Limited liability companies (LLCs) create a legal and financial separation between an individual borrower and the properties they are purchasing. This layer helps protect a borrower's personal finances from property-related claims and also helps simplify partnership real estate investments.

Traditional mortgages are a poor fit for LLCs because they typically require that title be held in the borrower’s personal name - that’s where Debt Service Coverage Ratio (DSCR) loans come in. 

DSCR loans determine financing eligibility using a property’s cash flow, rather than the owner’s personal income. DSCR Loans are also specifically designed for LLCs borrowers making them the ideal choice for real estate investors.

What Is a DSCR Loan?

A Debt Service Coverage Ratio (DSCR) loan is a type of investment property financing that measures a property’s ability to pay its own debt. Instead of reviewing W-2s or tax returns, lenders look at the property’s rental income compared to its mortgage payments, taxes, and insurance to determine eligibility. Since approval is based on property cash flow and not personal income, DSCR loans are especially useful for investors with multiple properties or income that doesn’t fit traditional underwriting. 

Why Lenders and Borrowers Prefer LLCs for DSCR Loans

Most DSCR lenders require the property to be titled under an LLC or business entity. This structure aligns with how DSCR loans are regulated and helps protect both the borrower and the lender. 

1. DSCR loans are business-purpose by design

DSCR loans are built for real estate investments not for personal dwelling. By purchasing a property with a company that you own (LLC, Corporation, Trust, etc), this creates a clear distinction of the intended use - i.e. business purpose non-owner occupied.

This said, most states do allow business purpose DSCR loans to be closed in a borrower's personal name. Of the 35 States that Ridge Street operates in, only GA, HI, MA, NY, and PA require a DSCR Loan to be closed in an LLC. Other States such as FL, TX, NC, SC, IN, OH, etc. allow DSCR Loans to be closed in an LLC or in a borrower’s personal name.

2. Liability protection for borrowers

Using an LLC provides a legal buffer between the investor’s personal assets and the property’s liabilities. If a lawsuit or claim arises against the property, the LLC provides a layer of protection for the owner’s personal finances.

• Protects personal assets from tenant disputes or property-related claims.
• Makes accounting and tax reporting cleaner for multi-property portfolios.

Note: Although the LLC is the ultimate owner of the property, most DSCR Lenders including Ridge Street require at least 50% of the LLC’s owners to personally guarantee the loan.

3. Risk management for lenders

Lenders also benefit from entity ownership. Business-purpose loans let them separate commercial risk from consumer lending exposure and maintain clearer recourse terms.

• The LLC structure creates a defined borrowing entity, reducing ambiguity around liability.
• Personal guarantees can still apply, but the loan remains a business transaction under commercial lending guidelines. Lenders often require personal guarantees from LLC members, making the creditworthiness of LLC members an important factor in the loan process.

In essence, titling the property under an LLC can be a compliance requirement depending on the state and a strategic move that benefits both sides of the loan.

How To Purchase a Property Through An LLC With A DSCR Loan

1. Form the LLC

The first step is to create your LLC. This requires obtaining an Articles of Formation from the State that you are operating in and obtaining an EIN Number from the IRS for your company. The process is very simple and usually only takes a few days. We can recommend Northwest Registered Agent for setting up your LLC if you want a “done for you” service.

2. Open a business bank account

All rental income and expenses should flow through the LLC’s bank account. Using a dedicated business bank account helps with simplifying accounting by clearly separating business and personal expenses, which also streamlines tax preparation. 

This said, you can use your personal bank account to verify liquidity for the down payment and liquidity requirements of the DSCR Loan.

3. Apply for the DSCR loan

The LLC will be listed as the borrower and the investor signs as a personal guarantor. For the LLC, Ridge Street will collect the LLC's Articles of Formation and EIN Letter and for the personal guarantor, Ridge Street will collect a Photo ID and 2 Months of Bank Statements showing cash to close.

You can apply for a DSCR Loan for an LLC here.

4. Underwriting and evaluation

In this stage, DSCR Lenders will analyze the property’s rental income and operating expenses to calculate the DSCR ratio. Once this stage is complete, the loan is cleared-to-close.

5. Close and title the property

At closing of the DSCR Mortgage, the listed Mortgagor will be the LLC and the closing package will be signed by the managing member of the LLC (a.k.a. the personal guarantor).

DSCR Loan Requirements for LLC Borrowers

While every lender sets its own parameters, most DSCR loan programs share a similar set of eligibility standards. These ensure the property generates enough income to sustain its debt while confirming the borrower’s financial and operational credibility.

• Minimum DSCR: Typically 1.0, depending on loan size and property type. A ratio above 1.0 means the property earns enough to cover its debt payments.
• Credit Score: Ridge Street Capital DSCR Loan Programs start at a minimum FICO of 660, with stronger pricing available for higher credit tiers.
• Loan-to-Value (LTV): Leverage is capped between 80% for purchases & refinances and 75% for cash-out refinances.
• Entity Documentation: Borrowers must provide an LLC operating agreement, EIN confirmation, and articles of organization to verify the business structure.
• Property Income Verification: Lenders review bank statements, leases, and appraisals to confirm the DSCR calculation and to confirm the cash-to-close.

These requirements give lenders a clear picture of both the property’s performance and the borrower’s experience, ensuring the loan is structured for long-term success under the LLC.

LLC vs. Personal Ownership: Key Differences

Choosing how to hold title, either in your own name or through an LLC, affects everything from liability protection to financing options. Here’s how the two structures compare.

When Personal Ownership Might Be Simpler

In some cases, it may make more sense for a real estate investor to keep the ownership of the property in their own name. A common scenario arises when an investor moves out of their home and chooses to rent out their home instead of selling it (i.e. what was once a primary residence, has now become an investment property.)

Some states impose a real estate transfer tax, where the state or county charges a fee (0%-2%) of the fair market value, to record the change of ownership. In these cases, it is more cost effective to hold the property in a borrower’s personal name rather than transfer to an LLC.

Getting Pre-Approved For A DSCR Loan

Ridge Street provides DSCR Loans to real estate investors purchasing and refinancing investment properties through their personal names and through LLCs.

To get a quote on a DSCR loan or to get pre-approved, you can complete a 2 Minute Quick App here.

If you have more questions about structuring a property through an LLC or in your personal name, you can schedule a call with one of our experts here.

FAQs: DSCR Loans and LLC Ownership for Investment Property

Can DSCR loans be used for short-term rentals or multifamily properties?

Yes. DSCR loans can finance a wide range of investment properties, including short-term rentals, long-term rentals, multifamily properties, and condos?

Can DSCR loans be closed in a Corporation?

Yes, DSCR loans can be closed in a number of different entity structures including: LLCs, Corporations, Revocable Trusts, and Partnership Structures.

Is there a limit to how many DSCR loans an LLC can have?

No. Unlike conventional mortgages, most DSCR programs do not cap the number of loans an investor or LLC can hold. 

How does transferring a property into an LLC impact taxes or ownership?

Transferring a property into an LLC can help separate personal and business finances, but it may also trigger transfer taxes. You’ll need to query for “Real Estate Transfer Tax {MY STATE}” to see if your state imposes a transfer tax when moving the ownership of one of your properties into an LLC.