DSCR Loans in Michigan: Qualify on the Rent, Not Your Tax Returns

What a DSCR Loan Actually Is

DSCR stands for debt service coverage ratio. It is one number: the gross rent the property brings in, divided by the total monthly housing payment on the new loan. That payment includes principal, interest, taxes, insurance, and any association dues, which the industry shortens to PITIA.

If the rent is $2,400 and the payment is $2,000, the ratio is 1.20x. The property covers its own debt with room to spare. If the rent is $1,800 and the payment is $2,000, the ratio is 0.90x and the property is running at a shortfall on paper.

That is the whole qualification. Your personal income does not enter the file. No W2s, no tax returns, no profit and loss statement, no debt-to-income calculation. For a self-employed investor who writes off everything legally available to them, that difference is the entire ballgame. We have had borrowers who could not qualify for a conventional investment loan on paper while sitting on eleven performing rentals.

The tradeoff is that DSCR loans are business purpose loans. You cannot live in the property, you have to certify that in writing, and any cash you pull out has to go toward business use, which generally means acquiring, maintaining, or improving rental property. These are not consumer loans, and purchase and rate-and-term transactions are not covered by the TRID disclosure timeline that governs a loan on your own house.

What Our DSCR Programs Can Do Right Now

Here is the part most lender pages will not give you. We do not have a DSCR product. We have three of them, through three different investors, and they are not variations on a theme. They disagree on minimum ratio, minimum credit, maximum loan size, which property types are allowed, and whether short-term rental income counts at all.

The table below is the outer envelope across all three. No single program hits every number in it, and nobody qualifies for the best figure in every row at once. Treat it as the range of what is possible, then let us tell you where your specific file lands.

All figures above are program guidelines, not commitments, and are subject to change without notice. Every loan remains subject to credit approval, property eligibility, appraisal, and full underwriting review.

One DSCR Denial Is One Investor's Answer

This is the most useful thing on this page, so we are going to be blunt about it.

When a lender runs one DSCR program and your file misses by a hair, you get a denial. Not because the deal is bad, but because that one investor's grid said no. Most borrowers take that as a verdict on the property. It is not. It is a verdict on one set of guidelines.

We are a correspondent lender, which means we underwrite and close in our own name and then deliver the loan to the investor whose guidelines fit it. Practically, that means we can take one scenario and run it against several sets of guidelines before anybody pulls credit a second time or pays for a second appraisal.

If you were already declined for a DSCR loan somewhere else, send us the denial. We are not promising a different outcome, because sometimes the answer really is no. But we would rather tell you which specific guideline killed it than let you assume the whole strategy is off the table.

How We Calculate DSCR

What counts as the rent

Every program we run uses the lower of two numbers: the rent on your fully executed lease, or the market rent the appraiser assigns on the Form 1007 Rent Schedule. If your lease says $2,200 and the appraiser says $1,900, you qualify on $1,900. That surprises people constantly.

There are narrow ways around it. On one program, if your actual rent runs above market, you can use up to 120% of market rent with two months of documented proof of receipt, capped at what you are actually collecting. On another, a lease above the appraised market rent can be used with three consecutive months of evidence. Neither is automatic, and both need the documentation in the file before underwriting, not after.

If the property is vacant, most of these programs let you qualify on the appraiser's market rent alone for a purchase. A refinance on a vacant property is harder. One program flatly does not allow it, with a single exception: a property sitting empty because it was just renovated and is about to be rented, which the appraiser has to confirm with photos.

What counts as the payment

Principal, interest, taxes, insurance, and association dues. Flood insurance where it applies, which in Northern Michigan it does more often than people expect near the water. The qualifying payment uses the actual note rate on the loan.

Running the math yourself

Take your expected gross monthly rent. Divide it by your best estimate of the full monthly payment including taxes and insurance. If you land above 1.00, you are in the comfortable part of the envelope. Between 0.80 and 1.00, you are still financeable on two of our three programs, at a reduced loan-to-value. Below 0.75, no program in our suite will take it, and you are looking at a larger down payment to force the ratio up.

Any figures you work out this way are an estimate only and not a quote. Taxes alone can swing a Northern Michigan rental by hundreds of dollars a month depending on whether the property is homestead or non-homestead, and a non-homestead investment property is almost always the higher number.

