Investing in condominiums can be a smart way to build a real estate portfolio—especially in urban markets where affordability and tenant demand are strong. However, when a condo is classified as non-warrantable, financing options become limited. Traditional lenders often decline these properties due to added risk factors. Fortunately, Debt Service Coverage Ratio (DSCR) loans provide a viable alternative for investors looking to acquire or refinance non-warrantable condos.
In this guide, we’ll explore what makes a condo non-warrantable, how DSCR loans work in these scenarios, key eligibility criteria, and the benefits of using this flexible financing approach to invest in unique condo assets.
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A non-warrantable condo is a condominium unit that does not meet the lending guidelines established by Fannie Mae or Freddie Mac. These properties are considered higher risk by conventional lenders, which means they often don’t qualify for traditional residential mortgage programs.
These attributes often scare off conventional lenders—but not DSCR lenders.
A Debt Service Coverage Ratio (DSCR) loan is a type of non-QM (non-qualified mortgage) loan used primarily by real estate investors. DSCR loans evaluate the income potential of the property itself, rather than the borrower’s personal income, tax returns, or employment history.
DSCR = Net Operating Income / Annual Debt Service
If a condo unit earns $24,000 in annual net operating income and the total annual mortgage payments are $20,000:
DSCR = $24,000 ÷ $20,000 = 1.20
Most DSCR lenders require a minimum DSCR of 1.20 to 1.25 for approval.
Since DSCR lenders are not bound by Fannie Mae or Freddie Mac guidelines, they offer more flexible underwriting criteria. The focus is on the cash flow potential of the unit, not the status of the condo project.
This makes DSCR loans an excellent option for:
Most DSCR lenders will consider the following non-warrantable condo types:
Note: Lenders may require that the unit is rentable year-round and meets a minimum square footage (typically 400–500 sq. ft.).
| Loan Feature | Typical Range |
|---|---|
| Minimum DSCR | 1.20 – 1.25 |
| Maximum LTV | Up to 75% (may drop to 65% for high-risk assets) |
| Credit Score | 660 – 700+ |
| Loan Amount Range | $100,000 – $2,000,000+ |
| Loan Term Options | 30-year fixed, 5/6 ARM, interest-only options |
| Ownership Type | LLC, S-Corp, individual |
| Prepayment Penalty | Yes (typically 3–5 year step-down) |
| Property Usage | Long-term or short-term rental allowed |
Unlike traditional mortgages, DSCR loan approval is based primarily on the income your condo unit generates (or can reasonably generate).
Optional but helpful:
Buy high-yield condos in cities where investor ownership is high and warrantable status is hard to maintain.
Finance short-term rental condos in beach towns, ski resorts, and tourist-heavy destinations.
Invest in condo units from small or new developments not yet qualified for conventional financing.
Use DSCR loans to refinance hard money or bridge loans into long-term rental-focused financing.
Non-warrantable condos can be hidden gems in the real estate market—especially for savvy investors targeting niche opportunities. While traditional financing may fall short, DSCR loans open the door to these unconventional but high-potential properties by focusing on what truly matters: cash flow.
If you’re looking to purchase or refinance a non-warrantable condo, DSCR financing offers speed, flexibility, and scale—without the underwriting headaches of agency-backed loans.
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Our advise is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
