DSCR Loans in Michigan: Cash Flow, Uncapped Taxes, and City Rental Rules

Michigan is a cash-flow state. Purchase prices in much of the state are low relative to rents, which is exactly the math a DSCR loan rewards. But Michigan also has a property-tax mechanism that catches out-of-state investors constantly, and it's the first thing to get right. The investment property program works the same way here as anywhere — the inputs are what change.

A DSCR loan qualifies on the property's income instead of yours: gross monthly rent divided by the full monthly payment of principal, interest, taxes, insurance, and any HOA dues. No tax returns, no W-2s, no employment verification. Most programs want a ratio of 1.0 or better, and pricing improves around 1.25. The full checklist is in DSCR loan requirements; what follows is what's specific to Michigan.

Under Michigan's Proposal A, a property's taxable value can only rise by the rate of inflation or 5% a year, whichever is less, for as long as the same owner holds it. When the property sells, the cap comes off and taxable value resets to the current state equalized value the following year. A long-time owner's tax bill can be a fraction of what yours will be. On top of that, rentals don't receive the principal residence exemption, so they pay an additional school operating millage — up to 18 mills — that owner-occupants don't. Never underwrite a Michigan rental using the seller's tax bill. Estimate the uncapped, non-homestead figure with the local assessor's numbers, and expect a careful lender to do the same.

Much of Michigan's rental inventory was built before 1960. Insurers may ask about roof age, knob-and-tube wiring, and galvanized plumbing, and premiums on older homes in dense urban ZIP codes run higher than the purchase price would suggest. Get a real quote during your inspection period — insurance sits in the denominator of the DSCR formula, and on a low-priced house a swing of $60 a month moves the ratio noticeably.

• Rent control: Michigan state law prohibits local governments from enacting rent control.
• Security deposits: capped at one and a half months' rent, with specific notice and itemization requirements.
• Evictions: nonpayment cases generally begin with a 7-day demand for possession; timelines after that depend on the district court.
• City registration: Detroit and a number of other cities require rental registration, inspections, and a certificate of compliance, and older homes may need lead clearance. Budget for it and confirm the property's status before closing.

I'm a lender, not an attorney — confirm current landlord-tenant and city requirements with a Michigan real estate attorney or the municipality before you buy.

• Metro Detroit and its suburbs: the highest rent-to-price ratios in the state, block-by-block variation, and the heaviest city compliance requirements.
• Grand Rapids: steadier appreciation, tighter inventory, and thinner but more predictable ratios.
• Ann Arbor, East Lansing, and Kalamazoo: student and university-driven demand, higher prices, and local rental licensing.
• Lakeshore and Up North towns: strong seasonal short-term rental income, but many townships cap or restrict STRs by zoning — verify before you count that income.

Michigan charges a state and county transfer tax that together run $8.60 per $1,000 of price, customarily paid by the seller. Closings are handled by title companies. Most DSCR loans carry a prepayment penalty, which I explain in DSCR loan prepayment penalties.

Take a $180,000 duplex in a Detroit suburb renting for $1,900 a month total. With 25% down, the loan is $135,000. At an illustrative 7.5% rate — an example, not a quote — principal and interest is about $944. Uncapped non-homestead taxes of $4,200 a year add $350, and insurance adds $125, for a total payment of about $1,419. That's a DSCR of 1.34. Run the same deal with the seller's capped tax bill of $1,800 a year and you'd have calculated 1.56 — a number that would never have existed for you. Try your own figures in the DSCR calculator.

It's the same product offered nationally: a Non-QM investment property mortgage that qualifies on rental income rather than personal income, available for purchases and refinances, and commonly closed in an LLC. See DSCR loans for LLCs for how that works.

• DSCR loans in Ohio
• DSCR loans in Texas
• DSCR loans in Florida
• DSCR loans in Georgia
• DSCR loans in California
• DSCR loans in Virginia

Have a Michigan property in mind? Send me the address, the rent, and the price, and I'll run the ratio with the taxes it will actually carry. Programs and guidelines vary by lender and change over time.