Short-Term Rental Income: Airbnb and VRBO in Northern Michigan

This question comes up on nearly every Traverse City, Charlevoix, and Glen Arbor file, so here is the real answer instead of a hedge.

It depends on the program, and it depends on whether you are buying or refinancing.

• One of our programs allows short-term rental income to be used, subject to its own documentation rules.
• One allows it on refinance transactions only, verified by the most recent year's tax return and Schedule E, averaged over twelve months. That program requires a minimum 1.00x ratio and caps loan-to-value at 75%, or 80% with a 720 score and twelve months of reserves. On a purchase, it will not use short-term rental income at all.
• One has no short-term rental path whatsoever. Lease or appraiser market rent, full stop.

What that means in practice: if you are buying a short-term rental in Leelanau County, assume underwriting will qualify it on long-term market rent from the 1007, not on your projected summer nightly rate. That is almost always the more conservative number, and it is the one you should underwrite your own offer against. Projection tools and market-data reports are useful for your business plan. They are not income documentation.

If you are refinancing a short-term rental you have already operated for a full tax year, your actual Schedule E income can come into play on at least one program. If you have been running a cottage on Torch Lake or in Bay Harbor for a season or more and the Schedule E is strong, that is a materially different conversation than a purchase, and it is worth having before you assume a refinance will not pencil.

What DSCR Will Not Do

Manufactured and mobile homes

Not eligible. Not on one program, not on any of the three, including manufactured accessory dwelling units. If you want to finance a manufactured home as a rental, DSCR is the wrong door and we will not waste your time pretending otherwise. Agency financing on a manufactured home generally requires owner occupancy, so an investment manufactured home is a genuinely hard file. See manufactured home loans in Michigan for what actually is possible.

Primary residences and second homes

Not eligible, and this is structural rather than a preference. DSCR loans are business purpose loans. The moment you occupy the property, the loan's legal basis falls apart. You sign an affidavit certifying you neither occupy nor plan to occupy it. Buying a Northern Michigan place you intend to use personally for part of the year and rent the rest? That is a second home loan, not a DSCR loan, and trying to force it the other way is loan fraud. We will steer you to second home financing instead.

First-time homebuyers

If you have never owned a home, DSCR is closed to you on all three programs. First-time investors are a different question. Someone who owns a primary residence but has never owned a rental can qualify on at least two programs, generally requiring a ratio at or above 1.00x and a credit score at or above 700. Someone who owns neither is out.

A short list of property types that get declined

• Co-ops, leasehold properties, land trusts, and community land trusts
• Deed-restricted or resale-restricted property, with 55-plus communities generally excepted
• Commercially zoned, mixed-use, and agricultural property
• Working farms, ranches, orchards, and hobby farms
• True log homes. A log facade on conventional framing is acceptable on one program, which matters up here
• Anything over five units. Two to four units are fine, generally capped at 75% loan-to-value
• Properties under 600 square feet of gross living area
• Acreage over 20 acres on two programs, and over 10 acres on the third

That acreage cap catches more Northern Michigan deals than any other item on the list. A rental on 14 wooded acres outside Kalkaska is financeable on two of the three and dead on the third, and nobody finds that out until the appraisal comes back with the lot size.

Things People Do Not Find Out Until Underwriting

Prepayment penalties are real on these loans

All three programs may carry a prepayment penalty of up to five years, or the maximum your state allows, whichever is shorter. It is disclosed in a separate rider at closing, so you will see it, but you should know before you lock. If your plan is to flip the property or refinance in eighteen months, a prepay rider changes the math on the whole deal. Ask us what the structure looks like before you commit, not at the closing table.

Rent loss insurance

At least one program requires rent loss coverage equal to six months of local average rent on the subject property. A blanket policy covering the property is acceptable. It is a real line item in your carrying cost, and it is the kind of thing that shows up late and annoys everybody.

Reserves are not optional

Six months of payments, in your name, documented with thirty days of statements. Business funds, gift funds, and anything borrowed on a credit card do not count toward reserves on these programs. Equity in other real estate does not count either. It needs to be liquid.

