The rent qualifies the loan, and Tennessee decides what the rent has to cover
Quick answer: DSCR loans in Tennessee qualify a rental on the property's own income, not on your tax returns. Divide the monthly rent by the full monthly housing cost, meaning principal, interest, taxes, insurance and dues. Tennessee moves the tax half of that fraction more than most states. Residential rentals are assessed at 25 percent of value, but Davidson County classifies a property holding a non-owner-occupied short-term rental permit as commercial at 40 percent. That reclassification raises the taxable base by 60 percent and pushes the ratio down.
Check the zoning and the permit before you check the rent. Most investors work a Tennessee deal in the wrong order. They find a rent number, run it against an estimated payment and get a comfortable ratio. Only then do they discover that the short-term rental income they underwrote cannot legally follow the property to a new owner. In Nashville that is not an edge case. It is written on the city's own permit page.
Key takeaways
- The ratio is rent divided by full housing cost. Not rent divided by the mortgage payment. Taxes, insurance and dues all sit in the denominator, so a heavy tax line eats the ratio directly.
- A Nashville short-term rental permit changes the tax class. The Davidson County assessor puts non-owner-occupied permits in the commercial class at 40 percent instead of the residential 25 percent. On a 420,000 dollar property that is 1,772.82 dollars more tax a year.
- Those permits do not survive a sale. Nashville says new not-owner-occupied permits are not issued in AR2A, R, RS or RM zoning, and existing ones are not transferable when the property sells.
- Tennessee taxes no rental income at the state level. The Hall income tax was repealed for tax periods beginning January 1, 2021 or later. That helps the hold, not the approval.
- Budget for two recordation taxes. Tennessee charges 0.37 dollars per 100 of price and 0.115 dollars per 100 of debt. On a 420,000 dollar purchase with a 315,000 dollar loan that is 1,913.95 dollars.
What is a DSCR loan, and how does it work in Tennessee?
A DSCR loan is investment-property financing that qualifies on the property's rent rather than on the borrower's personal income. There is no debt-to-income calculation, no pay stub and no tax return driving the approval. The lender looks at what the property earns and at what the property costs to carry, and the relationship between those two numbers is the qualification.
Because the property is a rental and nobody in the borrower's family may occupy it, the loan is business-purpose credit. Regulation Z exempts an extension of credit primarily for a business, commercial or agricultural purpose at 12 CFR 1026.3(a)(1). Moreover, the Official Interpretations treat credit extended on non-owner-occupied rental property as business-purpose. That is a federal rule, so it reads the same in Memphis as it does in Las Vegas.
What Tennessee actually changes
Almost nothing about the arithmetic, and quite a lot about the inputs. The formula is national. The tax figure inside it is not. Tennessee sets assessment ratios by class in state law. It charges two separate recordation taxes at closing, taxes no personal income at all, and lets each city write its own short-term rental rules. Every one of those lands somewhere in a DSCR file.
So the useful way to read the rest of this guide is as a list of Tennessee inputs to a national formula. Get the inputs right and the ratio takes care of itself. The same arithmetic with a different set of local inputs runs on our Florida DSCR page and our guide for Texas rentals, and the state that changes the answer most is usually the one with the heaviest tax line.
Licensing, stated plainly. Valley West Mortgage holds NMLS #65506 and is licensed to lend in Tennessee. Our state-by-state licensing disclosure lists every licence by name. Program terms on this page are described generally because DSCR programs are not agency programs and each one publishes its own rules.
How is the ratio calculated on a Tennessee rental?
Divide the monthly rent by the full monthly housing cost. The housing cost is principal, interest, taxes, insurance and any homeowners association dues, which lenders shorten to PITIA. A result of 1.00 means the rent covers the cost exactly. Above 1.00 the property carries itself with something left over. Below 1.00 it does not. Which payment goes into that denominator is itself a choice, and the shortcut changes when the payment is structured differently.
