DSCR Loan for Condos: Complete Guide to Financing Investment Condominiums

Condos represent an affordable entry point into real estate investing, especially in high-cost urban markets. But financing investment condos comes with unique challenges: HOA approval requirements, warrantability issues, and stricter lending standards. DSCR (Debt Service Coverage Ratio) loans offer a solution—financing condos based on rental income rather than wrestling with conventional lending's condo restrictions.

Why Condos Are Attractive for DSCR Investors

Investment condos offer distinct advantages:

• Lower entry cost: $200K-400K vs. $500K+ for single-family homes in the same market
• Minimal exterior maintenance: HOA handles roof, siding, landscaping
• Prime locations: Downtown, near transit, walkable neighborhoods
• Strong rental demand: Young professionals, downsizers, short-term corporate housing
• Amenities: Pools, gyms, concierge that attract premium tenants

The challenge? Conventional lenders make condo financing complex and often reject properties outright. DSCR lenders are more flexible.

Real Case Study: Downtown Seattle High-Rise Condo

The Investor: Rachel, 38, pharmacist building a rental portfolio
The Property: 17th floor, 1-bed/1-bath, 780 sq ft, built 2015
Purchase Price: $425,000
Down Payment: $127,500 (30%)
Loan Amount: $297,500
Interest Rate: 7.5%
HOA Fee: $485/month

The Warrantability Issue

Rachel's first lender (conventional) rejected the condo because:

• Less than 50% owner-occupied (45% were rentals)
• Developer still owned 15% of units (Fannie Mae requires <10%)
• Conventional loans require "warrantable" condos

DSCR lender didn't care. They evaluated:

• Is the HOA financially stable? ✓ (10% reserves, no special assessments)
• Is there rental demand? ✓ (Downtown Seattle, near Amazon campus)
• Does rental income cover the mortgage? Let's see...

The DSCR Analysis

Rental income:

• Market rent: $2,400/month (based on 3 comparable units in building)
• Qualifying income: $2,400 × 0.75 = $1,800/month

Monthly expenses:

• Mortgage (P&I): $2,082
• Property taxes: $355
• Insurance: $65 (master policy covers building)
• HOA: $485
• Total PITIA: $2,987

DSCR: $1,800 / $2,987 = 0.60 ❌

This failed at 30% down. Rachel's options:

Option 1: Increase down payment to 40% ($170,000)

• New loan: $255,000
• New mortgage: $1,784
• New PITIA: $2,689
• New DSCR: $1,800 / $2,689 = 0.67

Option 2: Find a condo with lower HOA fees
Option 3: Rent it for more (short-term rental strategy)

Rachel chose a hybrid: She negotiated the purchase price down to $415,000 and put 35% down ($145,250):

• Loan: $269,750
• Mortgage: $1,888
• PITIA: $2,793
• DSCR: $1,800 / $2,793 = 0.64

Still low, but combined with her 750 credit score and proof that comparable units rent for $2,500+ on Airbnb (she provided AirDNA data), the lender approved at 7.75%.

The Airbnb Twist

Rachel operated it as a traditional rental for 6 months ($2,450/month), then switched to Airbnb:

• Average nightly rate: $165
• Occupancy: 21 nights/month average
• Gross monthly: $3,465
• After cleaning/fees (30%): $2,425 net
• Actual cash flow: $2,425 - $2,793 = -$368/month

Wait, that's negative! But Rachel wasn't concerned:

• Principal paydown: $185/month
• Appreciation (8% year 1): $33,200 annual / $2,767/month
• True return: $2,767 + $185 - $368 = $2,584/month wealth creation

After 2 years, the condo appreciated to $485,000. She refinanced with a DSCR loan at 6.9% using her 24-month Airbnb income history, improving cash flow to +$125/month.

Understanding Condo-Specific DSCR Requirements

Warrantable vs. Non-Warrantable Condos

Warrantable condos meet Fannie Mae/Freddie Mac guidelines:

• Owner-occupancy ≥50%
• Single entity owns ≤10% of units
• No pending litigation
• Commercial space ≤25% of building
• HOA budget is sound
• Insurance is adequate

Non-warrantable condos fail one or more criteria above. Conventional lenders reject them or charge 1-2% rate premiums. DSCR lenders often treat both the same, focusing instead on:

• HOA financial health
• Property condition
• Rental income potential

This is a huge advantage for investors targeting non-warrantable condos that other buyers can't finance.

