DSCR Loans in Ohio: The Family Rule and the Cash Out Test

Ohio writes its investment loan rule out in plain terms. The rule sits in the state's administrative code, and it turns on two questions many investors never think to ask: who will live in the home, and where the loan money goes.

My DSCR investor loan page explains how these loans qualify on rent. Below I go through the Ohio rule piece by piece, starting with the family test, since that is the part that surprises people most.

Who counts as family under Ohio's investment loan rule?

Ohio Administrative Code 1301:8-7-02, paragraph (G), treats a loan made to invest in a dwelling "to either lease, rent, or resell for profit" as a business purpose loan. That treatment is lost if the home "will be occupied by the borrower or any immediate family member of the borrower." On a 2 to 4 unit building, one occupied unit is enough.

The rule takes its family list from section 1322.01 of the Ohio Revised Code. The list covers a spouse, child, stepchild, parent, stepparent, grandparent, grandchild, brother, and sister, plus a parent, brother, or sister in law.

That reaches further than most buyers guess. Buying a duplex so your daughter can live upstairs, or a small house for a retired parent, takes the loan out of the investment category. The rule makes no exception for a relative who pays rent.

The words "will be occupied" look ahead, too. A plan for you or a relative to move in later is part of the picture from the start.

How does Ohio treat cash out on a rental?

Paragraph (F) of the same rule sets out a simple test. A loan counts as personal use when more than one half of the total loan amount goes to consumer purposes instead of business purposes. When the business share is larger, Chapter 1322 does not apply.

Ohio also keeps room to judge each case. The superintendent of financial institutions may weigh the whole set of facts around a loan, not only what the cash out pays for.

So if you plan to pull equity out of an Ohio rental to cover a car, tuition, or your own kitchen, raise it with me first. The use of the money can decide which kind of loan you need, and it is far easier to sort out before an application than after.

Do you need an Ohio license to arrange an investment loan?

Ohio licenses brokers, lenders, and individual loan originators under the Residential Mortgage Lending Act, Chapter 1322 of the Revised Code. The law turns on the phrase "residential mortgage loan." Section 1322.01 reserves that label for credit "primarily for personal, family, or household use" backed by a dwelling or residential real estate.

Paragraph (G) is what settles it for investors. An investment loan that passes the family test "is not subject to the requirements of Chapter 1322," and that covers the originator license in section 1322.07 as well.

Federal law reads rentals the same way. The official commentary to Regulation Z deems credit for a rental the owner does not occupy to be for business purposes, whatever the number of units.

Does an Ohio DSCR loan have to close in an LLC?

No. Section 1322.01 defines a "borrower" as a person, and its definition of "person" names an individual alongside a limited liability company. Nothing in the chapter or the rule tells you how to take title.

You can close in your own name or set up an LLC first, and my DSCR LLC page lays out how that choice works. Individual lender programs may add their own vesting terms, so I check each one before we commit.

What does a DSCR lender look at?

A DSCR loan is approved on the property's rent instead of your personal income. The lender sets the monthly rent against the whole payment: principal, interest, taxes, insurance, and association dues if the property has them. A result above 1 says the rent carries the loan.

What should Ohio investors gather before we talk?

Start with occupancy, because in Ohio it decides the type of loan before the numbers matter. After that, pull together the figures behind the ratio.

• Everyone who will live there, relatives included
• For a refinance, what the cash out will be used for
• A signed lease, or the monthly rent you expect
• Your most recent tax bill for the property
• A landlord insurance quote
• HOA or condo dues, if there are any

With those in hand, I can tell you early whether the loan fits a DSCR program or belongs somewhere else. That keeps you from paying for an appraisal on the wrong kind of loan.

Where does a mortgage broker fit in an Ohio deal?

I don't fund loans. In the FTC's words, a broker helps you find a deal with a lender and work out the details. For an Ohio rental, I run the family and cash out questions first, then shop DSCR programs that suit the property.

Residential home loans in Maine and Florida. DSCR loans in 37 states. Ohio is one of those states, and the licensing table lists it with no LLC requirement.

FAQ

Can my son or daughter rent a home I buy in Ohio with a DSCR loan?

No, an Ohio DSCR loan can't finance a home your son or daughter will occupy. Ohio Administrative Code 1301:8-7-02(G) strips business purpose status from a dwelling where the borrower or an immediate family member lives, and in a duplex, triplex, or fourplex one occupied unit is enough.

Does cash out change an Ohio DSCR refinance?

Yes, cash out can turn an Ohio DSCR refinance into a personal use loan. Paragraph (F) of that Ohio rule says a loan is personal use when more than one half of the loan amount goes to consumer purposes, and the superintendent may weigh all the circumstances, so tell me how you plan to spend the money first.

Does an Ohio DSCR loan need an LLC?

No, Ohio leaves the LLC question up to you on DSCR loans. Revised Code 1322.01 names individuals, sole proprietorships, companies, and LLCs alike in its meaning of "person," and Chapter 1322 is silent on how an investor holds title.

What are the requirements for a DSCR loan in Ohio?

Ohio DSCR loans require a rental that neither you nor any immediate family member will occupy, plus rent that carries the whole monthly payment. Ohio's family list in section 1322.01 reaches spouses, children, stepchildren, parents, stepparents, grandparents, grandchildren, siblings, and some in laws, and lenders also look at your credit, cash for closing, and savings.

Where can I get a DSCR loan in Ohio?

Ohio DSCR loans are available through lenders and through brokers like me, because a true investment loan sits beyond Ohio's Residential Mortgage Lending Act. Paragraph (G) says such a loan "is not subject to the requirements of Chapter 1322," which also takes it outside the originator license in section 1322.07.

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Weighing an Ohio rental? Using the form on my contact page or an email to travis@travis.mortgage, send the address, the expected rent, and who plans to live there. I'll call or email you with a straight answer on whether a DSCR loan fits.

Started in 2004 and I'm still here.