DSCR Loans in Des Moines: Investment Property Financing Based on Rental Income

Des Moines, Iowa represents one of the Midwest's best-kept secrets for real estate investors. As the insurance capital of America, home to major employers like Principal Financial, Wellmark, and a thriving business services sector, Des Moines offers stability that many markets lack.

For investors, the metro area delivers affordability, strong job growth, low crime, excellent schools, and rental demand from young professionals and families. Properties that would cost $500K in Denver or Austin can be found for $250K-$350K in Des Moines—and they cash flow.

But traditional mortgage financing creates barriers for portfolio builders. If you're self-employed, own multiple rentals, or strategically minimize taxable income through depreciation, conventional lenders make qualifying frustrating.

DSCR loans eliminate these obstacles.

What Is a DSCR Loan?

A Debt Service Coverage Ratio (DSCR) loan qualifies you for investment property financing based solely on the property's rental income—not your personal income, W-2s, tax returns, or employment verification.

How DSCR Is Calculated

Lenders use this simple formula:

DSCR = Monthly Rental Income ÷ Monthly PITIA

PITIA equals your complete monthly housing payment:

• Principal
• Interest
• Taxes
• Insurance
• Association dues (HOA/condo fees if applicable)

DSCR Benchmarks

• 1.25+: Excellent—access to best rates and terms
• 1.0-1.24: Good—property covers debt, easy approval
• 0.80-0.99: Acceptable—property needs subsidy, loans available at higher rates
• Below 0.80: Challenging—limited lenders, premium pricing

Most lenders target 1.0+ DSCR, with best pricing at 1.25+.

Why Des Moines Investors Choose DSCR Loans

1. No Tax Return Requirements

Real estate investors write off depreciation, expenses, and deductions that reduce taxable income to near zero. Your 1040 shows $30K, but you own seven properties and live comfortably. Traditional lenders see low income and decline you. DSCR lenders only analyze the subject property's cash flow.

2. Scale Beyond 10 Properties

Fannie Mae caps conventional financing at 10 financed properties. Serious investors building portfolios in Des Moines need financing beyond this limit. DSCR loans have no property count cap.

3. Entity Ownership Allowed

Want to hold properties in an LLC for liability protection and estate planning? DSCR loans allow LLC ownership from day one—no seasoning period, no rate penalty, no workarounds required.

4. Faster Closings

Without employment verification, paystub collection, and tax return analysis, DSCR loans close in 2-3 weeks versus 30-45 days for conventional financing.

Des Moines Rental Market Overview

Des Moines combines affordable entry prices with strong fundamentals that support rental investing.

Market Fundamentals

• Median home price: ~$255,000 (significantly below national average)
• Average rent (2-bed): $1,100-$1,400
• Average rent (3-bed): $1,450-$1,850
• Vacancy rate: 5-6% (healthy landlord market)
• Population growth: Steady 1.5-2% annually
• Job market: Strong, anchored by insurance and financial services

Top Investment Neighborhoods

Beaverdale
Northwest Des Moines. Tree-lined streets, bungalows, strong community feel. Homes rent for $1,400-$1,900. Popular with young families and professionals. Entry prices $220K-$340K.

Ingersoll Park
Central Des Moines. Historic neighborhood near downtown. Renovated homes rent for $1,500-$2,200. Walkable to restaurants and shops. Higher entry costs but strong appreciation.

Drake Neighborhood
Near Drake University. Mix of students and professionals. Homes rent for $1,300-$1,800. Steady demand, moderate turnover.

Waveland Park
West of downtown. Mix of vintage and updated homes. Families and young professionals. Rents: $1,400-$1,850. Solid cash flow potential.

West Des Moines
Suburban area with excellent schools. Single-family homes rent for $1,600-$2,200. Lower turnover, professional tenants. Higher entry prices ($280K-$400K).

Urbandale
Northwest suburb. Family-oriented, good schools. 3-bed/2-bath homes rent for $1,600-$2,100. Strong appreciation and low vacancy.

Ankeny
North suburb, rapidly growing. Newer construction available. Homes rent for $1,700-$2,300. Attracts families and corporate relocations.