A Nashville rental, worked from the assessor's own numbers
The property. A single-family rental in Metro Nashville's Urban Services District, appraised at 420,000 dollars. The buyer puts 25 percent down, so the loan is 315,000 dollars. Assume principal and interest of 2,090 dollars a month and landlord insurance of 135 dollars a month. There are no association dues.
The tax line, built rather than guessed. Tennessee assesses residential property at 25 percent of appraised value, so the assessed value is 105,000 dollars. Metro's Trustee publishes an Urban Services District rate of 2.814 dollars per hundred dollars of assessed value. That gives 1,050 multiplied by 2.814, which is 2,954.70 dollars a year, or 246.23 dollars a month.
The full housing cost. Add 2,090 plus 246.23 plus 135. Monthly PITIA is 2,471.23 dollars.
The ratio. Assume market rent of 2,650 dollars. Divide 2,650 by 2,471.23 and the coverage ratio is 1.0723.
That file works on most program floors, though not by a wide margin. Notice how small the tax line looks and how much of the outcome it controls. Move it and the answer moves with it.
What does Tennessee's assessment ratio do to your file?
Tennessee sets assessment ratios in state law rather than leaving them to each county. The Comptroller states them plainly. Residential and farm property is assessed at 25 percent of appraised value, and commercial and industrial property at 40 percent. The tax bill is then assessed value divided by 100, multiplied by the local rate.
For a long-term rental that is the end of the story, because a house rented on a lease is residential. For a short-term rental it is not. The Davidson County Property Assessor answers it directly. Any property with a non-owner-occupied short-term rental permit will be classified as commercial at an assessment rate of 40 percent. Owner-occupied permits stay residential at 25 percent. The assessor cites Tennessee Code 67-5-801 for both.
The same house, the same rent, two tax classes
Hold everything else constant and change only the classification. The point of the table below is to isolate the tax effect, so the rent and the payment stay exactly where they were in the worked example above.
| Classification | Assessment ratio | Assessed value | Annual property tax | Monthly PITIA | Coverage ratio |
|---|---|---|---|---|---|
| Residential, long-term rental | 25 percent | 105,000 dollars | 2,954.70 dollars | 2,471.23 dollars | 1.0723 |
| Commercial, non-owner-occupied short-term rental permit | 40 percent | 168,000 dollars | 4,727.52 dollars | 2,618.96 dollars | 1.0119 |
The gap is 1,772.82 dollars a year, or roughly 148 dollars a month on the escrow line. In ratio terms it is the difference between 1.07 and 1.01, which on many programs is the difference between a clean approval and a file that needs a larger down payment. Nothing about the house changed. Only the permit did.
The sentence worth remembering. In Tennessee the permit you hold is a property tax decision before it is a revenue decision. The tax half shows up in the coverage ratio whether or not the revenue half ever arrives.
Can you underwrite a Nashville short-term rental?
Sometimes, and the zoning decides it before the lender does. Nashville's Codes Department splits permits into two types. Owner-occupied permits are available broadly, but the city restricts them to natural persons: LLCs, corporations, trusts, partnerships and joint ventures are all ineligible. Since DSCR borrowers routinely vest in an entity, that door is usually shut in practice.
Where a new not-owner-occupied permit can still be issued
The city issues new not-owner-occupied permits as a use permitted with conditions in commercial and mixed-use districts. Specifically, it names MUN and MUN-A, MUL and MUL-A, MUG and MUG-A, MUI and MUI-A, OG, OR20 through OR40-A, ORI and ORI-A, CN and CN-A, CL and CL-A, CS and CS-A, CA, CF, DTC North, DTC South, DTC-West, DTC Central, SCN, SCC and SCR. Then comes the line that decides most deals. New not owner-occupied permits are not permitted in AR2A, R, RS, or RM zoned properties.
Why the seller's permit will not save the deal
Buyers assume a grandfathered permit transfers with the house. In those residential districts it does not. Nashville states that existing permit holders may be eligible to renew, but that those permits are not transferable if the property is sold or transferred. Tennessee's own Short-Term Rental Unit Act points the same way. The protection at Tennessee Code 13-7-603 runs with the existing use. However, it ends when the property is sold or transferred, when the short-term use stops for 30 continuous months, or after repeated violations of local law.
