Couple admiring their Nevada property with a casita.

Using Casita Income for a Nevada DSCR Loan Approval

Q: What qualifies a structure as a casita or Accessory Dwelling Unit (ADU) for a mortgage lender?

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: Do lenders consider rental income from a casita differently than rent from the main home?

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: Is it necessary for a casita to be legally permitted to use its rental income 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 is the fair market rent determined for a property with both a main house and a casita?

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: How can rental income from a casita impact the Debt Service Coverage Ratio (DSCR)?

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: Will a lender give full 100% credit for the appraiser's projected rent for a casita?

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: Are there special DSCR loan programs designed specifically for properties with ADUs?

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

When seeking a DSCR loan for a Nevada property with a casita or Accessory Dwelling Unit (ADU), it's important to understand how lenders view this secondary income stream. Here is a summary of the key considerations:

Income Qualification: Lenders can use projected rental income from a casita to help you qualify, but they often do so conservatively. Many apply a 'haircut,' meaning they may only count a percentage (e.g., 75-85%) of the casita's rent due to perceived higher vacancy risks.
Legal Status is Crucial: For the income to be considered, the casita must almost always be a legally permitted unit. Lenders and appraisers verify this because an unpermitted structure poses a risk of being fined or ordered to be removed by the city, which would eliminate the income.
Appraisal and Documentation: A licensed appraiser determines the fair market rent for both the main house and the casita separately, documenting these findings on a Fannie Mae Form 1007 (Comparable Rent Schedule). This form provides the lender with an independent basis for the income used in their calculations.
DSCR Impact: Including the qualified income from a casita can significantly improve a property's Debt Service Coverage Ratio (DSCR), often making the difference between a loan that is denied and one that is easily approved.

What Qualifies as a Casita or Accessory Dwelling Unit?

In Nevada real estate, a casita, or 'little house', is a type of Accessory Dwelling Unit (ADU). An ADU is a secondary, self-contained housing unit located on the same lot as a single-family home. To be considered a true ADU by a lender, the unit must generally have:

A separate entrance
Its own kitchen facilities (sink, cooking appliance, refrigerator)
A bathroom
Living and sleeping space

ADUs can be detached structures, like a classic Las Vegas backyard casita, or attached units, such as a converted garage or basement apartment with the necessary amenities. The key distinction for lenders is that it's a fully functional, independent living space that can be legally rented out separately from the main residence.

Do Lenders Treat Casita Rent Differently Than Main House Rent?

Yes, lenders often evaluate income from a casita more conservatively than rent from the primary dwelling. While the main house's rent is typically accepted at face value (based on leases or appraisal estimates), the ADU's income might be subject to what's known as a 'haircut'.

Lenders do this because they may perceive the smaller unit as having a potentially higher vacancy risk or more rental rate volatility. A lender might only count 75% of the casita's projected rent when calculating the property's total income. (The data, information, or policy mentioned here may vary over time.) This is a critical detail, as it directly impacts the DSCR calculation. The exact percentage is determined by the specific lender's guidelines, making it essential to work with a broker who understands these nuances.

How Is Potential Rent Determined for Two Units on One Property?

For a DSCR loan, the lender relies on a licensed appraiser to determine the fair market rent for the property. When a property includes an ADU, the appraiser's job is to establish a credible rental value for both the main house and the casita.

This is documented on a Fannie Mae Form 1007 (Single-Family Comparable Rent Schedule) or a lender-equivalent form. The appraiser researches and analyzes recent rental listings and leased properties in the immediate area for comparable main homes and comparable ADUs. They will not simply lump the two together.

Example in Reno, Nevada

Main House: The appraiser finds comparable 3-bedroom homes in Reno renting for an average of $2,400 per month.
Casita: They find comparable studio or 1-bedroom casitas in the same neighborhood renting for $1,100 per month.
Total Gross Potential Rent: The appraiser reports a total market rent of $3,500 on Form 1007.

This form provides the lender with an independent, market-based justification for the income used in their underwriting.

A modern Nevada home with a detached casita unit.

Does the Casita Need to Be Permitted to Count the Income?

Overwhelmingly, the answer is yes. For a lender to confidently include rental income from a casita, they need assurance that the unit is legal and compliant with local zoning and building codes. An unpermitted ADU presents a significant risk.

