Townhomes rent well and usually cost less than a detached house. Whether yours qualifies for a DSCR loan comes down to three things: the HOA dues, how the project is legally set up and what the HOA allows for leasing.
In short: Yes, LendingStreet finances townhome rentals with DSCR loans that qualify on the property's rent, with up to 80% LTV on purchases, a 620 minimum credit score and LLC borrowing allowed. The monthly HOA dues count as part of the payment, so they lower your DSCR. A townhome in a PUD is usually treated like a house, while a townhome legally set up as a condo may need a condo questionnaire. HOA rules that cap or restrict rentals can make a property ineligible, so check them before you sign a contract.
DSCR compares the property's monthly rent to its full monthly housing payment. That payment includes principal, interest, taxes, insurance and HOA dues. On a townhome, the HOA line is often the item that decides whether the ratio clears 1.0x.
Dues vary widely. Some townhome HOAs only cover common areas and run modest amounts. Others cover the roof, exterior, water or a master insurance policy and cost much more. Higher dues are not bad on their own, since they may lower your own insurance and repair costs, but every dollar of dues is in the ratio.
Special assessments matter too. If the HOA has a large assessment underway, lenders may ask about it, and some count it as part of the monthly payment.
"Townhome" describes the building style, not the ownership. What matters to a lender is how the project is recorded. In a PUD (planned unit development), you typically own the unit and the land under it, and the HOA owns common areas. In a condo, you own the interior of the unit plus a share of the common elements, which often include the land and the exterior.
A PUD townhome is usually underwritten much like a single-family house. A townhome legally set up as a condo is usually reviewed like a condo, which can mean a condo questionnaire and a look at the HOA's budget, reserves, insurance and litigation. The appraisal, the title commitment or the HOA documents will show which one you have.
| Item | PUD townhome | Condo-style townhome |
|---|---|---|
| What you own | Unit and the land under it, in most cases | Unit interior plus a share of common elements |
| Typical review | Similar to a single-family rental | Condo review; questionnaire may apply |
| HOA dues in DSCR | Yes | Yes |
| Master insurance policy | Sometimes | Common |
| Rental restrictions checked | Yes | Yes, often in more detail |
If the townhome is a condo, expect the HOA or its management company to complete a questionnaire. It covers items such as owner-occupancy ratio, delinquent dues, reserves, pending litigation, insurance and any single-entity ownership. Many HOAs charge a fee and take a week or more to return it, so request it early.
Our page on the DSCR condo questionnaire explains what it asks and the answers that tend to cause problems. If the project fails some standard condo criteria, a non-warrantable condo program may still be an option on some files.
Some HOAs limit how many units can be rented, require a waiting list, set minimum lease terms or ban short-term rentals outright. A DSCR loan assumes you can rent the property, so a rule that keeps you from leasing it can stop the loan.
Read the CC&Rs, bylaws and any rules and regulations before you go under contract. Look for:
This example is illustrative and not a quote. An investor buys a PUD townhome for $300,000 with 20% down. The loan is $240,000 at a sample rate of 7.25% on 30-year amortization, so principal and interest is about $1,637 a month. Taxes and insurance add $450, and HOA dues are $275.
The full payment is about $2,362. With market rent of $2,400, DSCR is about 1.02x, just above the 1.0x standard minimum. Without the HOA, the same deal would be about 1.15x, which shows how much the dues matter. If the ratio had come in under 1.0x, options include more down payment or a sub-1.0 DSCR program on some files.
Townhomes in vacation markets are popular short-term rentals, but they are also where HOA bans are most common. If the HOA allows it, our STR DSCR program qualifies on projected revenue, with rates from 6.49% for well-qualified borrowers.
Get the HOA's short-term rental rules in writing. Local permitting rules apply on top of HOA rules, so confirm both.
Along with the usual DSCR items, such as entity documents, bank statements for reserves and a lease or market rent estimate, gather the townhome-specific pieces early. Our financing team can review the file before you commit and come back with 2–3 options if it qualifies.
Yes. The monthly HOA dues are added to principal, interest, taxes and insurance to get the full payment. Higher dues mean a lower ratio.
Only if it is legally a condo. Townhomes in a PUD are usually reviewed like a single-family rental. Townhomes recorded as condos usually go through a condo review, which may include a questionnaire.
Check the title commitment, the recorded declaration or the HOA documents. The appraisal will also identify the project type. Your title company can confirm it.
It can. If the HOA limits rentals and the cap is full, or the rules otherwise prevent you from leasing the unit, the property may not qualify for a rental loan.
Yes, if the HOA and local rules allow short-term rentals. Our STR DSCR program qualifies on projected revenue. Many townhome HOAs ban short-term leasing, so confirm that first.
Yes. LLC borrowers are allowed, and the loan qualifies on the property's rent rather than your personal income.
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