Investor reviews iQRATE Mortgages DSCR loan in Vegas condo.

Financing a Las Vegas Condo-Hotel with a DSCR Loan

Q: Why is it difficult to get a conventional loan for a condo-hotel?

A lender's seasoning period is a mandatory waiting time after you purchase or refinance a property before you can access the full after-repair value (ARV) for a cash-out refinance. Most DSCR lenders require a seasoning period of 6 to 12 months. Refinancing before the seasoning period concludes typically means the lender will base the loan amount on your original purchase price plus rehab costs, which severely limits the amount of equity you can cash out. Waiting until after the period allows you to borrow against the full market value you created through your renovations.

Q: What is a DSCR loan and how does it work for condo-hotel financing?

To justify a higher appraised value, you should provide the appraiser with a detailed and organized renovation packet. This packet removes guesswork and provides concrete evidence of the work performed. It should include: a cover letter summarizing the major upgrades, a detailed scope of work document itemizing all improvements, compelling before-and-after photos showing the property's transformation, copies of paid invoices and receipts for materials and labor, and copies of any official building permits that were issued for the work.

Q: What specific requirements must a condo-hotel unit meet for a DSCR loan?

No, LTV limits for cash-out refinances vary significantly among different DSCR lenders, as each has its own guidelines and risk tolerance. While purchase loans may reach 80% LTV, cash-out refinances are often capped at 70% or 75% LTV. The specific LTV offered to an investor is influenced by several factors, including: Credit Score (higher scores typically qualify for higher LTVs), DSCR Ratio (a stronger income-to-debt ratio may result in a better LTV offer), Property Type (a single-family home might receive a higher LTV than a multi-unit property), and Loan Amount (some lenders may offer different terms based on the size of the loan).

Q: How do lenders determine a condo-hotel's rental income for a DSCR loan?

Your property's monthly rental income is the foundation of a DSCR loan approval. The formula is: DSCR = Gross Rental Income / Total Monthly Housing Payment. A higher rent results in a higher DSCR. This proves to the lender that the property can comfortably support a larger loan payment, which in turn allows you to qualify for a larger loan amount and maximize your cash-out.

Q: What is the minimum down payment typically required for a condo-hotel DSCR loan?

Yes, it is often possible to pay for closing costs with the proceeds from your new loan, meaning you don't need to bring cash to closing. However, these costs are not added on top of your loan limit. Instead, the closing costs are subtracted from the total cash-out funds available to you after your existing mortgage is paid off. The total loan amount, including these costs, cannot exceed the lender's maximum LTV limit based on the property's appraised value.

Q: Can I get a DSCR loan if the condo-hotel has rental restrictions?

Investors can make several avoidable errors that reduce their available cash-out funds. The most common mistakes include: Poor Documentation (failing to provide an appraiser with a thorough renovation packet can lead to a conservative and lower valuation), Refinancing Too Soon (not waiting for the lender's seasoning period to expire is a costly mistake that forces the loan to be based on cost rather than value), Lacking a Tenant (attempting to refinance a vacant property is less favorable, as lenders prefer the security of a signed lease over estimated market rents), and Ignoring Lender Differences (accepting the first loan offer without comparing options can mean missing out on better LTV limits or shorter seasoning requirements from other lenders).

Q: Why are interest rates generally higher for condo-hotel loans?

The ideal time to begin the refinance process is 30 to 45 days before your lender's seasoning period expires. This allows you to gather all necessary documentation, secure an appraisal, and complete underwriting so that you can close immediately once the seasoning requirement is met. Crucially, by this time, the property should also be 'stabilized,' which means you have a qualified tenant in place with a signed lease and have collected at least the first month's rent.

