DSCR Loans in Washington: Investor's Guide to Rental Property Financing

Washington State presents one of the strongest rental markets in the U.S., driven by tech industry growth, natural population migration, and limited new construction in key metros. DSCR loans offer investors a way to tap into Seattle, Spokane, Tacoma, and emerging submarkets without the income documentation requirements of conventional mortgages.

Washington Real Estate Market Overview

Washington's economy centers around technology (Amazon, Microsoft, Google), aerospace (Boeing), and healthcare. This economic diversity creates resilient rental demand even during national downturns.

Market Fundamentals:

• Population growth: 1.3% annually (well above national average)
• Median household income: $90,325 (7th highest nationally)
• Unemployment: 4.2% (typically below national average)
• Tech sector concentration creates high-income renters willing to pay premium rents

Price Dynamics by Region: Seattle-area median home prices hover around $825,000-$950,000 depending on the submarket. Eastside cities (Bellevue, Redmond, Kirkland) exceed $1.1 million. Tacoma offers more accessible entry points at $525,000-$625,000, while Spokane averages $425,000-$475,000.

Rental yields vary inversely with price. Seattle proper delivers 0.5-0.7% monthly gross yields (high prices, high rents). Spokane and Tri-Cities achieve 0.9-1.1% yields. Tacoma sits in between at 0.7-0.9%.

Key Challenge: Washington's statewide rent control law (enacted 2024) caps annual rent increases at 7% or CPI + 3%, whichever is lower. This limits upside in rapidly appreciating markets but also stabilizes long-term projections.

Vacancy rates remain tight: 3.8% in Seattle metro, 4.2% in Spokane, 5.1% in smaller markets. Tenant demand consistently outpaces supply due to restrictive zoning and slow permit approvals.

DSCR Loan Requirements in Washington

Washington lenders follow national DSCR standards with some local adjustments for high-cost areas and earthquake risk.

Minimum DSCR Ratio: Most lenders require 1.0 DSCR, but the stronger the ratio, the better your rate. Properties in Seattle, Bellevue, and other King County cities often qualify at exactly 1.0 given strong rental comps and low default rates. Eastern Washington markets (Spokane, Yakima, Tri-Cities) may see 1.1-1.2 minimums due to higher perceived volatility.

Down Payment:

• 20% minimum (standard)
• 25% down improves rates by 0.125-0.25%
• 15% possible with 1.3+ DSCR and 740+ credit score
• High-cost areas (>$1M) often require 25-30%

Credit Score:

• 660 minimum for most programs
• 700+ unlocks best rates (0.5-0.75% improvement)
• 620 possible with compensating factors (30% down, 1.3+ DSCR)

Property Limits: DSCR loans finance 1-4 unit properties. Condos require wartime approval and full HOA review. Properties in earthquake zones (most of Western Washington) require earthquake insurance quotes, though it's not always mandatory unless the lender specifically requires it.

Loan Limits: Conforming loan limits in King, Pierce, and Snohomish counties are $1,209,750 (2026). Most other counties sit at $806,500. DSCR loans commonly extend to $2.5-3 million for experienced investors with strong financials.

Reserves: Expect 6-12 months PITIA in liquid reserves. Seattle-area lenders are more flexible (6 months typical), while Spokane and Eastern Washington lenders lean toward 9-12 months. Borrowers with 10+ financed properties sometimes negotiate down to 3-6 months.

Best Cities for DSCR Loan Investment in Washington

Tacoma

Tacoma is Washington's best balance of appreciation potential and cash flow. Median prices of $550,000-$625,000 deliver monthly rents of $2,800-$3,600 for 3-bed/2-bath homes. DSCR ratios typically hit 1.1-1.3 with 20% down.

Target neighborhoods: North End, Stadium District, Proctor District. Avoid areas south of I-5 near the port (higher crime, weaker appreciation). Tacoma benefits from Seattle spillover—priced-out Seattle buyers and renters migrate south, driving consistent 8-12% annual appreciation since 2020.

Spokane

Spokane offers the strongest cash flow in Washington. Median prices around $425,000-$475,000 generate rents of $2,200-$2,800/month. DSCR ratios often exceed 1.3, and property taxes run 40% lower than King County.

Focus on South Hill, Kendall Yards, and neighborhoods near Gonzaga University. Avoid properties north of Francis Avenue (declining area). Spokane's economy is diversifying beyond traditional healthcare/education into tech and remote workers relocating for affordability. Appreciation runs 6-9% annually—slower than Seattle, but cash flow more than compensates.

Everett / Marysville

Snohomish County offers proximity to Seattle tech jobs with lower acquisition costs. Everett properties in the $575,000-$675,000 range rent for $2,800-$3,500/month. Marysville (further north) sits at $525,000-$575,000 with rents of $2,600-$3,200.