For a DSCR file the consequence is concrete. If the property sits in R, RS, RM or AR2A zoning, underwrite the long-term lease rent, because that is the income the property will lawfully produce for you. Underwriting the seller's nightly revenue in those districts means underwriting income that ends at closing. Our short-term rental DSCR guide walks through how lenders document nightly income where it is permitted.
Want the ratio run on a real Tennessee address before you write an offer?
Send the address, the rent you expect, the taxes from the county trustee and any association dues. You get the coverage ratio worked out on the property's actual numbers, and a straight answer on whether the zoning supports the income you are counting on. Current as of August 28, 2026.
Get your fast quoteHow much loan will the ratio actually support?
Run the arithmetic backwards instead of forwards. Start from the rent, pick the coverage ratio you need to hit, and the maximum housing cost falls out of the division. Subtract the taxes and insurance and what remains is the principal and interest the property can carry.
The one-line shortcut
Divide the rent by your target ratio. That is the largest monthly housing cost the property supports. Then subtract every non-loan piece of that cost. In the Nashville example the taxes and insurance together are 381.23 dollars a month, so that figure comes off every row.
| Target coverage ratio | Maximum monthly housing cost | Principal and interest the rent supports |
|---|---|---|
| 1.00 | 2,650.00 dollars | 2,268.77 dollars |
| 1.05 | 2,523.81 dollars | 2,142.58 dollars |
| 1.10 | 2,409.09 dollars | 2,027.86 dollars |
| 1.15 | 2,304.35 dollars | 1,923.12 dollars |
| 1.20 | 2,208.33 dollars | 1,827.10 dollars |
| 1.25 | 2,120.00 dollars | 1,738.77 dollars |
Read that as a price list for certainty. Each five hundredths of coverage you add costs the property between roughly 88 and 126 dollars a month of borrowing power, and the steps get cheaper as the ratio climbs. Moving from 1.00 to 1.25 costs 530 dollars a month of principal and interest, which is a materially smaller loan on the same house. That is the trade every investor is really making. Our DSCR calculator walkthrough takes the same arithmetic apart step by step.
What does a conventional investment loan require that this does not?
It is worth knowing, because conventional financing is often the better answer and nobody should sell against it. Fannie Mae publishes its rules, which is exactly why one column of the table below carries numbers and the other says program specific. DSCR programs are not agency programs, so there is no published national rulebook to quote.
That absence of a rulebook cuts the other way too, and it is why investors eventually look past single-property loans. Fannie Mae does publish a ceiling on how many properties one borrower may finance, and once a portfolio approaches it the question becomes financing several doors on one note rather than repeating the same file a fifth time.
| Requirement | Fannie Mae conventional, investment property | DSCR |
|---|---|---|
| Qualifying income | The borrower's documented income and debt-to-income ratio | The property's rent measured against its housing cost |
| Maximum loan-to-value, one-unit purchase | 85 percent | Set by the individual program |
| Maximum loan-to-value, one-unit cash-out | 75 percent | Set by the individual program |
| Maximum loan-to-value, two to four units, purchase | 75 percent | Set by the individual program |
| Reserves on the subject property | Six months | Program specific, and usually more rather than less |
| Reserves for other financed properties | 2 percent of aggregate unpaid balance for one to four, 4 percent for five to six, 6 percent for seven to ten (Desktop Underwriter only) | Program specific |
| Time on title before a cash-out | At least six months before disbursement | Program specific |
| Title vesting | Individuals, with entity vesting restricted | Entity vesting is common and often expected |
| Consumer mortgage rules | Exempt on a non-owner-occupied rental under 12 CFR 1026.3(a)(1) | Exempt on the same basis |
The honest summary is that conventional financing asks more about you and DSCR asks more about the property. If your tax returns support the debt and you are inside the agency ceilings, conventional is usually the cheaper road. Our guide to DSCR loan requirements covers what the property side of the file has to show.
