DSCR Loans in Texas

Last updated: May 2026

Texas checks a lot of boxes for rental property investors: no state income tax, explosive population growth, and a business climate that actively courts employers and residents alike. But it's not all upside. The Lone Star State has some of the highest property taxes in the country, and that single factor can make or break your DSCR numbers. Here's what you actually need to know before financing an investment property in Texas.

Why Texas attracts DSCR investors

The headline is the missing state income tax. When your rental income isn't getting clipped by a state-level tax, more of your cash flow stays in your pocket — and that cash flow is exactly what a DSCR lender is looking at. Compare that to California (up to 13.3%) or New York (up to 10.9%), and the math gets attractive fast.

Beyond taxes, Texas has been one of the fastest-growing states by population for years. Corporate relocations — Tesla, Oracle, Hewlett Packard Enterprise, Charles Schwab, Caterpillar — have pulled tens of thousands of high-income workers into the DFW and Austin metros. That feeds rental demand directly. Meanwhile, markets like Houston, San Antonio, and El Paso remain affordable relative to coastal cities, which means better rent-to-price ratios and stronger DSCRs on paper.

The regulatory environment helps too. Texas doesn't have rent control — it's actually prohibited by state law — and the permitting process for new construction tends to be faster than in heavily regulated states. For investors, this means fewer surprises on the policy side.

Texas property taxes — the number-one factor

Here's the trade-off for no state income tax: Texas funds its government primarily through property taxes, and rates are among the highest in the nation. The statewide average effective rate runs roughly 1.6% to 1.8%, compared to a national average around 1.1%. That gap matters enormously for your DSCR.

On a $300,000 property, you might pay around $5,400 per year in Texas versus roughly $3,300 in a lower-tax state. That's an extra $175 per month baked into your PITIA — money that comes straight off your debt service coverage ratio.

Rates vary significantly by county. Harris County (Houston) and Tarrant County (Fort Worth) tend to run around 2.0%. Dallas County comes in near 1.8%, Travis County (Austin) around 1.7%, and Bexar County (San Antonio) roughly 1.6%. When you're comparing markets, these differences add up to hundreds of dollars per month.

One important habit for Texas investors: protest your property tax assessment every year. County appraisal districts frequently over-value properties, and a successful protest can lower your tax bill by hundreds or even thousands of dollars annually. A lower tax bill means a higher DSCR — it's one of the simplest ways to improve your numbers on an existing property.

Insurance in Texas

Insurance isn't as brutal as Florida, but it's not cheap either. Expect to pay roughly $2,000 to $3,500 per year for a standard landlord policy, depending on the property and location. The biggest cost driver is hail — North Texas and the DFW metroplex sit squarely in Hail Alley, and insurers price accordingly. Many policies carry separate wind/hail deductibles that are higher than the standard deductible (often 1% to 2% of the dwelling value).

If you're buying in the Houston area, check your flood zone status carefully. Large portions of Harris County require flood insurance, which is a separate policy and can run $700 to $2,000+ per year depending on the zone. That's another line item that eats directly into your DSCR.

Landlord-tenant laws

Texas is consistently ranked as one of the most landlord-friendly states in the country. There's no rent control (and state law prevents cities from enacting it). The eviction process is fast — an uncontested eviction can wrap up in as little as 21 days from the initial notice to vacate. For month-to-month leases, landlords only need to give one month's notice to terminate.

Security deposit rules favor landlords as well. There's no cap on deposit amounts, and landlords can retain deposits for unpaid rent and damages beyond normal wear and tear without a lot of procedural hurdles. That said, “self-help” evictions — changing locks, removing doors, shutting off utilities — are still illegal. You always have to go through the courts.

For DSCR investors, this matters because vacancy risk is lower when you can resolve problem tenancies quickly. Lenders factor vacancy into their underwriting, and a landlord-friendly legal environment is a meaningful advantage.

Top DSCR investment markets in Texas

• Houston: The state's largest rental market with a diversified economy spanning energy, healthcare, aerospace, and the Port of Houston. Prices remain affordable relative to incomes, but flood risk is a real underwriting factor — always verify the FEMA zone.
• Dallas-Fort Worth: Massive job growth driven by corporate relocations and a booming logistics sector. Dallas and Fort Worth are really two distinct markets — Fort Worth tends to be more affordable with slightly higher cap rates, while Dallas commands premium rents in closer-in neighborhoods.
• San Antonio: A military and defense hub (Joint Base San Antonio is the city's largest employer) with steady, recession-resistant demand. Entry prices are among the lowest of the major Texas metros, which helps DSCR math considerably.
• Austin: Tech-driven job market with strong fundamentals, but higher prices and lower cap rates mean tighter DSCR ratios. The city has also increased regulatory scrutiny on short-term rentals, which matters if your DSCR strategy relies on STR income.
• El Paso: Often overlooked, El Paso offers very affordable entry points and steady rental demand supported by Fort Bliss and cross-border economic activity. Rent-to-price ratios can be surprisingly strong.

Texas-specific DSCR considerations

Texas has a unique set of lending rules under Section 50(a)(6) of the state constitution that historically imposed strict requirements on cash-out refinances — including an 80% LTV cap and specific closing procedures. Many of these restrictions were relaxed in recent years, but the 80% LTV limit on cash-out refis remains. If you're planning a BRRRR strategy (buy, rehab, rent, refinance, repeat), factor that ceiling into your projections.

On the upside, Texas has no mortgage tax and no transfer tax at closing, which keeps transaction costs lower than in states that charge these fees. HOAs are very common in newer suburban developments across all the major metros — those dues are another PITIA line item that affects your DSCR, so always check before making an offer.