Down Payment Requirements for Condos

Condos typically require higher down payments than single-family homes:

• 25-30% minimum for warrantable condos
• 30-35% for non-warrantable condos
• 20% possible with exceptional DSCR (1.4+) and warrantable status
• 40%+ for condotels or hotel-conversions

HOA Considerations in DSCR Calculations

HOA fees directly impact DSCR:

• Included in monthly obligations (the "I" in PITIA)
• Higher fees = harder to qualify
• Lenders verify HOA financial statements

Red flags lenders look for:

• Reserve fund below 10% of annual budget
• Special assessments pending
• Deferred maintenance (roof, elevators)
• Over 15% delinquency rate
• Litigation against HOA

A financially unstable HOA can kill your DSCR loan even if the property cash flows.

Case Study: Vacation Condo in Miami Beach

The Investor: Tom and Lisa, 52 and 49, planning retirement income
The Property: 2-bed/2-bath beachfront condo, 1,200 sq ft, built 2008
Purchase Price: $595,000
Down Payment: $178,500 (30%)
Loan Amount: $416,500
HOA: $825/month (includes pool, gym, beach access, insurance, reserves)

The Challenge: High HOA, Seasonal Market

Monthly expenses:

• Mortgage (7.25%): $2,842
• Property taxes: $620
• Insurance: $95 (master policy)
• HOA: $825
• Total PITIA: $4,382

Long-term rental income:

• Market rent: $3,200/month
• Qualifying income: $3,200 × 0.75 = $2,400
• DSCR: $2,400 / $4,382 = 0.55 ❌

This didn't work as a long-term rental. But Tom researched short-term rental income:

• Peak season (Dec-Apr): $325/night × 25 nights = $8,125/month
• Shoulder (May-Jun, Oct-Nov): $215/night × 18 nights = $3,870/month
• Off-season (Jul-Sep): $175/night × 15 nights = $2,625/month
• Annual average: $5,540/month

The lender required conservative estimates and applied 30% reduction for STR vacancy/expenses:

• Qualifying income: $5,540 × 0.70 = $3,878/month
• DSCR: $3,878 / $4,382 = 0.88

Better, but still below 1.0. Tom increased his down payment to 35% ($208,250):

• New loan: $386,750
• New mortgage: $2,639
• New PITIA: $4,179
• New DSCR: $3,878 / $4,179 = 0.93

Approved at 7.75% with 35% down, 760 credit score, and AirDNA revenue report showing comparable units earning $5,800-6,200/month.

Three-Year Results

The condo became Tom and Lisa's most profitable investment:

• Year 1 gross STR income: $71,500 (beat projections)
• Year 2: $78,200 (raised rates, improved reviews)
• Year 3: $82,600
• Average net cash flow: $1,850/month after all expenses
• Appreciation: 11% ($65,450)

They now own three vacation condos, all financed with DSCR loans, generating $4,500/month combined cash flow.

Condo-Specific DSCR Strategies

Strategy 1: Target Buildings with Investor-Friendly HOAs

Some HOA boards restrict rentals:

• Minimum lease terms (6-12 months)
• No short-term rentals allowed
• Rental caps (only 25% of units can be rentals)
• Approval process for tenants

Before buying, verify:

• Read CC&Rs (Covenants, Conditions & Restrictions)
• Request HOA bylaws
• Ask what percentage of units are rented
• Confirm STR policy if planning Airbnb

Buying in a building that later bans rentals destroys your investment.

Strategy 2: Low HOA, High Rent Buildings

Sweet spot: Well-maintained buildings with low fees

• Older buildings (1980s-90s) often have lower fees
• Mid-rise vs. high-rise (fewer amenities = lower fees)
• Self-managed HOAs (no management company markup)

Example:

• Condo A: $350K, $650/month HOA, $2,200 rent → Hard DSCR
• Condo B: $360K, $280/month HOA, $2,150 rent → Easier DSCR

The $370/month HOA difference ($4,440/year) dramatically impacts qualification.

Strategy 3: Furnished Condo Rentals

Furnished condos command 20-40% rent premiums:

• Unfurnished: $1,800/month
• Furnished: $2,400/month
• Increase: $600/month = $7,200/year

Some DSCR lenders allow furniture costs in the loan (up to 10% of purchase price) and use furnished rent comps for DSCR calculation.

Example:

• Purchase: $300,000
• Furniture/furnishings: $25,000
• Total loan (80% LTV): $260,000
• Appraiser uses furnished comps: $2,400/month vs. $1,800
• DSCR improves significantly

Strategy 4: Corporate Housing Play

Target condos near:

• Hospitals (traveling nurses)
• Corporate headquarters (consultants, relocating executives)
• Universities (visiting professors)

Corporate housing rents 30-50% above market with:

• Longer average stays (30-90 days)
• Lower wear and tear
• Premium tenants

Lenders love corporate housing income because it's more stable than tourist Airbnb.

