A DSCR loan qualifies a rental on the rent it brings in, not on your tax returns, which makes it popular with Valley investors who are self employed or already own several properties. The catch in the Phoenix area is that HOA dues and community district charges on newer homes eat into the ratio quickly. This guide explains how lenders calculate the ratio, runs the numbers on three typical Valley rentals and covers the Maricopa County rules every landlord needs to follow.
Quick answer
DSCR, or debt service coverage ratio, is the monthly rent divided by the full payment: principal, interest, property taxes, insurance and HOA dues. Many lenders want 1.0 or higher for standard terms, and some go lower with a bigger down payment. DSCR loans are business purpose loans for rentals, can close in an LLC, usually need 20% to 25% down and cost more than a conventional loan. At an illustrative 7.75% rate with 25% down, typical Phoenix area rentals land around 0.85 to 0.89, so most investors need more down, an interest only period or a property without heavy HOA and district charges to reach 1.0.
How does a DSCR loan work?
A DSCR loan is a non QM mortgage made for a business purpose: buying or refinancing a property you will rent out. Instead of calculating your personal debt to income ratio, the lender compares the property’s rent with its full monthly payment, often called PITIA:
DSCR = monthly rent ÷ (principal + interest + taxes + insurance + association dues)
The rent usually comes from the appraiser’s rent schedule, a separate report that compares your property with similar rentals nearby. If the home already has a tenant, many lenders use the lower of the lease and the appraiser’s estimate, though each lender sets its own rule. Because there are no tax returns or pay stubs to review, DSCR loans suit investors whose returns show little income after depreciation and other write offs.
How do the numbers work on Phoenix area rentals?
These three hypothetical rentals use a 7.75% illustrative rate on a 30 year fixed loan with 25% down. Rents sit close to HUD’s fiscal year 2027 fair market rents for the Phoenix area, which include utilities, so check actual rents in the ZIP code. Property taxes are estimated at 0.7% of the price a year, or 0.9% for the new build to cover its district charge. Insurance and HOA dues are estimates too, and your actual figures will differ.
| Example | Price | Rent | Taxes, insurance and HOA a month | Principal and interest | Full payment | DSCR |
|---|---|---|---|---|---|---|
| West Valley new build, four bedrooms, in a community with an HOA and a CFD | $440,000 | $2,500 | $580 ($330 tax, $140 insurance, $110 HOA) | $2,364 | $2,944 | 0.85 |
| Glendale resale, three bedrooms, no HOA | $400,000 | $2,250 | $368 ($233 tax, $135 insurance) | $2,149 | $2,517 | 0.89 |
| Phoenix condo, two bedrooms | $285,000 | $1,750 | $526 ($166 tax, $60 insurance, $300 HOA) | $1,531 | $2,057 | 0.85 |
A few patterns stand out:
- Charges beyond the mortgage add up. In this example, the new build’s HOA and the extra tax from its community facilities district add about $180 a month, and the condo’s $300 HOA alone takes up about 17% of its rent.
- More down closes the gap. With 35% down, the Glendale house reaches 1.01 and the West Valley new build reaches 0.95.
- Interest only helps. With an interest only period and 25% down, the Glendale house improves to about 0.98 and the new build to about 0.92.
Tip: On a new build, look up the parcel’s tax bill and the community’s HOA budget before you write an offer. A CFD charge shows up in the special district section of the Maricopa County tax bill and can change your ratio more than a small difference in price.
What do DSCR lenders typically require?
Every lender writes its own guidelines, but these are common in 2026:
- Down payment: 20% to 25% on a purchase, and more when the ratio is under 1.0.
- Credit score: usually from the mid 600s, with better pricing at 720 and above.
- Reserves: several months of the full payment in the bank after closing, and more if you own several financed rentals.
- Borrower: you or your LLC, usually with a personal guarantee. You cannot live in the property.
- Property: single family homes, townhomes, condos and two to four unit buildings. Some lenders also finance short term rentals using a rental history or a market data report.
Dave’s page on DSCR loans in Arizona covers the program options he offers, and his investment property financing page compares other ways to buy a rental.
What rules apply to rental owners in Maricopa County?
| Rule | What it means for you |
|---|---|
| Rental registration | Arizona requires owners to register residential rentals, including short term rentals, with the county assessor. The Maricopa County Assessor handles it online. Out of state owners need an Arizona statutory agent, and fines can follow if you fail to register after notice. |
| Property tax | A rental does not get the homeowner rebate of up to $600 a year that owner occupied homes receive, so expect a higher tax bill than the owner next door. |
| Tax on long term rent | Since January 1, 2025, Arizona cities cannot charge transaction privilege tax on residential rentals, and there is no state or county tax on them. |
| Short term rentals | Stays under 30 days owe transient lodging tax, about 7.27% at the state and county level in Maricopa County plus any city tax, and you need a TPT license. Platforms usually collect it, but you remain responsible. |
| City permits | Cities can require a short term rental permit, an emergency contact, notice to neighbors and $500,000 of liability coverage. Phoenix charges $250 a year for its permit. |
Should you use a DSCR loan or a conventional investment loan?
| Question | Conventional investment loan | DSCR loan |
|---|---|---|
| What gets you approved? | Your income and debt to income ratio, with 75% of the market rent counted | The property’s rent compared with its payment |
| Minimum down on one unit | 15% | Usually 20% to 25% |
| Seller credits allowed | Up to 2% of the price | Set by each lender |
| How many financed properties | Up to 10 with Fannie Mae | Set by each lender, often no fixed cap |
| Can you close in an LLC? | No | Yes, usually with a personal guarantee |
| Rate | Lower | Higher |
If your tax returns support the payment, a conventional loan is usually the cheaper money. A DSCR loan earns its higher rate when your returns show little income, when you want the property in an LLC or when you have reached the conventional limit on financed properties. Dave’s self employed guide shows how lenders read business returns, and his conventional loan guide covers investment property rules.
