 0.25-0.5% rate reduction
Bridge-to-DSCR Programs
Perfect for fix-and-hold investors:
- • 12-month bridge loan for rehab
- • Automatic conversion to DSCR
- • No new application needed
- • Rate lock protection
- • Up to 90% of purchase + rehab
Common Mistakes to Avoid in 2024
1. Overestimating Rental Income
Lenders use the LOWER of actual rents or appraiser's market rent opinion. Don't assume your above-market rents will qualify—prepare for potential adjustments.
2. Ignoring Prepayment Penalties
Most DSCR loans have 3-5 year prepayment penalties. Factor this into your investment strategy, especially if you plan to sell or refinance soon.
3. Not Shopping Multiple Lenders
DSCR rates vary significantly between lenders—sometimes by 1% or more. Get quotes from at least 3-4 lenders to ensure competitive pricing.
4. Forgetting About Reserves
Reserve requirements are strictly enforced. Ensure you have sufficient liquid funds AFTER closing costs and down payment.
Frequently Asked Questions
What's the minimum credit score for a DSCR loan in California?
The absolute minimum is 620, but you'll get much better terms with 680+. Borrowers with 740+ credit scores typically save 0.5-1% on their interest rate and may qualify for only 20% down even with lower DSCR ratios.
Can I get a DSCR loan for a property that needs renovation?
Yes, through DSCR rehab loans or bridge-to-DSCR programs. These allow you to finance purchase plus renovation costs, then either refinance or automatically convert to a long-term DSCR loan after repairs are complete.
How many DSCR loans can I have in California?
There's no strict limit on DSCR loans like there is with conventional mortgages. Most lenders allow up to 10 properties per borrower, but some portfolio lenders have no limit as long as each property meets DSCR requirements.
Do DSCR loans require mortgage insurance?
No, DSCR loans don't require PMI regardless of down payment amount. This is a significant advantage over conventional loans, especially when putting down less than 20%.
What happens if my property's DSCR drops after closing?
Nothing—once your loan closes, the DSCR ratio is locked in. Lenders don't monitor or reassess DSCR after closing. However, maintaining positive cash flow is important for your investment success.
Can I use future rent increases in my DSCR calculation?
No, lenders only use current market rents or existing lease agreements. However, if you have a signed lease showing a future rent increase within 60 days of closing, some lenders may consider it.
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