Highland Park
East of downtown. Diverse, affordable. Entry prices $150K-$240K. Rents: $1,100-$1,500. Good cash flow for investors comfortable with working-class tenants.

Property Types to Consider

Single-Family Homes
Most popular among Des Moines investors. Strong demand from families, insurance industry professionals, and people relocating from coasts.

Duplexes
More common in Des Moines than many markets. Excellent cash flow. Can owner-occupy one side while renting the other (though DSCR loans are for non-owner-occupied only).

Condos and Townhomes
Lower maintenance appeals to investors with multiple properties. Watch HOA fees—they directly reduce DSCR. Popular with young professionals.

Student Housing
Properties near Drake University. Students will pay $600-$800/bedroom in houses set up for roommates. Higher turnover but solid income potential.

DSCR Loan Requirements in Iowa

Credit Score

• 680-699: Minimum for most lenders
• 700-719: Better rate access
• 720+: Best pricing available
• Below 680: Very limited options, high rates

Down Payment

• 25%: Standard for DSCR loans
• 20%: Available with strong credit (720+) and DSCR (1.25+)
• 30%: Can offset lower credit scores or improve pricing

Cash Reserves

Lenders typically require 6-12 months PITIA in liquid reserves per property. If you're buying your fifth rental, you'll need reserves covering all five properties.

Property Standards

• 1-4 unit residential properties
• Standard construction (stick-built, modular)
• Warrantable condos (lender reviews HOA documents)
• Habitable condition (rent-ready or currently occupied)

DSCR Calculation Example: Des Moines Property

Let's analyze a single-family home in Beaverdale.

Purchase Details:

• Price: $260,000
• Down payment (25%): $65,000
• Loan amount: $195,000
• Interest rate: 7.25%
• Term: 30 years

Monthly PITIA:

• Principal & Interest: $1,330
• Property Taxes: $292/month ($3,500/year, Polk County ~1.35% rate)
• Insurance: $125/month ($1,500/year)
• HOA: $0
• Total PITIA: $1,747

Market Rent: $1,850/month (verified by appraiser's rent schedule)

DSCR Calculation:
$1,850 ÷ $1,747 = 1.06 DSCR

This property qualifies for a DSCR loan. To improve pricing:

• Increase down payment to 30% → P&I drops to $1,234, DSCR rises to 1.13
• Shop insurance for better rates
• Improve credit score to 720+ for rate reduction

Note: Iowa property taxes are higher than many states. This significantly impacts DSCR calculations—always verify tax rates before making offers.

How to Get a DSCR Loan in Des Moines

Step 1: Property Analysis

Before making offers:

• Research market rents (Zillow, Rentometer, local property managers)
• Calculate property taxes accurately (Polk County, Dallas County, Warren County have different rates)
• Get insurance quotes
• Calculate DSCR conservatively

Aim for 1.10+ DSCR to handle appraisal variations.

Step 2: Find a DSCR Lender

Look for lenders who:

• Operate in Iowa
• Have experience in Des Moines metro
• Offer competitive rates
• Can close in under 25 days
• Communicate clearly and quickly

Provide:

• Target property address or area
• Estimated purchase price and down payment
• Credit authorization

Step 3: Pre-Approval

Lender will:

• Pull credit report
• Verify liquid assets (down payment + reserves)
• Issue pre-approval based on estimated DSCR

Pre-approval strengthens offers, though Des Moines isn't as competitive as coastal markets.

Step 4: Make Offer and Go Under Contract

Des Moines isn't a hyper-competitive market, but good properties still move within days. Pre-approval helps.

Step 5: Appraisal and Rent Analysis

Lender orders appraisal with rent schedule (Form 1007 or comparable analysis).

The appraiser's rent opinion determines your DSCR—not your estimates.

If appraisal or rents come in low:

• Increase down payment
• Renegotiate purchase price
• Accept higher rate for lower DSCR requirement

Step 6: Clear to Close

Final steps:

• Title work completed
• Insurance binder issued
• Funds wired for closing
• Sign documents, receive keys

Timeline: 18-25 days from application to funding.