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TL;DR

Financing a condo-hotel presents unique challenges that differ from standard real estate investments. Here’s a quick overview:

Unique Financing Challenges: A condo-hotel's hybrid nature, combining private ownership with hotel-like operations, typically makes it ineligible for conventional loans.
DSCR Loans as the Solution: Investors often turn to DSCR (Debt Service Coverage Ratio) loans, which focus on the property's rental income potential rather than the borrower's personal finances.
Strict Lender Criteria: To approve a DSCR loan for a condo-hotel, lenders have specific requirements regarding the unit itself, the financial health of the HOA, and documented income projections.

What Makes Financing a Condo-Hotel Different?

A condo-hotel, or condotel, is a hybrid property. You get the deeded ownership of a standard condominium unit, but the building operates like a full-service hotel. This structure creates unique financing challenges that set it apart from a typical residential condo investment.

Lenders view these properties as higher risk for several reasons:

Hotel Operations: The property often includes a check-in desk, on-site management, and shared amenities managed like a hotel. This commercial component makes it ineligible for standard conventional loans from Fannie Mae or Freddie Mac.
Rental Pool Agreements: Many condo-hotels have a formal rental program managed by the hotel operator. Sometimes participation is mandatory, which can complicate how income is calculated and restrict your control over the unit.
Transient Occupancy: Unlike a standard condo with a long-term tenant, a condo-hotel’s income relies heavily on short-term rentals, which can be more volatile and susceptible to tourism trends in cities like Las Vegas.
Non-Warrantable Status: Due to these factors, nearly all condo-hotels are classified as 'non-warrantable'. This means they don’t meet the strict criteria for conventional financing, forcing investors to seek alternative loan products like a DSCR loan.

DSCR Loan Rules for Condo-Hotel Properties

A Debt Service Coverage Ratio (DSCR) loan is a type of non-qualified mortgage (Non-QM) designed specifically for real estate investors. Instead of verifying your personal income with tax returns and pay stubs, the lender qualifies you based on the property's ability to generate enough rental income to cover its mortgage payment.

While DSCR loans offer flexibility, underwriters have specific rules for condo-hotel projects to mitigate their risk:

Minimum Unit Size: The unit itself must typically be at least 500 square feet. Studios or micro-units may not qualify. The data, information, or policy mentioned here may vary over time.
Full Kitchen Required: The unit must contain a full kitchen, including a stove, oven, and full-sized refrigerator. A simple kitchenette is often insufficient.
No Mandatory Rental Pool: The owner must have the option to rent the unit themselves, use a third-party manager, or opt out of the on-site rental program. The lender needs assurance that you control the rental strategy.
Project Health: The lender will vet the overall project. They will look for a financially stable HOA with no pending litigation and a high percentage of sold units.
No Front Desk Requirement: The property's rules cannot require owners to check in or leave keys at the front desk. The data, information, or policy mentioned here may vary over time.

Luxury condo-hotel building with palm trees

How Do Lenders Verify Rental Income for a Las Vegas Condo-Hotel?

The entire DSCR loan approval hinges on verifying that the property’s projected income can cover its mortgage payment. The lender calculates the DSCR ratio by dividing the monthly gross rental income by the proposed monthly mortgage payment (including principal, interest, taxes, insurance, and HOA dues).

DSCR = Gross Rental Income / PITIA

Most lenders require a DSCR ratio of 1.0 or higher, with many preferring 1.25 for stronger applications. The data, information, or policy mentioned here may vary over time. Here’s how they determine the 'Gross Rental Income' for a Las Vegas property:

The Appraisal (Form 1007): This is the most common method. The appraiser analyzes comparable short-term and long-term rental properties in the area to determine a fair market rent for your specific unit. This projected income is used in the DSCR calculation.
Rental History: If the specific unit has a documented history of rental income from the seller or the on-site management company, lenders may consider this data.
Third-Party Data: For short-term rental projections, some lenders will use data from services like AirDNA to forecast revenue based on nearby property performance.

Example Calculation:

Let’s say you’re buying a condo-hotel unit in Henderson.

Appraised Market Rent: $4,000 per month
Proposed Monthly PITIA (Mortgage + Taxes + Insurance + HOA): $3,200
DSCR Calculation: $4,000 / $3,200 = 1.25

Because the ratio is 1.25, this property would likely qualify for a DSCR loan.