Should you hold a Tennessee rental in an LLC?
Entity vesting is normal on business-purpose loans, and Tennessee gives it an extra dimension worth understanding before you file the paperwork. Tennessee LLCs owe franchise tax at 0.25 percent of Tennessee net worth and excise tax at 6.5 percent of Tennessee taxable income. Both are annual, and both are due on the fifteenth day of the fourth month after the close of the entity's books.
The exemption that was written for landlords like you
The Family-Owned Non-Corporate Entity exemption can remove both taxes. The Department of Revenue sets two tests. At least 95 percent of the voting rights, capital interest or profits must be owned by relatives or by trusts for their benefit. And substantially all of the entity's activity, meaning 66.67 percent, must be the production of passive investment income, which expressly includes rents from residential property.
Then comes the limit that matters to a DSCR borrower. The Department states that residential property cannot have more than four residential units at any one location. That is the same one-to-four unit universe DSCR loans finance, so the exemption and the loan product line up unusually well. An entity claiming it files Form FAE183 initially and renews annually.
Not tax advice. The FONCE tests turn on facts about your ownership and your receipts, and a single non-passive revenue line can break the 66.67 percent test. Ask a Tennessee CPA to look at the actual entity before you count on the exemption. For the lending side, our page on vesting a rental in an LLC covers how entity title interacts with the loan file.
What do Tennessee's landlord rules change?
They change your vacancy assumption, which is the input most investors never revisit. Tennessee's Uniform Residential Landlord and Tenant Act does not apply statewide. It applies only in counties whose population exceeded 75,000 in the 2010 federal census, and the section itself names no county at all. Published compilations derive a 17-county list from that threshold. Davidson, Shelby, Knox, Hamilton, Rutherford, Williamson, Sumner, Montgomery and Blount are all on it.
All four of the state's major rental markets sit inside that list. In those counties a landlord may serve a 14-day notice to pay or terminate when rent goes unpaid. Outside them the older Title 66 rules govern instead, so a rental two counties over can run on a different clock.
One statewide rule in the landlord's favour
Tennessee preempts local rent control. State law bars a local government from enacting or enforcing any ordinance that would have the effect of controlling the amount of rent charged for private residential or commercial property. For a DSCR file that matters because the ratio is only as durable as your ability to reset the rent at renewal.
What does Tennessee add to your closing costs?
Two recordation taxes, and together they are large enough to change your cash to close. The Department of Revenue publishes both. The realty transfer tax is 0.37 dollars per 100 dollars of purchase price. The indebtedness tax, which most people call the mortgage tax, is 0.115 dollars per 100 dollars of debt, with the first 2,000 dollars of the debt exempt.
On the worked example above. The purchase price is 420,000 dollars, so the transfer tax is 4,200 multiplied by 0.37, which is 1,554.00 dollars.
The mortgage tax. The loan is 315,000 dollars. Subtract the 2,000 dollar exemption to get 313,000. Then 3,130 multiplied by 0.115 is 359.95 dollars.
Tennessee recordation tax in total. 1,554.00 plus 359.95 is 1,913.95 dollars, before a single lender, title or escrow charge.
Two things follow. First, a larger loan carries a larger mortgage tax, so leverage has a small closing-cost tail in Tennessee that it does not have in every state. Second, these are state charges rather than lender charges, so no amount of shopping removes them.
The state tax that is not there
Tennessee repealed the Hall income tax for tax periods beginning January 1, 2021 or later, and the state has never taxed wages or salaries. Net rental income therefore faces no Tennessee individual income tax. That improves what a rental keeps every year you hold it. It does not improve your approval odds, because a DSCR loan was never looking at your personal return in the first place.
What rents do the four big Tennessee metros support?
