Colorado DSCR Loan Guide

Many Colorado investors own properties that cash flow well, yet their tax returns tell a different story. Write offs, depreciation, and losses from other ventures can make a strong portfolio look weak on paper. Conventional lenders hesitate, even when the rental income itself is solid.

A DSCR loan qualifies the property instead of the person. Lenders simply ask whether rental income covers the mortgage payment. Personal deductions never enter the conversation.

This fits investors who buy through LLCs, hold multiple properties, or run other businesses that complicate their tax return. It works whether your rental income comes from ski condos in the mountains or long term tenants along the Front Range.

Key points investors should know

• – No personal income, W-2s or tax returns required
• – The property must be used as a rental, not a primary home
• – Buy or refinance as an individual, LLC, partnership, or trust
• – Personal credit score and reserves still apply
• – Borrow from $150,000 up to $4 million
• – Great option for first-time or out-of-state investors

Who this loan works best for:

These borrowers typically have solid credit and liquidity, but prefer to qualify on property income rather than personal earnings.

How DSCR Is Calculated

Lenders figure the DSCR by taking the property's gross rental income and dividing it by the full monthly mortgage payment. That payment covers principal, interest, taxes, insurance, and any HOA fees. Most programs require the ratio to hit at least 1.0 to 1.25. But some lenders allow a DSCR below 1.0. A higher number than 1.25 means the rents more than cover the costs. This makes approval easier for investors who own condos in Denver or duplexes in Colorado Springs.

For long-term rentals, they use income from existing leases or market comps. Short-term rentals in places like Breckenridge or Aspen may pull numbers from the property manager, Airbnb, or VRBO and are often averaged over a year to smooth out busy and slow seasons. Appraisals include a rent schedule to back it up.

For 5-10 unit buildings, lenders might subtract a vacancy factor of 5-10 percent or add in management costs. The final debt service ratio decides if the deal works but your credit score and loan amount are also a deciding factor.

DSCR is not DTI. Personal income is not a factor, not known, nor required.

Here's An Example Transaction

This "debt service ratio" is what's used to determine if the property cash flows and maximum loan anmount.

Here's a second example but this time of a property that doesn't cash flow. A short term rental condo in Breckenridge averages $3,600 per month against a $3,800 payment. A DSCR below 1.0 may still qualify when the borrower brings a larger down payment, has strong credit scores, and additional reserves.

Check our DSCR investment property analyzer to see if a property you want covers the mortgage payment in Colorado.

How Loan Terms Change Based on Credit and DSCR

Loan terms under a DSCR program adjust based on overall risk rather than following a single approval standard. Credit score and DSCR work together to determine how much leverage and pricing a borrower may receive.

In general, higher credit scores and stronger DSCR ratios support higher loan to value limits and lower interest rates. Lower ratios or weaker credit often lead to reduced leverage, pricing adjustments, or higher reserve requirements. Loan amounts may also vary depending on how close the property comes to covering its monthly obligation.

Use the chart below to see where your credit scores and loan amount may fall.

DSCR for Multi-Unit and Mixed-Use Properties

Duplexes, triplexes, quadplexes, residential 5 to 10 units and mixed-use 2 to 10 unit buildings may qualify for DSCR financing. For mixed-use buildings, as long as the residential portion is the main income source it's eligible. Lenders look at how the property actually operates each month, not how it's zoned.

To qualify, the majority of square footage and income must come from residential units.

Common mixed-use setups include:

• • Small apartment buildings with ground floor retail
• • Residential units above professional offices
• • A limited number of storefronts supporting apartments above

You'll find this property type in neighborhoods like Denver's RiNo District, LoDo, and Capitol Hill, Boulder's Downtown and Gunbarrel areas, and Colorado Springs' Old Colorado City. Lenders treat these as residential investments, not commercial properties.

Underwriting on 5+ Unit & Mixed-Use Properties

• • Vacancy assumptions and management expenses apply more often on these properties
• • Maximum financing is capped at 70 percent loan to value
• • DSCR must be 1.15 or higher

How Commercial Income Is Treated

• • Income is reviewed conservatively and some lenders exclude it entirely
• • Others apply a haircut or use it only to support operating stability

DSCR financing tends to fit these properties well. It relies on rental income rather than personal income, which matters since conventional loans often apply commercial overlays to mixed-use assets that DSCR avoids.

When a DSCR Loan May Not Be the Best Fit

A DSCR loan is not always the right solution. Properties with very low or negative cash flow may face tighter terms that outweigh the benefit of rental based qualification. Lease up properties can also be challenging when there is no stabilized income to support the ratio.

Investors who can qualify with 12 or 24 months of bank statements may find that loan option more effective to finance an investment property. In this case, non-QM lenders will evaluate your personal income. If you own another rental property free and clear or with a low loan balance, you may be approved for a DSCR HELOC to take cash out and acquire the new property. Other Colorado non-QM self-employed programs only lend on primary and second homes.