Running numbers on a rental?
Send Dave the address and rent, and he can estimate the ratio and compare DSCR and conventional pricing.
What should you know about prepayment penalties?
Federal limits on prepayment penalties protect consumer loans on a home you live in, but a business purpose rental loan falls outside them, and Arizona has no general cap of its own. Many DSCR loans carry a penalty that steps down over three to five years, and choosing a shorter penalty or none usually costs a higher rate. Match the penalty to how long you expect to hold the property, especially if you might sell, refinance or do a 1031 exchange within a few years.
What is a step by step plan for financing a rental?
- Screen the property. Pull rent comparisons, the tax bill with any special district charge, the HOA dues and an insurance quote before you write an offer.
- Calculate the ratio at a realistic rate. Use a rent a little below the top of the range, since the appraiser’s estimate decides the approval.
- Set up your LLC first. If you will buy in an LLC, form it and get its documents ready before you apply.
- Get preapproved. Confirm the down payment, reserves, minimum ratio and prepayment options for your scenario.
- Order the appraisal with a rent schedule. Review the appraiser’s rent estimate as soon as it comes in.
- Close and register. Register the rental with the Maricopa County Assessor, and get a TPT license and city permit if you will rent short term.
Frequently asked questions
Do HOA dues count in a DSCR calculation?
Yes. The payment in the ratio includes principal, interest, property taxes, insurance and any HOA dues, so a high HOA can lower the ratio as much as a higher price does.
Can I use a DSCR loan on a new build in Buckeye or Goodyear?
Yes, as long as the home will be a rental. Include the HOA dues and any community facilities district charge on the tax bill in your numbers, since both count in the payment.
Do I have to register my rental in Maricopa County?
Yes. Arizona requires owners to register residential rentals, including short term rentals, with the county assessor, and the Maricopa County Assessor offers online registration.
What DSCR do lenders want for a Phoenix rental?
Many lenders look for 1.0 or higher for standard terms, with better pricing at 1.25 and above. Some accept ratios below 1.0 with a larger down payment, more reserves and a higher rate.
Can I buy a Phoenix rental in an LLC with a DSCR loan?
Yes. Most DSCR lenders will close in an LLC, usually with a personal guarantee from the members, which a conventional loan does not allow.
David Martel
Mortgage Loan Originator with Barrett Financial Group, known online as Dave The Mortgage Guy. With access to more than 100 lenders, he helps Phoenix area buyers, self employed borrowers and investors find the right loan.
NMLS #2521668 | Company NMLS #181106
Based in Arizona. Current state licenses are listed on NMLS Consumer Access.
Found a rental in the Valley?
Check the ratio before you make an offer.
Dave Martel can estimate the ratio on a specific property, include the HOA and any district charges, and show the down payment and loan structure that make the numbers work.
Sources and official resources
- CFPB: Regulation Z official interpretation of business purpose credit, section 1026.3
- eCFR: Ability to repay and prepayment penalties, 12 CFR 1026.43
- Fannie Mae: Eligibility Matrix
- Fannie Mae Selling Guide: Rental income from the subject property
- Fannie Mae Selling Guide: Multiple financed properties
- Fannie Mae Selling Guide: Interested party contributions
- HUD User: FY2027 Fair Market Rents
- Phoenix REALTORS: Monthly Indicators, August 2026
- Arizona Revised Statutes: Residential rental property registration
- Maricopa County Assessor: Rental registration questions
- Arizona Department of Revenue: Residential rental guidelines
- Arizona Department of Revenue: Short term lodging
- Arizona Revised Statutes: Limits on short term rental regulation
- City of Phoenix: Short term rental registry
- City of Buckeye: Community Facilities Districts
Information checked October 5, 2026. Rates, loan limits, program rules and assistance funding change, so confirm current terms before you rely on them.
This article is for general education only and is not a loan offer, commitment to lend, or tax or legal advice. Rates, terms, fees and programs vary by lender and are subject to change without notice. All loans are subject to credit approval, underwriting guidelines and property eligibility. Examples are illustrations, not quotes. Down payment assistance is subject to program funding, eligibility and participating lender rules. Dave The Mortgage Guy is powered by Barrett Financial Group, L.L.C., NMLS #181106, 2701 East Insight Way, Suite 150, Chandler, AZ 85286, Arizona license #0904774. David Martel, Mortgage Loan Originator, NMLS #2521668 (NMLS Consumer Access). Dave The Mortgage Guy and Barrett Financial Group are not affiliated with any government agency, including HUD, FHA and the VA. Equal Housing Opportunity.