A lender uses appraised market rent, normally from a Form 1007 rent schedule, not a public benchmark. Still, a public benchmark is useful when you are screening deals from a distance, because it tells you roughly where a submarket sits before you pay for anything. The table below uses HUD's FY 2026 Small Area Fair Market Rents.
| Metro | ZIP | Two-bedroom | Three-bedroom | Four-bedroom |
|---|---|---|---|---|
| Nashville | 37206 | 1,840 dollars | 2,350 dollars | 2,870 dollars |
| Nashville | 37211 | 1,780 dollars | 2,280 dollars | 2,770 dollars |
| Memphis | 38111 | 1,240 dollars | 1,640 dollars | 1,910 dollars |
| Memphis | 38117 | 1,470 dollars | 1,940 dollars | 2,260 dollars |
| Knoxville | 37917 | 1,630 dollars | 2,070 dollars | 2,410 dollars |
| Knoxville | 37918 | 1,440 dollars | 1,820 dollars | 2,130 dollars |
| Chattanooga | 37405 | 1,720 dollars | 2,150 dollars | 2,290 dollars |
| Chattanooga | 37411 | 1,340 dollars | 1,670 dollars | 1,790 dollars |
Use those figures for screening and nothing else. A voucher payment standard and an appraiser's opinion of market rent are different quantities measured for different reasons, and a DSCR file runs on the second one. Where they diverge sharply, that divergence is usually telling you something real about the submarket.
Putting the Tennessee inputs together
A clean Tennessee DSCR file therefore answers four local questions before it answers any national one. What is the zoning, and does it permit the income you are underwriting? Which assessment class will the property land in once your permit is on record? What is the county trustee's current rate per hundred? And is the entity you are vesting in going to owe franchise and excise tax, or qualify out of it?
Answer those four and the ratio is arithmetic. Skip them and the ratio is a guess wearing four decimal places. The full product overview lives on our DSCR loans hub, and the money side of the file sits on our DSCR down payment guide.
DSCR loans in Tennessee: FAQ
Working the ratio and the loan type
What is the minimum DSCR for a Tennessee rental property?
There is no single published minimum, because DSCR loans are not agency loans and every program sets its own floor. The arithmetic is the constant. Divide the property's monthly rent by its full monthly housing cost, meaning principal, interest, taxes, insurance and any association dues. A result of 1.00 means the rent exactly covers the payment with nothing spare. Programs commonly publish floors somewhere between 1.00 and 1.25, and a stronger ratio usually buys better pricing and a higher loan amount. Tennessee does not change that math. What Tennessee changes is the tax figure inside the housing cost, which is where the assessment ratio matters.
Is a DSCR loan in Tennessee a consumer mortgage?
No. A DSCR loan on a non-owner-occupied rental is business-purpose credit. Regulation Z at 12 CFR 1026.3(a)(1) exempts an extension of credit primarily for a business, commercial or agricultural purpose, and the Official Interpretations treat credit on non-owner-occupied rental property as business-purpose. That is why the paperwork looks different from a primary-residence loan. It also means neither the borrower nor a family member may occupy the property.
Short-term rentals in Nashville
Does a short-term rental permit really raise property taxes in Nashville?
Yes, and the effect is large. The Davidson County Property Assessor states that any property with a non-owner-occupied short-term rental permit is classified as commercial at an assessment rate of 40 percent, while owner-occupied permits stay residential at 25 percent. Because the tax bill is assessed value multiplied by the tax rate, moving from 25 to 40 percent raises the taxable base by 60 percent. On a property appraised at 420,000 dollars in Metro's Urban Services District, that is 2,954.70 dollars a year at the residential ratio against 4,727.52 dollars at the commercial ratio. The difference lands inside the housing cost, so it lowers the coverage ratio.
Can I buy a Nashville short-term rental and keep the seller's permit?
In the residential zoning districts, no. Nashville's Codes Department states that new not-owner-occupied permits are not issued in AR2A, R, RS or RM zoned properties. Existing permit holders in those districts may renew, but the permits are not transferable if the property is sold or transferred. Tennessee's Short-Term Rental Unit Act protects units that were operating before a local ordinance, and that protection also ends on sale or transfer. So a buyer cannot assume the seller's short-term rental income survives closing. Underwrite the long-term rent instead unless the zoning independently allows a new permit.
