DSCR Loans on Long Island and Across Downstate New York

I help investors get DSCR loans on Long Island and across downstate New York, comparing programs from the lenders I work with.

A DSCR (debt service coverage ratio) loan is a mortgage on rental property that a lender underwrites mainly on the property's rent instead of your personal income. The lender compares the monthly rent with the monthly PITIA payment (principal, interest, property taxes, insurance and any association dues). On Long Island, the deciding question is often whether that rent comes from a legal, permitted unit.

What a DSCR loan is

The term comes from commercial lending. The OCC's handbook for bank examiners defines the debt-service coverage ratio as cash flow or net operating income divided by debt service. Residential DSCR programs typically use a simpler version: gross monthly rent divided by PITIA.

A ratio of 1.0 means the rent exactly covers the payment. Above 1.0 leaves room to spare; below 1.0 means you top up the payment yourself. Each lender sets its own minimum ratio, and there is no federal definition of a residential “DSCR loan,” so programs with the same name can work quite differently. The DSCR calculator below runs the ratio for up to four units.

Who a DSCR loan fits, and who it doesn't

• Investors buying a one- to four-unit rental they will not live in.
• Self-employed borrowers whose tax returns show heavy write-offs. Buying a home to live in instead? See my self-employed mortgage guide.
• LLC buyers who want to hold title in an entity, which many programs allow.
• Growing portfolios, where qualifying on personal income gets harder with each mortgage.

It is usually the wrong tool if you will live in the property. FHA and VA financing can be used for owner-occupied homes of up to four units, and FHA lets rental income from an accessory dwelling unit be included. Compare FHA loans on Long Island and VA loans for Long Island veterans first.

Federal rules draw a similar line. Under the CFPB's Regulation Z commentary, a property the owner expects to occupy for more than 14 days in the coming year cannot be considered non-owner-occupied; the CFPB's own example is a beach house the owner uses for a month in summer and rents out the rest of the year. If you plan to use an East End house yourself for part of the season, tell me up front.

How lenders estimate the rent

Leased, vacant and seasonal properties

With a lease in place, lenders generally start with the lease and may ask for proof that the tenant is paying. On a purchase or a vacant property, the appraiser typically adds a rent analysis based on comparable rentals nearby. When the two figures disagree, lenders differ on which one they use. Lenders treat nightly or seasonal income very differently, and some do not count it.

The payment side

PITIA is principal and interest plus property taxes, homeowners insurance (and flood insurance if required) and any condo or association dues. On Long Island the tax line often decides the ratio, so run the property's actual tax bill through the DSCR calculator below. For a home you will live in, my mortgage payment calculator shows the full monthly payment instead.

Property types

Eligible property types vary by lender and program. Depending on the program, a DSCR loan may cover:

• Single-family rentals and two- to four-family homes.
• Condos, subject to the lender's review of the project.
• Homes with an accessory apartment, if the apartment is legal.
• Mixed-use buildings, which some DSCR programs accept and others treat as commercial.

Buildings with five or more units, fix-and-flip projects and commercial property are covered in my broader guide to rental and investment property loans, from 1–4 family rentals to multifamily and fix-and-flip. For short-term financing on a property you won’t live in, see bridge loans for investors.

DSCR loan vs. conventional investor loan

DSCR loans in Nassau and Suffolk: the local rules

Rules on rentals and accessory apartments are set locally, and Long Island has a lot of localities. Nassau County alone has three towns, two cities and 64 incorporated villages, and Suffolk County has ten towns, from Babylon and Huntington to Southampton and Southold. Some hamlets cross town lines (Hauppauge is partly in Smithtown and partly in Islip), so check with the municipality where the property sits.

Legal units and the certificate of occupancy

Before you build a unit's rent into the ratio, confirm that the certificate of occupancy (CO) matches how the house is used and that required permits are in place. A lender may not count rent from a unit that is not legal, so leave that unit out when you run the ratio. Have your attorney review the CO and permits during contract review, not after the appraisal.

Mother-daughter homes are not rentals

In the Town of Hempstead, a Mother-Daughter Use approval allows a second kitchen for the sole use of the owner's children or parents, and it requires Board of Appeals approval and a plumbing permit. It is not permission to rent to a tenant, so do not build a DSCR ratio on it.

East End rental permits

In the Town of Southampton, any home rented for any period needs a rental permit, good for two years, and the minimum stay is currently 14 days; shorter transient rentals are not allowed under the Town Code. Southampton permits are non-transferable: a new owner needs a new permit, and so does an owner who moves the property into an LLC, trust or estate, which matters if you plan to buy or hold in an entity. In East Hampton, owners who rent by the week, month, season or year must register and get a Rental Registry Number, which has to appear in rental ads, with a $100 filing fee for a two-year term. East Hampton has posted proposed changes to its registry rules, so confirm current requirements with the Town.

