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DSCR Loans in Texas
Texas rewards landlords with strong rents, landlord-friendly law, and no state income tax — then quietly claws some of it back through the property-tax line of your DSCR ratio. Texas effective property-tax rates commonly run 1.8–2.5% of value a year, among the highest in the country. That tax lives inside PITIA, the denominator of the ratio, which changes how Texas deals pencil compared to anywhere else.
The Texas-specific math: taxes inside the ratio
On a $300,000 rental, the difference between a 1.0% state and a 2.2% Texas county is about $300 a month of PITIA — which means a Texas deal needs roughly $300 more rent just to hold the same DSCR. Two Texas-only traps to underwrite around:
- Reassessment at sale. Texas appraisal districts commonly move assessed value toward your purchase price, and investment property gets no homestead cap. If you compute the ratio on the seller's old tax bill, your real ratio next January can be materially worse. Run the calculator with taxes at ~2%+ of your price, not the current bill.
- Protest culture is real. Texas owners protest assessments annually, often successfully — budget for the tax bill, treat protest savings as upside.
Add hail-belt insurance (roof-age sensitive, deductibles rising in North Texas) and the honest Texas underwrite uses conservative tax and insurance lines — deals that survive that are genuinely strong.
Why investors run DSCR in Texas anyway
- Cash-flow metros: the DFW suburbs, Houston, San Antonio, and secondary markets (Killeen, Lubbock, Corpus) still price at rent-to-value ratios that make DSCR math work — a rarity among big states
- No state income tax on the rental income
- Fast, title-company closings: Texas closings are efficient, and DSCR files with no personal income docs move quickest of all — three weeks is routine
- LLC-friendly: entity vesting is standard; the franchise-tax no-tax-due threshold covers most small landlords
Typical Texas DSCR terms
- Down payment: 20–25% standard
- Ratio: 1.0–1.25+ preferred; sub-1.0 options exist at tougher pricing
- Reserves: 3–6 months of full PITIA — sized to the real tax bill
- STRs: financeable (Hill Country, Galveston, Fredericksburg are active markets) — verify city ordinances, especially Austin's licensing rules
Frequently asked questions
Should I use the seller's tax bill in my DSCR math?
No — assume reassessment toward your purchase price at roughly 2%+ effective rate. If the deal still works, it really works.
Does Texas's cash-out rule affect DSCR loans?
Texas's special home-equity rules (the 50(a)(6) regime) apply to owner-occupied homesteads. Investment-property DSCR cash-out refinances aren't homestead loans, so they generally follow normal investor terms — your specialist will confirm structure.
Can I close in an LLC?
Yes — standard practice in Texas, with straightforward entity treatment for most small landlords.