If a municipality like Henderson or Las Vegas discovers an unpermitted unit, they could levy fines or even require the owner to demolish it. This would instantly eliminate the income stream, jeopardizing the loan. For this reason, most DSCR lenders will verify the unit's legal status. If the appraiser notes the ADU appears to be unpermitted, the lender will likely exclude its income from the DSCR calculation entirely, which can often derail the loan approval.

What Appraisal Forms Are Used for Properties with ADUs?

The appraisal package for a property with a casita or ADU typically includes two key documents:

The Standard Appraisal Report (Form 1004): This is the main report that establishes the property's overall market value. The appraiser will note the presence of the ADU and factor its value into the final opinion of value.
The Comparable Rent Schedule (Form 1007): As mentioned earlier, this is the critical addendum for investors. It breaks down the appraiser's opinion of the fair market rent for the property, showing separate rental estimates for the primary home and the ADU based on local market data. This is the document the underwriter uses to verify the 'income' part of the DSCR equation.

Will a Lender Give Full Credit for Projected Casita Rent?

This depends entirely on the lender's specific program guidelines. As a general rule, you should not assume you will get 100% credit. Many DSCR lenders apply a vacancy factor or a direct 'haircut' to the casita's income. (The data, information, or policy mentioned here may vary over time.)

Let's revisit the Reno example where the appraiser determined the casita's market rent is $1,100. A lender might have a policy to only use 85% of ADU income.

Appraiser's Projected Casita Rent: $1,100
Lender's Qualifying Income for Casita: $1,100 x 0.85 = $935

In this case, the underwriter would use $2,400 (main house) + $935 (casita) = $3,335 as the total gross monthly income for their DSCR calculation, not the full $3,500 projected by the appraiser. This is a crucial distinction that can impact your maximum loan amount.

How Does Casita Income Affect the DSCR Coverage Ratio?

The casita's income can be the deciding factor in whether a property cash flows enough to meet a lender's requirements. The DSCR formula is:

DSCR = Gross Rental Income / Total Housing Expense (PITI)

PITI = Principal, Interest, Taxes, and Insurance

Living space inside an accessory dwelling unit for rental income calculation.

Most lenders require a DSCR of 1.0x to 1.25x or higher. (The data, information, or policy mentioned here may vary over time.) Let's see how casita income makes a difference for an investment property in Las Vegas with a total PITI of $2,900.

Scenario 1: Ignoring Casita Income

Main House Rent: $3,000
PITI: $2,900
DSCR Calculation: $3,000 / $2,900 = 1.03x

This ratio is extremely tight and may not meet the minimum 1.15x or 1.25x requirement of many lenders. (The data, information, or policy mentioned here may vary over time.)

Scenario 2: Including Casita Income

Main House Rent: $3,000
Casita Rent (after a 15% haircut): $1,300 x 0.85 = $1,105
Total Qualifying Income: $3,000 + $1,105 = $4,105
PITI: $2,900
DSCR Calculation: $4,105 / $2,900 = 1.41x

With a DSCR of 1.41x, the loan is now exceptionally strong and easily qualifies. The additional income from the legal, permitted casita completely transforms the viability of the investment property.

Are There Special DSCR Programs for These Types of Properties?

There are not typically separate loan programs named 'ADU DSCR Loans'. Instead, properties with ADUs are financed under standard DSCR loan programs, but they are underwritten by lenders who have established, specific guidelines for handling the additional income and property complexity.

The key is that not all DSCR lenders are comfortable with ADUs. Some may not allow them at all, while others have favorable terms. An experienced mortgage broker who specializes in investor loans will have relationships with a network of lenders and know exactly which ones are best suited for financing a property with a casita in Nevada. They can steer you toward lenders who are more likely to give you maximum credit for the ADU income, ensuring your deal gets approved. Understanding how casita income impacts your DSCR calculation is key to getting your next Nevada investment property funded. If you have questions about a specific property in Las Vegas or Reno, consulting with a mortgage strategist can clarify which lenders will give you the most credit for your ADU.

Ready to see how an ADU can strengthen your next investment property loan? Our specialists understand the nuances of casita income for DSCR loans in Nevada. Apply now to get a clear analysis and find the right lender for your goals.

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.