The biggest challenges in securing loans in Texas

Financing residential investment properties and small multifamily units in Texas presents distinct challenges.

Tighter Lending Standards: Lenders often require higher credit scores (typically 680+) and lower debt-to-income ratios. Greater scrutiny of the borrower’s cash reserves and liquidity.

Larger Down Payment Requirements: Investment properties generally demand 20–25% down payments. Multi-unit properties may require even higher upfront capital.

Debt-Service Coverage Ratio (DSCR): Many lenders evaluate property income relative to expenses. Minimum DSCR requirements (typically 1.20 or higher) can disqualify cash-flow-negative properties.

Property Condition and Appraisal: Properties must meet stricter condition standards and appraise accurately. Deferred maintenance or valuation disputes can delay or prevent loan approval.

Limited Financing Options for Mixed-Use or Unique Properties: Townhouses and triplexes/quadplexes with non-standard layouts may fall outside conventional underwriting norms.

Regulatory and Zoning Challenges: Local ordinances in Texas cities may restrict certain multifamily developments or impose permitting hurdles.

Competition from Institutional Buyers: In urban centers like Austin and Dallas, institutional investors can outbid individuals, complicating financing timelines and offers.

Experience Requirements: Some lenders require prior property management or landlord experience, particularly for multi-unit properties.

Overcoming these challenges often involves working with specialized mortgage brokers, improving credit profiles, documenting consistent rental income, and preparing substantial capital reserves to support approval.