Entities and Tennessee taxes
Should I hold a Tennessee rental in an LLC?
Entity vesting is normal on business-purpose loans, and many DSCR programs expect it. Tennessee adds a specific reason to look closely. LLCs owe Tennessee franchise tax at 0.25 percent of Tennessee net worth and excise tax at 6.5 percent of Tennessee taxable income. The Family-Owned Non-Corporate Entity exemption can remove both. It applies where at least 95 percent of the entity is owned by relatives and at least 66.67 percent of its activity is passive investment income. That category expressly includes rents from residential property. The Department of Revenue limits the residential category to properties with no more than four residential units at any one location. Ask a Tennessee CPA before you rely on it.
Does Tennessee's lack of an income tax help a DSCR borrower?
It helps the hold rather than the approval. Tennessee repealed the Hall income tax for tax periods beginning on or after January 1, 2021, and the state taxes no wage or salary income. Net rental income therefore faces no Tennessee individual income tax. That improves what the property keeps year after year. It does not change qualification, because a DSCR loan qualifies on the property's rent rather than on the borrower's tax returns in the first place. The borrower's personal income is not the measuring stick, so a state income tax rate was never in the calculation.
Closing costs at a Tennessee recording
What Tennessee taxes are due when the loan records?
Two, and both are worth budgeting. Tennessee charges a realty transfer tax of 0.37 dollars per 100 dollars of purchase price. Separately, an indebtedness tax runs 0.115 dollars per 100 dollars of debt, with the first 2,000 dollars of the debt exempt. On a 420,000 dollar purchase with a 315,000 dollar loan, that is 1,554.00 dollars of transfer tax and 359.95 dollars of indebtedness tax. In total that is 1,913.95 dollars of Tennessee recordation tax, before any lender or title charge.
Landlord rules and eviction timing
How long does an eviction take on a Tennessee rental?
The framework depends on the county. Tennessee's Uniform Residential Landlord and Tenant Act applies only in counties whose population exceeded 75,000 in the 2010 federal census. The section names no county itself, but published compilations derive a 17-county list from that threshold, and Davidson, Shelby, Knox and Hamilton are all on it. In those counties a landlord may give a 14-day notice to pay or terminate for nonpayment of rent. Outside them the older Title 66 rules apply instead. The notice period is not the whole timeline, because court scheduling follows it, but the county matters to your vacancy assumption.
Article history
- August 28, 2026. First published. Sources read for this build were the Metro Nashville Codes short-term rental permit-types page, the Davidson County Property Assessor FAQ, and the Metropolitan Trustee's tax calculation page. Also read were the Tennessee Comptroller on assessment ratios and three Tennessee Department of Revenue pages, covering recordation tax, the Hall income tax repeal and the FONCE exemption. The rent and agency figures came from HUD's FY 2026 Small Area Fair Market Rent tables and the Fannie Mae Eligibility Matrix dated August 5, 2026.
- August 28, 2026, same-day correction. An adversarial fact-check caught three errors before this page had been live an hour. The HUD four-bedroom rent for ZIP 37411 read 1,730 dollars against a published 1,790. The landlord-tenant section said the Uniform Residential Landlord and Tenant Act lists its counties by name, which it does not; the 17-county list is derived from the population threshold, and the current statute fixes that threshold to the 2010 federal census rather than any later one. The Nashville zoning list also omitted eight districts and now matches the city's page in full.
- Next scheduled review: the next Davidson County certified tax rate. A new rate moves every property tax figure and both coverage ratios in the assessment table.
About the reviewer
Find out what the rent on your Tennessee rental will actually support
One conversation gets you three things. First, the coverage ratio worked on the property's real tax and insurance figures. Second, a read on whether the zoning supports the income you are counting on. Third, a clear picture of the Tennessee recordation taxes waiting at closing.