Taxes, assessments and closing costs

Property taxes sit inside PITIA, so the assessment feeds straight into the ratio. In Nassau, the Assessment Review Commission hears appeals of county assessments, and the filing window for the 2028/29 roll runs January 4 through March 1, 2027. In Suffolk, town assessors set values and the town Board of Assessment Review meets on the third Tuesday in May; confirm the date with your town assessor. My Nassau County mortgage broker page and Suffolk County mortgage broker page have more local detail.

On top of the purchase price, New York charges a mortgage recording tax when the mortgage is recorded, and some buyers also owe other state or local taxes at closing. Your Loan Estimate and closing attorney show the exact amounts.

DSCR loans in New York City, Westchester, Rockland and Putnam

Queens, Brooklyn, Staten Island, the Bronx and Manhattan

If neither you nor your immediate family lives in a one- or two-family house, the city requires you to register it with HPD every year; three or more units always register. Base the ratio on long-term rent: stays under 30 days currently require the host to live there and register with the city. Many DSCR programs don’t take co-ops, and boards usually limit subletting, so check both before you count on any rent.

Westchester, Rockland and Putnam

In Westchester, as on Long Island, the tax bill can decide the ratio, so use the actual bill. Rental permits, where required, come from the city, town or village; confirm the unit is legal before you count its rent.

Terms to read closely

Under Regulation Z, credit to acquire, improve or maintain rental property that is not owner-occupied is deemed business-purpose credit, and business-purpose credit is exempt from Regulation Z. In the market, DSCR loans are often grouped under the industry label “non-QM.” Each lender writes its own terms:

• Prepayment penalties. Many DSCR loans charge one if you pay off or refinance within a set period. Get the structure in writing and match it to your holding plan.
• Reserves. Lenders typically want cash left over after closing, and requirements vary by program.
• Pricing. It usually reflects the ratio, your credit and your equity in the deal, and it moves with the market.
• Entity paperwork. In an LLC, ask what documents the lender needs and whether you will also be personally liable.

Step by step: financing a rental with a DSCR loan

1. Pull the paperwork. The CO, permits, any rental permit or registry number, the tax bill and existing leases.
2. Estimate the ratio. Run the rent, the tax bill and an insurance quote through the DSCR calculator. If the rent barely covers PITIA, plan now for vacancies.
3. Decide on title. Personal name or LLC, settled with your attorney and accountant before you apply.
4. Compare programs. I compare DSCR lenders on minimum ratio, prepayment terms, reserves and pricing.
5. Go to contract. Your attorney negotiates the contract of sale; the appraisal and rent analysis follow.
6. Underwriting and closing. The lender reviews the rent, credit, reserves and entity documents; your attorney and the title company handle the closing.

Have a property in mind? Send me the address and the rent through the contact form.

Refinancing or taking cash out of a rental you own

Many DSCR programs also refinance rentals you already own, including cash-out refinances, using the same rent-to-PITIA test. On a refinance, a CEMA (Consolidation, Extension and Modification Agreement) can reduce the mortgage recording tax when your current lender cooperates and the loan type allows it; your closing attorney confirms whether it's available. My guide to refinancing a mortgage on Long Island covers the process.

Frequently asked questions

Sources

1. Comptroller's Handbook: Commercial Real Estate Lending (glossary), Office of the Comptroller of the Currency.
2. Official Interpretation to 12 CFR 1026.3, Exempt transactions, Consumer Financial Protection Bureau.
3. FHA Myths v Facts, U.S. Department of Housing and Urban Development.
4. VA-backed purchase loan, U.S. Department of Veterans Affairs.
5. Conforming Loan Limits for Mortgages Acquired in Calendar Year 2026 (full county list), Federal Housing Finance Agency.
6. Popular Annual Financial Report FY2024, Nassau County.
7. Towns and Villages, Suffolk County.
8. Mother-Daughter Use, Town of Hempstead.
9. FAQ: Are Rental Permits required?, Town of Southampton.
10. Rental Registry FAQs brochure, Town of East Hampton.
11. Assessment Review Calendar, Nassau County.
12. Real Property Tax Service Agency FAQs, Suffolk County.
13. Grievance procedures, NYS Department of Taxation and Finance.
14. Register Your Property, NYC Department of Housing Preservation and Development.
15. What is Local Law 18, NYC Office of Special Enforcement.
16. NY Tax Law §255, Supplemental mortgages, New York State Senate.

About the author Kevin deNeergaard Mortgage Loan Originator, NMLS #2450179 · Scott Capital Group (NMLS #876527)

Founder, The Loan Home Team. I started out as a real estate investor. Now I help buyers, homeowners and investors find the right loan. I work with clients in Nassau, Suffolk, New York City, Westchester, Rockland and Putnam.

More about Kevin · 631-250-6930 · Kevin@scottcapitalgroup.com