DSCR Loans in Massachusetts: What Investors Should Know

Clients buying rentals in Massachusetts usually ask me two questions first. Can a mortgage broker based in Portland, Maine arrange the loan, and does the property have to be owned by a company? The answers come straight from Massachusetts law.

A DSCR loan qualifies on the rent the property brings in, and my DSCR investor loan page covers how the program works. Here is how the Massachusetts rules apply and where the one important exception sits.

What is a DSCR loan?

DSCR stands for debt service coverage ratio. The lender divides the monthly rent by the full monthly payment, which includes principal, interest, taxes, insurance, and any association dues. A ratio above 1 means the rent covers the payment.

The loan is based on the property's income rather than your tax returns or W-2s. It also means the property has to carry its own payment. The DSCR calculator on my site lets you test a property before you make an offer.

Does Massachusetts require a mortgage license for DSCR loans?

Not for a true investment loan. The Massachusetts mortgage broker and lender law is chapter 255E of the General Laws. It applies to a "mortgage loan," which the law defines as a loan to a natural person made primarily for personal, family or household purposes and secured by residential property.

The definition of "residential property" does the real work. It means a dwelling with room for four or fewer households that is "occupied, or to be occupied, in whole or in part by the obligor." The Division of Banks regulation at 209 CMR 42.02 uses the same definitions word for word.

The Division of Banks has also said this plainly in its published opinions. It wrote that the licensing requirement applies to owner occupied 1 to 4 family real estate and does not apply to investment or non owner occupied real estate. In another opinion it called owner occupancy of a 1 to 4 family property the determinative factor.

What about a loan officer license?

Massachusetts licenses individual loan officers under chapter 255F. That law covers a "residential mortgage loan," defined as a loan primarily for personal, family, or household use. The Division of Banks regulation at 209 CMR 41.02 uses the same definition.

A loan to buy a rental you don't live in is not personal or household credit. Federal rules agree. The official interpretation of Regulation Z says credit to buy, improve, or maintain a rental that is not owner occupied is treated as business purpose credit, no matter how many units the property has.

Do you need an LLC for a DSCR loan in Massachusetts?

No. The state licensing test looks at occupancy and loan purpose, not at whether the borrower is a company. A person who buys a rental they will not live in falls outside chapter 255E because the property is not "residential property" under the law.

A loan made to an LLC falls outside the law for a second reason, because the definition of "mortgage loan" requires a natural person. So clients can close in their own name or in a company's name. Some clients still prefer an LLC for their own planning, and my DSCR LLC page walks through that choice.

Lender guidelines can differ from state law. I confirm the vesting rules for each file before we settle on a plan.

What if you live in one unit of a 2 to 4 unit property?

This is the exception that matters most in Massachusetts. Some buyers plan to live in one unit of a two family home or a triple decker and rent out the others. The law's phrase "in whole or in part" means that living in just one unit makes the property residential property.

The phrase "or to be occupied" matters too. If you plan to move into a unit later, the property still counts as owner occupied. In either case it is not an investment loan, and it falls under regular home loan rules and licensing.

I ask every client about occupancy at the start. If your plan includes living in the building at any point, we will talk about the right path before anything else.

Do buildings with five or more units follow the same rules?

The chapter 255E definition of residential property stops at four households. A building with five or more units is outside that definition, whether or not anyone lives there. Whether a lender program fits the building is a separate question.

What should you have ready for a Massachusetts DSCR loan?

The ratio depends on a handful of numbers, so gather them before we talk. Each one feeds the payment or the rent side of the calculation.

• The current lease, or the rent you expect to charge
• The property tax bill
• An insurance quote for a rental property
• Any condo or association dues
• Your plans for the property, including whether anyone in your household will live there

Having these early lets us check the ratio before you spend money on inspections. It also shows quickly whether the property needs a different kind of loan.

How does a mortgage broker help with a Massachusetts DSCR loan?

A mortgage broker does not lend the money. The job is to help you find a deal with a lender and work out the details of the loan. I compare DSCR programs for my clients so the property is matched to guidelines that fit it.

Residential home loans in Maine and Florida. DSCR loans in 37 states. Massachusetts is on that list, and my licensing page shows each DSCR state and its vesting rules.

FAQ

Do I need an LLC to get a DSCR loan in Massachusetts?

No, Massachusetts lets you take out DSCR financing without forming an LLC. Chapter 255E reaches only credit to an individual borrower on property that person occupies, which leaves out any rental you won't live in, whether you buy as yourself or through a company.

Can I live in one unit of a Massachusetts property and use a DSCR loan?

No, Massachusetts treats that plan as owner occupancy, so DSCR financing is off the table when you'll occupy, now or later, one apartment of a two family or a triple decker. Chapter 255E calls a home "occupied, or to be occupied, in whole or in part by the obligor" residential property, and a single unit satisfies that phrase.

Does a mortgage broker need a Massachusetts license for a DSCR loan?

Massachusetts does not license brokers who arrange DSCR financing on homes rented to tenants. In published opinions, the Division of Banks wrote that its licensing requirement reaches owner occupied homes of one through four families and leaves investment real estate alone.

What is a DSCR mortgage in Massachusetts?

DSCR mortgages in Massachusetts are investment loans approved on whether rent can carry the monthly bill, so they sit beyond the state's broker and lender law. The regulation at 209 CMR 42.02 limits that law to homes with room for four or less separate households that the obligor occupies, and an owner who lives somewhere else is not occupying it.

How do you get a DSCR loan in Massachusetts?

To get DSCR funding for a Massachusetts property, start with a rental you won't live in, anywhere from a condo up to a nine unit building. Buildings above four units sit beyond the chapter 255E residential property definition altogether, while on one to four family homes your occupancy plans decide which law applies.

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Looking at a rental in Massachusetts? Send me the address and the expected rent through the form on my contact page or by email to travis@travis.mortgage, and I'll tell you plainly whether it fits a DSCR loan.

Started in 2004 and I'm still here.