What Specific HOA Documents Are Required?

Because the health of the entire project impacts the value and rentability of your individual unit, lenders require a deep dive into the Homeowners Association (HOA) documents. Be prepared to provide:

A Completed Condo Questionnaire: This is a detailed form the lender sends to the HOA management company, asking about finances, owner occupancy rates, litigation, and insurance.
HOA Budget: The lender will review the budget to ensure the association has adequate reserves for maintenance and is not operating at a loss.
Master Insurance Policy: This proves the entire building is properly insured against hazards.
Covenants, Conditions, and Restrictions (CC&Rs): These legal documents outline the rules of the project, including any restrictions on rentals, owner usage, and property modifications.

Can I Get a DSCR Loan If the Condo-Hotel Has Rental Restrictions?

Yes, but it depends entirely on the type of restriction. DSCR lenders understand that condo-hotels have unique rules, but certain restrictions are immediate deal-breakers.

Acceptable Restrictions: Rules that limit how many days per year an owner can personally occupy the unit are generally fine. For example, a rule stating you can't use your unit for more than 30 consecutive days or 90 days per year is acceptable, as it encourages its use as a full-time rental.
Unacceptable Restrictions: Lenders will almost always deny a loan if the project has mandatory rental pool participation. If you are forced to use the hotel's on-site management and cannot rent the unit on your own or through another manager, the property is likely ineligible. This is because it removes your control over the asset and complicates the income verification process.

Interior of a modern condo-hotel unit kitchen

What Are the Typical Down Payment Needs for a Condo-Hotel Investor Loan?

Expect a significantly higher down payment for a condo-hotel compared to a standard investment property. Because these are non-QM loans on a higher-risk asset, lenders require more 'skin in the game' from the investor.

Typically, the minimum down payment for a condo-hotel DSCR loan is 25% to 40%. The data, information, or policy mentioned here may vary over time. The exact amount depends on your credit score, the DSCR ratio, and the lender’s specific guidelines. For a $600,000 condo on the Las Vegas Strip, this means you should be prepared for a down payment between $150,000 and $240,000.

Are Interest Rates Higher for Non-Traditional Rental Properties in Henderson?

Yes, interest rates on DSCR loans for condo-hotels are generally higher than rates for conventional investment property loans. This rate difference, often called a risk premium, compensates the lender for a few key factors:

Non-QM Loan Risk: Non-QM loans fall outside of government-backed guidelines, making them inherently riskier for lenders to hold or sell on the secondary market.
Collateral Complexity: A condo-hotel unit is considered less liquid collateral than a standard single-family home or warrantable condo. It appeals to a smaller pool of buyers, which can make it harder to sell in a downturn.
Market Volatility: The income stream is tied to the travel and tourism industry, which can be more volatile than the market for long-term residential rentals.

You can typically expect an interest rate that is 1% to 2.5% higher than what you would get on a conventional 30-year fixed loan for a traditional rental property. The data, information, or policy mentioned here may vary over time. Financing a condo-hotel in Las Vegas requires expert guidance. If you're ready to explore DSCR loan options for your next investment, understanding the specific project requirements is the first step toward a successful closing.

Financing a unique property like a condo-hotel requires specialized knowledge. If you're ready to discuss your investment goals and see what DSCR loan options are available to you, you can Apply now to begin the conversation with our expert team.

Author Bio

David Ghazaryan is the expert mortgage strategist and founder behind iQRATE Mortgages. With a mission to fund home loans that traditional banks won't touch, David specializes in helping clients with unique financial situations, including those recovering from foreclosure or bankruptcy. He expertly crafts smart, strategic, and stress-free mortgages by leveraging a vast network of over 100 lenders to secure competitive rates for investors and homebuyers alike. Praised for exceptional customer service, David has helped hundreds of families with a 97% satisfaction rate, guiding them to the mortgage they deserve.