5 Rookie Mistakes with DSCR Loans (and How to Avoid Them)

[James Carpeneti]

1. Using Wishful Thinking for Rent Numbers

Basing your DSCR on "top of the market" rents instead of actual comps can kill your deal when the appraisal comes in. Always verify with real data.

2. Forgetting the Little Things (That Aren’t So Little)

Taxes, insurance, HOA dues, and maintenance costs all eat into Net Operating Income. Miss them and your DSCR ratio can slip below the lender's minimum.

3. Not Asking About Prepayment Penalties

Some DSCR loans have steep penalties if you refinance or sell early. Read the fine print before you sign.

4. Assuming All Lenders Treat STRs the Same

Short-term rental income is handled differently from lender to lender. Some require 12 months of history, others allow market rent surveys know which you’re dealing with.

5. Skipping the “Stress Test”

Ask yourself: “If rents drop 10% or expenses go up 10%, will this still work?” If not, you might be over-leveraging.

Bottom line: DSCR loans are powerful, but they reward the prepared. Do your homework, ask the right questions, and think a few moves ahead-your future self (and your cash flow) will thank you.