The Texas real estate landscape has undergone a significant shift in recent years. The short-term rental market is booming, attracting investors from all over the country. However, the data reveals a specific challenge for those looking to buy in the Lone Star State: high property taxes.
Analysis shows that traditional bank loans often struggle to account for the unique economics of Texas rentals. High tax rates can skew the numbers, making profitable properties look risky on paper. This mathematical disconnect has driven the rapid rise of DSCR financing.
This report provides a general overview of ten lenders who have successfully adapted to the Texas market. These institutions understand the specific capital needs of short-term rental investors. In the coming weeks, this publication will release detailed individual breakdowns for each lender on this list.
What is a DSCR Loan?
To navigate this market, it is essential to understand the primary tool being used: the Debt Service Coverage Ratio (DSCR) loan.
Think of a DSCR loan like a balance scale.
- On one side: The income the house generates (rent).
- On the other side: The cost to own the house (mortgage, taxes, and insurance).
If the income side is heavier than the cost side, the loan is typically approved. The lender evaluates the house’s performance as a business, rather than the borrower’s personal income. This structure is particularly helpful for self-employed investors or retirees.
The Texas Twist
Texas has no state personal income tax, but it funds local government through property taxes, which can exceed 2% or 3% of a home’s value.
When lenders use “long-term rent” numbers (like a standard 12-month lease) for qualification, these high taxes can make the debt ratio look unfavorable. However, short-term rentals (STRs) typically generate significantly higher revenue than long-term leases. The lenders highlighted in this report utilize Short-Term Rental data, such as figures from AirDNA, to underwrite loans. When the higher STR revenue is used in the calculation, the math aligns, allowing investors to access capital.
The Top 10 Texas DSCR Lenders
Based on market research, the following ten lenders are currently shaping the Texas landscape. Each offers distinct advantages depending on an investor’s specific strategy.
1. Easy Street Capital
Best for: The “BRRRR” Investor (Buy, Rehab, Rent, Refinance, Repeat).
Headquartered in Austin, Easy Street Capital is known for velocity. Many lenders require a “seasoning period,” forcing investors to hold a property for a year before refinancing. Easy Street removes this barrier, allowing for a refinance after just one booking. For investors looking to renovate properties and recycle their capital quickly, this is a distinct structural advantage.
2. Visio Lending
Best for: Stability and Long-Term Holds.
Visio Lending brings institutional scale to the DSCR space. Offering 30-year fixed rates, they provide the stability of a traditional bank loan with the flexibility required by investors. This approach is well-suited for those looking to build a stable, long-term portfolio. They also offer a specialized program for homeowners looking to convert their primary residence into a rental property.
3. Ridge Street Capital
Best for: Speed.
In competitive markets like Dallas or Austin, speed is often the deciding factor. Ridge Street Capital focuses on rapid execution, aiming to close loans in two to three weeks. This capability allows borrowers to compete directly with cash offers. Their policy explicitly supports the use of AirDNA data for income qualification.
4. Lone Star Financing
Best for: Geographic Reach.
Texas is vast, and a deal in the Panhandle differs greatly from one in Houston. Lone Star Financing operates as a broker with a statewide footprint, serving markets from Lubbock to the Rio Grande Valley. They are known for an “investor-friendly” approach that minimizes paperwork, making them a flexible option for diverse locations.
5. Tidal Loans
Best for: Renovation Projects.
Based in Houston, Tidal Loans specializes in “value-add” projects. They are a strong partner for investors targeting distressed properties that require significant repairs. Tidal Loans allows for refinancing without a long waiting period once renovations are complete and possesses specific expertise regarding Gulf Coast insurance requirements.
6. NQM Funding
Best for: Maximum Leverage.
“Leverage” refers to using borrowed capital to increase potential return on investment. While many lenders cap loans at 80% of the purchase price, NQM Funding offers up to 85% Loan-to-Value (LTV). This additional leverage allows investors to retain more cash, which can be critical when stretching a budget for a higher-value asset.
7. Park Place Finance
Best for: The Common Sense Approach.
The team at Park Place Finance includes former rental operators, providing them with a practical perspective on the industry. They utilize “common sense” underwriting that accepts projected income data, acknowledging that new rentals take time to ramp up. Their model combines this flexibility with the ability to close quickly.
8. Guarantee Mortgage
Best for: College Towns and Niche Markets.
Real estate in university hubs like College Station operates on a unique “Game Day” economy, where revenue spikes during football season. Guarantee Mortgage specializes in these niche markets. They employ a tiered system that offers clear terms based on creditworthiness and understand the specific income patterns of college towns.
9. Texas Premier Mortgage
Best for: Building a Large Portfolio.
Conventional financing often imposes a limit on the number of properties an investor can finance, usually capping at ten. Texas Premier Mortgage allows for financing up to 20 properties. Additionally, they have lower cash reserve requirements than many competitors, removing common bottlenecks for investors aiming to scale their portfolios significantly.
10. LBC Mortgage
Best for: Urban Metro Markets.
LBC Mortgage focuses on major metropolitan areas: Austin, Dallas, Houston, and San Antonio. They offer “Interest-Only” loan options. By allowing borrowers to pay only interest for the initial years, monthly obligations are kept lower. This is a strategic tool for managing cash flow in high-cost urban markets where property prices are elevated.
Strategic Outlook
Selecting a lender is a strategic decision comparable to selecting the property itself. The “best” partner depends entirely on the investment goal—whether that is a heavy renovation, a turnkey luxury rental, or a high-volume portfolio.
This overview serves as a starting point. To support informed decision-making, we will be releasing comprehensive profiles for each of these lenders, analyzing their specific terms, advantages, and limitations in greater detail.