Boeing's presence creates stable demand, though be aware of aerospace industry volatility. Target properties near the waterfront or downtown Everett, which are seeing revitalization. DSCR ratios of 1.0-1.2 are standard.

Tri-Cities (Richland, Kennewick, Pasco)

Tri-Cities is the value play of Washington. Median prices $375,000-$450,000 with monthly rents of $1,900-$2,600. DSCR ratios easily hit 1.2-1.4, and property taxes are minimal.

Economy centers on the Hanford Site (nuclear cleanup, federal contracts) and agriculture. Low volatility, steady 5-7% appreciation. Target Richland for best schools and tenant quality. Properties near the Columbia River command premium rents.

Seattle (Selective Submarkets)

Seattle proper is challenging for cash flow but unbeatable for appreciation and tenant quality. Only pursue if you can afford $850,000+ entry points and accept 0.9-1.1 DSCR ratios.

Best neighborhoods for investors: Ballard (young professionals), Capitol Hill (high rents, near downtown), Northgate (near light rail station, more affordable). Avoid SoDo and Georgetown (industrial, limited residential appeal).

Condos in Belltown and South Lake Union rent for $2,400-$3,200/month and can be acquired for $450,000-$650,000, delivering better DSCR than single-family homes. Just ensure HOA allows rentals and isn't flagged by lenders.

Property Types That Work in Washington

Single-Family Homes: The safest bet across all Washington markets. 3-bed/2-bath with a garage is the sweet spot. In Seattle metro, expect $750,000-$1.2M. In Spokane, $400,000-$550,000. Target properties built post-1990 to minimize seismic retrofit concerns and avoid outdated electrical systems.

Townhomes: Strong performer in Tacoma, Everett, and suburban Seattle. HOA fees range $200-$450/month. Ensure HOA is investor-friendly (at least 50% owner-occupied). Townhomes near light rail stations (Link Light Rail expansion) command rent premiums of 15-25%.

Duplexes: Duplexes in Spokane and Tri-Cities deliver exceptional DSCR ratios (1.4-1.6). Tacoma and Everett also have duplex inventory, though prices are higher. Dual income streams provide cushion during vacancy. Watch for deferred maintenance—older duplexes often need $30,000-$50,000 in updates.

Condos: Viable in Seattle, Bellevue, and Tacoma but require careful HOA vetting. High HOA fees ($400-$800/month) in newer buildings eat into cash flow. Only pursue if DSCR exceeds 1.2 after accounting for full PITIA. Condos near tech campuses (Amazon SLU, Microsoft Redmond) see lowest vacancy.

ADUs (Accessory Dwelling Units): Washington law prohibits lenders from counting ADU income for primary residence mortgages, but DSCR loans on investment properties CAN include ADU rental income. Properties with existing permitted ADUs in Seattle/Tacoma can boost DSCR by 0.2-0.4 points. Verify ADU is permitted and has separate utilities.

Avoid:

• Properties with unpermitted additions (title issues, no rental income credit)
• Homes on septic in rural King/Pierce counties (challenging financing)
• Anything in 100-year floodplain without flood insurance factored into DSCR

Washington Tax Considerations for Rental Properties

Washington has no state income tax, a major advantage for rental property investors. However, unique state and local taxes apply.

No State Income Tax: Washington is one of seven states with no personal income tax. Rental income isn't taxed at the state level—only federal taxes apply. This significantly improves after-tax cash flow compared to California or Oregon competitors.

Property Taxes: Rates vary by county. King County averages 0.9-1.1% of assessed value. Pierce County runs 0.95-1.15%. Spokane County sits at 0.85-1.0%. Rural counties often dip to 0.6-0.8%.

Washington caps annual property tax levy increases at 1% per year, but home value appreciation can still drive higher assessments. Budget for 2-3% annual property tax growth in appreciating markets.

Capital Gains Tax (State): Washington enacted a 7% state capital gains tax on profits over $250,000 (as of 2024). This applies to real estate sales that exceed the threshold. Use 1031 exchanges to defer, or structure sales to stay under $250,000 profit per year if possible.

Real Estate Excise Tax (REET): Washington charges a state + local real estate excise tax on property sales. State REET is tiered: 1.1% on first $500K, 1.28% on $500K-$1.5M, 2.75% on $1.5M-$3M, 3% above $3M. Local REET adds another 0.25-0.5% depending on jurisdiction.

Total REET can reach 3.5-4% on high-value sales. Seller typically pays, so factor this into exit strategy.

LLC Considerations: Washington charges $71.43 annual report fee per LLC. Some lenders add 0.25-0.5% rate premium for LLC-owned properties or require 25% down vs. 20% for personal ownership. Consult your lender before forming LLCs for each property.