Start your fast quoteAcross Valley West: Investors weighing a Tennessee rental against agency financing will find the side-by-side on the conventional site's DSCR library. The underwriting mechanics are broken out on its page on how the coverage ratio is calculated. Once a rental is yours, landlord coverage is a different policy from a homeowner's policy, and that sits with Valley West Insurance, our insurance agency.
Keep reading
- DSCR loans: the full product overview
- What a DSCR file has to show on paper
- How much you need to put down
- Vesting a rental in an LLC
- Pulling equity back out with a cash-out refinance
- The same ratio worked on a Florida rental
- How the numbers land in Texas
Sources: Nashville and Davidson County
- Metro Nashville Codes Department, Short Term Rental Property permit types. The owner-occupied and not-owner-occupied permit rules, the zoning districts each is issued in, and the statement that permits in AR2A, R, RS and RM are not transferable on sale. Page last updated March 13, 2026.
- Davidson County Property Assessor, frequently asked questions. The classification rule quoted above. A non-owner-occupied short-term rental permit puts the property in the commercial class at a 40 percent assessment rate, citing Tennessee Code 67-5-801.
- Office of the Metropolitan Trustee, calculating Davidson County property taxes. The 25 percent residential assessment ratio and the published rates of 2.814 dollars per hundred in the Urban Services District and 2.782 dollars in the General Services District.
Sources: Tennessee statewide
- Tennessee Comptroller of the Treasury, how to figure your tax bill. The statewide assessment ratios set by state law, residential and farm at 25 percent and commercial and industrial at 40 percent, and the appraised-value-times-ratio-times-rate formula.
- Tennessee Department of Revenue, recordation tax rates. The 0.37 dollars per 100 realty transfer tax and the 0.115 dollars per 100 indebtedness tax, with the first 2,000 dollars of debt exempt.
- Tennessee Department of Revenue, Hall income tax. The repeal of the Hall income tax for tax periods beginning January 1, 2021 or later.
- Tennessee Department of Revenue, Family-Owned Non-Corporate Entity exemption. The 95 percent relative-ownership test, the 66.67 percent passive-income test, the treatment of rents from residential property, and the four-unit-per-location limit.
- Tennessee Department of Revenue, franchise and excise tax rates. Franchise tax at 0.25 percent of Tennessee net worth and excise tax at 6.5 percent of Tennessee taxable income.
- University of Tennessee Municipal Technical Advisory Service, summary of the Short-Term Rental Unit Act. The grandfather protection at Tennessee Code 13-7-603 and the events that end it, including sale or transfer of the property.
Sources: HUD rent data and agency ceilings
- U.S. Department of Housing and Urban Development, Fair Market Rents. The FY 2026 Small Area Fair Market Rent figures in the rent table. These are program benchmarks for housing vouchers, not appraised market rents.
- Fannie Mae Eligibility Matrix, dated August 5, 2026. The conventional investment-property ceilings used in the comparison table, 85 percent on a one-unit purchase and 75 percent on a one-unit cash-out refinance.
Sources: agency guidelines and federal regulation
- Fannie Mae Selling Guide B3-4.1-01, minimum reserve requirements. Six months of reserves on an investment-property transaction, plus 2, 4 or 6 percent of the aggregate unpaid balance once you hold multiple financed properties.
- Electronic Code of Federal Regulations, 12 CFR 1026.3, exempt transactions. The business-purpose exemption that keeps a non-owner-occupied rental loan outside the consumer mortgage rules.
Last updated: August 28, 2026. Figures verified against the primary sources listed above on that date.
This article is for general information and is not legal, tax or investment advice. Valley West Mortgage is an independent mortgage lender, NMLS #65506, licensed in Tennessee. Equal Housing Opportunity. Valley West Mortgage is not affiliated with, or acting on behalf of or at the direction of, HUD, the FHA, the VA or any other government agency. HUD data is cited here only as a published public benchmark. DSCR financing is business-purpose credit for non-owner-occupied investment property, and neither the borrower nor a family member may occupy the property. All figures on this page are illustrative. They are not an offer of credit, a rate quote, a preapproval or a commitment to lend, and program terms vary by lender and by property.