How many properties you can finance

Three separate caps apply, and you have to clear all of them:

• A maximum of five loans serviced by Union Home Mortgage
• A maximum of twenty financed properties per borrower
• A maximum of seven loans with any single investor in the program suite

If you are building a portfolio past five or six doors with us, plan the sequence deliberately. Which investor each loan goes to affects what you can still do on the next one, and we would rather map that out with you at door three than discover a ceiling at door six.

Closing in an LLC

Permitted on all three programs, which is one of the main reasons investors choose DSCR in the first place. An executed personal guaranty is required when title vests in an entity, so the LLC gives you liability separation and asset structure, not anonymity from the note. Limited partnerships, general partnerships, corporations, and LLCs are all acceptable vesting on at least one program.

Two things that are unusual and worth knowing

One program allows gift funds toward the down payment on an investment property, which is rare. The caps run around 5% at or under 80% loan-to-value and 10% below 70%, with a minimum 3% of the purchase price coming from your own seasoned funds. Another program requires a flat 10% borrower contribution and does not take gifts at all.

One program also accepts foreign nationals who primarily live and work outside the United States, along with non-warrantable condominiums and condotels. In a market where Canadian buyers and resort condo inventory at Boyne, Shanty Creek, and Crystal Mountain are a permanent feature of the landscape, that combination is worth knowing about. The other two programs decline all of it.

What a DSCR Loan Costs Compared to a Conventional Investment Loan

DSCR loans typically price higher than a conventional investment property loan. That is not a markup for the sake of it: the loan is manually underwritten, it is not backed by Fannie Mae or Freddie Mac, and the investor is accepting a file with no personal income verification in it. That risk gets priced.

How much higher moves daily with the bond market and with your specific credit score, loan-to-value, ratio, and property type. We are not going to publish a spread, because any number we put here would be wrong by the time you read it. Rates change daily and are subject to market conditions.

What we will tell you is how to think about it. If you can qualify conventionally on your tax returns, conventional is usually the cheaper loan and you should take it. DSCR earns its cost in three situations: your returns do not support the debt even though the properties perform, you are already at the conventional financed-property limit, or you need to close in an entity. If none of those apply to you, let us price both and show you the difference in writing.

One structural note that cuts the other way: a soft or declining market designation reduces maximum loan-to-value by 5% on one program. Seasonal resort markets get flagged for this more often than year-round metros do, which is a Northern Michigan specific risk worth pricing into your down payment assumption before you write the offer.

Northern Michigan Rental Markets We Work In

We write DSCR loans across all of Michigan, and the bulk of ours sit north of Grand Rapids. The patterns are different enough by market to be worth naming.

Traverse City and Grand Traverse County. The strongest long-term rental demand in the region, driven by Munson Healthcare, Northwestern Michigan College, and a year-round service economy. Ratios tend to pencil on long-term rent here more reliably than anywhere else up north, which matters because long-term market rent is what most of these programs will use on a purchase.

Charlevoix, Petoskey, and Harbor Springs. High values, strong seasonal demand, thin long-term rental comps. This is where the gap between what a property grosses in July and what the 1007 assigns as monthly market rent is widest, and where buyers most often get surprised by the qualifying number.

Cadillac, Gaylord, Grayling, and Houghton Lake. Lower price points, which means the ratio math frequently works better even at a modest rent. These markets produce some of the cleanest DSCR files we see, because a $150,000 purchase with $1,400 rent clears 1.00x without heroics.

Manistee, Frankfort, and the Benzie shoreline. A mix of year-round rental and seasonal cottage, often with acreage attached. Check the lot size early here.

See all areas we serve for the full list.

What to Send Us to Get a Real Answer

You do not need a full application for us to tell you whether a deal works. Send these five things and we can usually give you a straight answer the same day:

1. Property address and purchase price, or current estimated value on a refinance
2. Current lease, or your best estimate of long-term market rent
3. Your approximate credit score
4. How you intend to hold title, personally or in an entity
5. Whether you have owned or managed rental property in the last three years

That is enough to tell you which of our three programs your file fits, what loan-to-value you are realistically looking at, and whether there is a structural problem like acreage or property type that kills it before anybody spends money on an appraisal.

Prefer to just start? Quick pre-qualification takes a couple of minutes, or go straight to a full application.