DSCR Loan Costs

Interest Rates

DSCR loans carry rate premiums over conventional:

• Current range (early 2026): 7.0%-8.5%
• Premium vs. conventional: +0.5% to +1.5%

Rate drivers:

• Credit score (higher = better)
• DSCR (1.25+ = best pricing)
• Down payment (30% better than 20%)
• Prepayment penalty selection

Origination and Fees

• Origination fee: 0-2 points (typically 1 point)
• Appraisal: $450-$550 in Des Moines area
• Title and settlement: Similar to conventional
• Miscellaneous: Credit report, flood cert, etc.

Total closing costs: 2-4% of purchase price.

Prepayment Penalties

Most DSCR loans include prepayment penalties:

• 3-2-1 step-down: 3% year 1, 2% year 2, 1% year 3
• 5-4-3-2-1: Longer penalty period, slightly lower rate
• Soft penalty: Only on refinance (sale exempt)
• Hard penalty: On any payoff

Understand terms before locking, especially if you might refinance if rates drop.

Common Des Moines Investor Mistakes

1. Underestimating Property Taxes

Iowa property taxes are high—typically 1.2%-1.5% of assessed value. This significantly impacts DSCR. Always verify exact tax amounts before making offers.

2. Overestimating West Des Moines Rents

West Des Moines commands premium rents, but don't assume every 3-bedroom rents for $2,000+. Verify with actual comps.

3. Ignoring Basement/Foundation Issues

Many Des Moines homes are 60+ years old with settling, foundation cracks, and basement moisture issues. Always inspect, especially in older neighborhoods.

4. Not Accounting for Winter Maintenance

Iowa winters are harsh. Budget for snow removal, frozen pipe risks, and higher utility costs if you cover any utilities.

5. Skipping Property Manager Analysis

If you're out of state or have multiple properties, you'll need property management. Des Moines PMs typically charge 8-10% of rent plus placement fees. Factor this into cash flow.

6. Assuming Student Housing Premium Everywhere

Yes, Drake students pay good rents—but only near campus. Properties 2+ miles from Drake don't command student housing premiums.

DSCR vs. Conventional Loans

Choose DSCR if:

• You own 4+ properties
• Self-employed or complex tax situation
• Want LLC ownership
• Need fast closing

Choose conventional if:

• First 1-3 investment properties
• W-2 income, clean tax returns
• Want lowest rate
• Can wait 30-45 days

Des Moines Investment Outlook

Des Moines offers stable, unglamorous fundamentals:

• Employment: Insurance, financial services, healthcare—recession-resistant sectors
• Affordability: Median home price still under $260K
• Population: Steady growth from regional migration
• Quality of life: Low crime, good schools, affordable cost of living

Considerations:

• Moderate appreciation: Expect 3-6% annually, not double digits
• Weather: Harsh winters increase maintenance costs
• Smaller market: Less liquidity than larger metros

Des Moines won't make you rich overnight, but it offers steady cash flow and reliable appreciation—perfect for long-term wealth building.

Finding the Right DSCR Lender

Not all DSCR lenders operate in Iowa. Terms vary significantly.

Questions to ask:

1. Do you lend in Iowa specifically?
2. What's your minimum DSCR requirement?
3. What's your minimum loan amount?
4. What credit score gets best pricing?
5. Do you allow first-time investors?
6. What are prepayment penalty options?
7. How do you handle low appraisals?
8. Can you close in 21 days?

Get quotes from at least three lenders. A 0.25% rate difference on $195,000 costs you $10,000+ over 30 years.

Is a DSCR Loan Right for Your Des Moines Investment?

DSCR loans work well in Des Moines:

• Affordable property prices support strong DSCR numbers
• Stable rental demand from diverse employment base
• Cash flow achievable even with higher Iowa property taxes
• Market fundamentals support long-term investing

If you're scaling a portfolio, have non-traditional income, or value simplicity and speed over the absolute lowest rate, DSCR financing deserves serious consideration.

The rate premium (0.5%-1.5% higher than conventional) is real, but the benefits—no income docs, unlimited property count, LLC ownership, fast closing—often justify the cost.

Run detailed numbers on properties you're considering. Talk to local property managers about realistic rents and operating costs. Connect with experienced DSCR lenders who understand Iowa's market.

Des Moines won't make headlines, but it quietly builds wealth for disciplined investors.