Common Condo DSCR Pitfalls

Pitfall 1: Ignoring Special Assessments

HOAs can levy special assessments for:

• Roof replacement: $5,000-15,000 per unit
• Elevator modernization: $3,000-8,000 per unit
• Siding/windows: $8,000-20,000 per unit

A $10,000 special assessment on a property with $300/month cash flow wipes out 33 months of income. Always:

• Review HOA meeting minutes
• Check reserve study
• Ask about deferred maintenance

Pitfall 2: Buying in Oversupplied Markets

Some cities have condo gluts:

• Miami: 25,000+ units under construction (2026)
• Austin: 8,500+ units delivered 2024-2025
• Nashville: Downtown oversupply

Oversupply = falling rents = negative cash flow. Research:

• Units under construction
• Absorption rates
• Historical vacancy trends

Pitfall 3: FHA-Unapproved Buildings

If you ever want to sell to an owner-occupant with FHA financing (3.5% down), the building needs FHA approval. Many condos lose approval due to:

• Too many rentals
• HOA financial issues
• Deferred maintenance

This limits your buyer pool at resale. Check FHA approval status before buying.

Pitfall 4: Underestimating Condo Insurance

Condo insurance has two parts:

• Master policy (HOA pays, covers building)
• HO-6 policy (you pay, covers interior/liability)

Common mistake: Assuming master policy covers everything. You need HO-6 for:

• Interior improvements
• Personal property
• Loss assessment (if HOA is sued)
• Liability

Budget $200-500/year for HO-6, more in coastal/earthquake zones.

Condo DSCR Loan vs. Conventional Financing

Scenario: $400,000 condo, $550/month HOA, $2,600 rent

Maximizing Your Condo DSCR Approval

Improve Your DSCR Before Applying

Tactic 1: Negotiate lower purchase price

• Every $10,000 reduction = ~$70/month lower payment
• Negotiate using HOA financial issues as leverage

Tactic 2: Increase down payment

• 30% → 35% can improve DSCR by 0.10-0.15

Tactic 3: Provide strong rent comps

• Pull recent rentals from Zillow, Apartments.com
• If building has rentals, get those exact figures
• Show furnished vs. unfurnished premiums

Tactic 4: Target condos with rent upside

• Outdated interiors = below-market rent
• Budget $8,000-15,000 for updates
• Increase rent $200-350/month
• Some lenders use "as-improved" rent

Questions to Ask Before Buying

HOA questions:

1. What percentage of units are rented? (Under 50% is better for resale)
2. Are short-term rentals allowed?
3. What are the reserve fund balances?
4. Any special assessments planned?
5. Is the building FHA-approved?

Financial questions:

1. What do comparable units rent for?
2. What's the vacancy rate in the building?
3. Are HOA fees likely to increase? (Check 5-year trend)
4. What utilities do tenants pay?

Frequently Asked Questions

Can I get a DSCR loan for a non-warrantable condo?

Yes! Many DSCR lenders accept non-warrantable condos that conventional lenders reject. Expect 30-35% down and potentially 0.25-0.5% higher rates.

Do DSCR lenders finance condotels?

Sometimes. Condotels (hotel-condos with mandatory rental programs) are challenging. Expect 40-50% down and limited lender options. Pure residential condos are easier.

What if the HOA doesn't allow rentals?

You can't get an investment property loan if rentals are prohibited. Always verify HOA allows rentals before purchasing.

Can I use projected Airbnb income for DSCR?

Yes, if you provide data (AirDNA reports, comparable units in building). Lenders typically apply 25-30% reduction to account for vacancy and expenses.

How much reserves do I need for a condo DSCR loan?

Typically 6-12 months of PITIA (including HOA). For a $3,500/month payment, that's $21,000-42,000 in liquid assets.

Are DSCR rates higher for condos than houses?

Some lenders add 0.125-0.25% for condos, but many charge the same rate. Non-warrantable condos may see 0.25-0.5% premium.

Can I do a cash-out refinance on an investment condo?

Absolutely. DSCR cash-out refinances work for condos up to 75% LTV (sometimes 70% for non-warrantable).

What if the condo is in a new building with no rental history?

Appraisers will research comparable buildings nearby. New buildings often command rent premiums due to modern amenities and finishes.

Getting Started with Condo DSCR Loans

Investment condos offer the perfect combination of affordability, low maintenance, and urban location. In markets where single-family homes cost $800K+, a $350K condo can generate the same monthly cash flow with 40% less capital invested.

DSCR loans level the playing field, allowing you to finance non-warrantable condos that most buyers can't access—reducing competition and creating opportunity.

Ready to finance your investment condo? Our DSCR specialists understand the unique challenges of condo financing and work with lenders who approve non-warrantable properties.

Get your condo DSCR loan quote →

We'll review the HOA financials, run your DSCR numbers, and show you exactly how to structure your purchase for approval. Let's find your cash-flowing condo investment today.