San Jose has spent years encouraging backyard units, and many investors here now buy a house and an ADU as one rental property. On a DSCR loan, that second rent is often the difference between a property that qualifies and one that does not.
In short: LendingStreet finances San Jose rentals of 1 to 8 units with DSCR loans that qualify on the property's rent, with no W-2s or tax returns and LLC borrowers welcome. Loans start at $150,000 with no stated maximum, purchases go up to 80% LTV, and the standard minimum DSCR is 1.0x with a 620 minimum credit score. Because Silicon Valley prices are high relative to rents, many San Jose files land at lower leverage, and a permitted ADU's rent can help when the program and appraisal allow it.
Tenant demand in San Jose comes from the tech employers across Silicon Valley, the region's hospitals and universities, and the many workers who commute between San Jose, Santa Clara, Sunnyvale and Milpitas. BART now reaches Berryessa and Milpitas, which has drawn interest to rentals in North and East San Jose.
Investors buy single-family homes in East San Jose, Evergreen, Berryessa and Blossom Valley; duplexes and small multi-units near downtown, Japantown and the Burbank area; and higher-priced homes in Willow Glen, Cambrian and Almaden Valley. Rents are high, but purchase prices are higher still, so the ratio is the first thing to test.
San Jose has made it easier to add accessory dwelling units, including programs with pre-approved ADU plans, and state law limits how much cities can restrict them. Many listings now include a detached backyard unit or a converted garage.
Whether that unit's rent counts toward your DSCR depends on the program and the appraisal. A permitted ADU with its own lease and documented market rent is the strongest case. An unpermitted conversion usually does not count, and it can lower the value as well. Ask the seller for the permit record before you rely on that income.
This example is illustrative and not a quote. An investor buys an East San Jose single-family home with a permitted detached ADU for $1,250,000. The main house leases for $3,900 and the ADU for $2,300. Taxes on the purchase price are estimated at $1,250 a month and insurance at $230.
Counting only the main house, the ratio at 60% LTV is 0.60x, far from qualifying. Counting both rents, it rises to 0.96x, and at 55% LTV it reaches 1.02x, which meets the 1.0x standard minimum. The ADU does most of the work here, which is why its permit status matters so much.
| Item | 60% LTV, main house rent only | 60% LTV, with ADU rent | 55% LTV, with ADU rent |
|---|---|---|---|
| Loan amount | $750,000 | $750,000 | $687,500 |
| Estimated principal and interest | $4,990 | $4,990 | $4,574 |
| Taxes and insurance | $1,480 | $1,480 | $1,480 |
| Total monthly payment | $6,470 | $6,470 | $6,054 |
| Rent used | $3,900 | $6,200 | $6,200 |
| DSCR | 0.60x | 0.96x | 1.02x |
San Jose's Apartment Rent Ordinance applies to apartments in buildings of three or more units that were built before late 1979, and limits annual increases on those units. The city's Tenant Protection Ordinance adds just-cause requirements to most rental housing, and covered properties must register with the city's rent stabilization program. Single-family homes, condos and duplexes are generally outside the ordinance's increase limit, though California's statewide Tenant Protection Act may apply.
For a DSCR loan, we qualify on the in-place lease, so a long-term tenant's below-market rent lowers the ratio. Price the property on the rent it actually collects.
Under Prop 13, your purchase resets the assessed value to the price. The base levy is 1% of assessed value, and Santa Clara County bills often include voter-approved bonds and parcel taxes on top, so many buyers budget somewhat above 1% of the price. Expect a supplemental tax bill after closing, and check the bill for any special assessments in newer subdivisions.
Use the reassessed figure, not the seller's bill, when you run your own numbers. On a home the seller owned for twenty years, the difference can be several hundred dollars a month, which is enough to move a San Jose file from qualifying to not qualifying. The Santa Clara County Assessor's website explains how supplemental bills are calculated.
San Jose allows short-term rentals with city registration and payment of transient occupancy tax, and its rules limit unhosted rentals. Because a non-owner-occupied investment property is unhosted by definition, check the current limits before you rely on nightly income. Most San Jose investor properties are underwritten on long-term leases, which also suits the city's steady corporate and medical tenant base.
Silicon Valley rents are among the highest in the country, but so are prices, which pushes many purchases below the 80% LTV maximum. Investors often combine a larger down payment with a property that has a second rent, such as an ADU or duplex unit. Where the ratio is still short, a sub-1.0 DSCR program can work with more reserves.
Insurance is usually less of a hurdle in San Jose's flat neighborhoods than in fire-prone hill areas, but older homes with original wiring or roofs can still be harder to place. Hillside properties in the Almaden and East Foothills areas deserve an early quote.
Send the address, price, leases or rent estimates for each unit, and the ADU permit record if there is one, through the form below or call (877) 298-1001. We will run the ratio at several loan amounts so you know the down payment before you offer. See our California DSCR page for statewide terms.
It can, depending on the program and appraisal. A permitted ADU with its own lease or a market rent estimate is the strongest case.
The Apartment Rent Ordinance generally applies to buildings of three or more units built before late 1979. Duplexes are usually outside it, but other tenant protections may apply.
The minimum is 620. Stronger credit and lower leverage can improve terms.
Yes. LLC borrowers are standard, and you sign for the loan personally. Our investor loans are business-purpose loans on non-owner-occupied property.
Prices are high relative to rents. A larger down payment, a second rent such as an ADU, or a sub-1.0 program usually helps.
No. The loan qualifies on the property's rent.
Yes. We lend on 1-8 unit investment properties across Santa Clara County and California.
No stated maximum. Larger balances get more review, and maximum LTV can be lower.
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