1031 Exchanges: Washington recognizes federal 1031 exchanges. Selling a Spokane rental and reinvesting into a Tacoma property defers federal capital gains (and now state capital gains tax if over $250K). Use a qualified intermediary—never take possession of proceeds.

Depreciation Recapture: Federal depreciation recapture still applies at 25%, plus ordinary income rates on remaining gain. With no state income tax, you avoid the double-hit seen in California or New York. Plan for ~30% total federal tax on recaptured depreciation unless you 1031.

Rent Control: Washington's statewide rent control law (2024) caps annual increases at 7% or CPI + 3%, whichever is lower. This limits aggressive rent growth but also creates predictable income projections for DSCR underwriting. Rent control does NOT apply to new construction (within first 10 years).

DSCR Loan Rates and Costs in Washington

Current DSCR loan rates in Washington (February 2026) range from 7.0% to 8.5% depending on credit, DSCR ratio, and LTV.

Rate Breakdown:

• 740+ credit, 1.25 DSCR, 25% down: ~7.0-7.25%
• 700-720 credit, 1.0-1.15 DSCR, 20% down: ~7.5-7.875%
• 660-680 credit, 1.0 DSCR, 20% down: ~8.0-8.5%

Closing Costs: Budget 2.5-3.5% of purchase price. Washington title insurance runs 0.6-0.9% of purchase price (split between owner's and lender's policies). Origination fees average 1-2 points. Escrow fees are higher than most states ($1,200-$2,500 depending on price).

REET on Refinances: Washington does NOT charge REET on refinances—only on sales. This makes cash-out refinancing or rate-and-term refinances more attractive than in states with mortgage recording taxes.

Prepayment Penalties: Common on DSCR loans. Typical structure: 3-2-1 step-down over three years. Always confirm terms before signing. Some lenders offer no-prepayment-penalty options at 0.25-0.5% higher rates.

Frequently Asked Questions

Can I use a DSCR loan for a property in Seattle with high HOA fees?

Yes, but HOA fees are included in the DSCR calculation (the "A" in PITIA). A $650,000 condo with $600/month HOA fees will require higher rental income to achieve 1.0 DSCR than a single-family home at the same price. Always underwrite with full PITIA. Lenders also review HOA financials to ensure the building is financially stable.

Do Washington lenders require earthquake insurance for DSCR loans?

Most lenders don't mandate earthquake insurance, but they'll require a quote and may factor it into DSCR calculations. Earthquake insurance in Western Washington runs $800-$2,000/year for typical single-family homes. If you opt out, ensure your DSCR still works without it factored in, in case the lender requires it at the last minute.

Can I count ADU income for a DSCR loan in Washington?

Yes, if the ADU is permitted and has a history of rental income (or you can provide a lease or strong rental comps). Many Seattle and Tacoma properties have ADUs that generate $1,200-$2,000/month. Combined with primary unit rent, this can push DSCR ratios from 0.9 to 1.2+. Always verify permits before counting ADU income.

How does Washington's rent control law affect DSCR loan qualification?

Lenders are aware of the 7% cap and factor it into long-term projections, but DSCR qualification is based on current market rents. The cap ensures you can't aggressively raise rents after closing, but it also provides downside protection (rents can't crash either). For underwriting, assume 5-6% annual rent growth instead of 8-10% seen pre-2024.

Is Spokane or Tacoma better for first-time DSCR investors in Washington?

Spokane offers easier qualification (higher DSCR ratios, lower prices, lower property taxes) and better immediate cash flow. Tacoma delivers stronger appreciation (8-12% vs. 6-9%) and benefits from Seattle spillover demand. If you have $500K-$600K to deploy and want cash flow, choose Spokane. If you can stretch to $600K-$700K and prioritize appreciation, Tacoma is superior.

Bottom Line

Washington State offers some of the strongest rental fundamentals in the U.S.—high incomes, tech-driven demand, population growth, and no state income tax. DSCR loans unlock access to these markets without the hassle of tax return underwriting.

Tacoma and Spokane represent the best risk-adjusted opportunities for most investors. Tacoma delivers appreciation with decent cash flow; Spokane provides cash flow with steady appreciation. Seattle requires higher capital but rewards with tenant quality and long-term wealth building.

Run conservative numbers. Use 75% of market rent to account for vacancy and maintenance. Factor in Washington's rent control cap (7% max annual increases). Maintain 9-12 month reserves given high property values and potential vacancy costs.

Washington's landlord-tenant laws lean tenant-friendly (evictions take 60-90 days), so screen tenants carefully and budget for occasional non-payment losses. But the combination of strong economic fundamentals, no state income tax, and tight housing supply makes Washington a top-tier state for building a rental property portfolio with DSCR financing.