DSCR Loan Insurance Requirements: What Your Lender Will Ask For
A DSCR loan is underwritten on the rent the property earns, so the lender wants that rent and the building protected. Almost every DSCR lender sends an insurance requirements sheet. These are the items on nearly all of them.
The right policy: landlord (DP3), not homeowners
A rented home needs a landlord (dwelling fire, DP3) policy. A homeowners (HO-3) policy is written for a home the owner lives in, and lenders reject it on a rental. If the property is a short-term rental, say so up front: many landlord policies exclude nightly rentals, and the lender will want a policy that does not.
Dwelling coverage
Most DSCR lenders want the dwelling insured for at least the loan amount, and many ask for the full replacement cost. When the two differ, the requirements sheet says which one wins. A replacement cost estimate (RCE) settles the number when the lender asks for it.
Loss of rents
Because the loan is paid from rent, lenders commonly require loss-of-rents (fair rental value) coverage - often six to twelve months of rent. It pays the rent you lose while a covered loss makes the home unlivable.
Liability
Landlord liability of $300,000 to $1,000,000 per occurrence is typical. Some lenders also ask to be named as additional insured on the liability.
Deductible cap
Lenders cap the deductible - often at $5,000, sometimes as a percentage of the dwelling amount. Wind and hail deductibles in coastal and hail states count too, so check them against the cap.
Mortgagee clause, loan number and dates
The evidence of insurance must show the lender's mortgagee clause exactly as written, including ISAOA/ATIMA and the address, plus the loan number. The policy must be in force on the closing date, usually for a 12-month term, and many lenders want the first year's premium paid at closing.
Flood
If FEMA places the property in a special flood hazard area (zones starting with A or V), federal rules require flood insurance on the loan. Flood is always a separate policy with its own evidence.
Questions
Can I use my homeowners policy on a DSCR rental?
No. Once the home is rented, lenders require a landlord (DP3) policy.
How much loss of rents does a DSCR lender need?
Commonly six to twelve months of rent. The lender's requirements sheet gives the exact figure.
What if the property is in a flood zone?
A flood policy is required for a special flood hazard area. We quote NFIP and private flood separately from the landlord policy.
Related coverage
Get a quote today.
Send the address and your lender's details - we quote with several carriers at once and send the evidence of insurance to your lender. Or call 512-801-8702.