Tennessee · DSCR rental loans

Tennessee DSCR Loans: Rates, Requirements and the Tax Class That Moves the Ratio

Tennessee DSCR lenders underwrite the house, not your W-2: the loan is sized on its debt service coverage ratio (DSCR), which compares the rent with the full monthly payment. Tennessee's twist is the assessment class. A property with one rental unit is assessed at 25% of its appraised value; one with two or more rental units is assessed at 40%, as commercial property. Inside Memphis, that's the difference between paying about 1.32% and 2.11% of value in property tax every year.

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Tennessee effective property tax rate (2024): 0.52% (41st)
Memphis + Shelby County rate (2026): $5.28 per $100 assessed
Share of value assessed: 25% one rental unit; 40% two or more
Transfer tax + mortgage tax: $0.37 + $0.115 per $100

Tennessee figures from the sources below, updated October 30, 2026. Not an offer.

Tennessee costs

In Tennessee, the number of units sets the tax line before the rate does.

Lenders measure the rent against PITIA: principal, interest, taxes, insurance and association dues. Tennessee's tax line depends on three things: the assessment class, the local rates and the assessor's appraisal.

WORKED EXAMPLE · MEMPHIS SINGLE-FAMILY RENTAL

Purchase price: $240,000
Loan (75% LTV, 7.25% fixed for 30 years): $180,000
Monthly rent: $1,600
Principal & interest: $1,228
Property tax (25% of price × $5.283192 per $100 ÷ 12): $264
Insurance ($1,649 ÷ 12): $137
HOA: $0
PITIA: $1,629

DSCR0.98

Price and rent sit close to Zillow's September 2026 single-family numbers for metro Memphis, and the tax assumes the assessor's appraisal equals the price. $1,600 ÷ $1,629 = 0.98. Assessed at 40%, as a property with two rental units would be, the same tax line becomes $423 and the DSCR 0.89. Interest-only payments lift the ratio to 1.07, and a loan of about $175,800 (73% LTV) reaches 1.00. Closing adds $888 of transfer tax and $204.70 of mortgage tax. Illustrative only — not a rate quote.

Property tax, statewide: Owner-occupied homes paid 0.52% of value in 2024, ranked 41st by the Tax Foundation. County averages that year: Shelby 0.97%, Hamilton 0.62%, Montgomery 0.61%, Davidson 0.57%, Rutherford 0.48%, Knox 0.44% and Williamson 0.37%.
Assessment: 25% or 40%: Residential property is assessed at 25% of appraised value and industrial and commercial property at 40%. The Tennessee Constitution defines residential property with two or more rental units as commercial, and the state Supreme Court upheld that line in 1975. At Memphis's 2026 rates, tax on a duplex runs about $176 a month per $100,000 of value, against $110 for a single-family rental.
Memphis rates: For 2026 the Shelby County rate is $2.702382 per $100 of assessed value and the City of Memphis rate is $2.58081, a combined $5.283192. On a single-family rental assessed at 25%, that equals about 1.32% of appraised value a year; on a duplex at 40%, about 2.11%.
Nashville rates: Davidson County's 2025 rates, the latest the Assessor of Property lists, are $2.814 per $100 of assessed value in the Urban Services District and $2.782 in the General Services District. A single-family rental in the Urban Services District pays about 0.70% of its appraised value a year.
Same rate as an owner-occupant: Tennessee's constitution requires uniform taxation, so a county can't set a lower rate for one class of residents. The breaks that exist go to low-income elderly homeowners, disabled homeowners and disabled veterans through state tax relief, and through the property tax freeze program. If your seller received one of those, their bill understates yours.
The appraisal, not your contract price: Tax is charged on the assessor's appraisal, which comes from a mass reappraisal on a four-, five- or six-year cycle. After each reappraisal the county sets a certified tax rate meant to raise no more from existing property than the year before. Davidson's Urban Services rate fell from $3.254 in 2024 to $2.814 in 2025, and Shelby County's from $3.39 to $2.69, so compare a rate with the values it applies to.
When the bill is due: County property taxes are due the first Monday in October and become delinquent on March 1 of the following year. A city that collects its own taxes may use different dates. Lenders use the annual bill divided by 12.
Insurance: Tennessee's average HO-3 homeowners premium was $1,649 in 2023, about 5% below the $1,737 national average. A landlord policy is rated differently from a homeowner's, so quote the actual property before you settle on a ratio.
Condo insurance: Tennessee condo unit-owner (HO-6) policies averaged $592 in 2023, against $658 nationally. The premium comes on top of your association dues, and both go into PITIA.
Association dues: Tennessee had about 5,400 community associations in 2024, with 757,000 residents in 309,000 units, against 50,100 associations in Florida. Where a rental has an HOA, get the dues, any special assessment and the leasing rules in writing; every $100 of monthly dues lowers the Memphis example's ratio by about 0.06.
Transfer tax: Tennessee taxes the deed at $0.37 per $100 of the price or the property's value, whichever is greater, and the grantee, meaning you as buyer, pays it: $888 on a $240,000 purchase.
Mortgage tax: Recording a deed of trust costs $0.115 per $100 of debt above the first $2,000, owed by the borrower: $204.70 on a $180,000 loan. A refinance that records a new deed of trust owes it again.

Markets

Jackson, Kingsport and Memphis lead on yield; Nashville trails at 6.2%.

Each row pairs Zillow's single-family rent with its single-family value for the same metro. Gross yield divides a year's rent by the home's value and ignores every expense. Memphis's 7.9% beats the US figure, but its single-family tax runs about 1.32% of value a year, while Nashville's Urban Services rate takes about 0.70% from a 6.2% yield.

Metro	Single-family rent	Single-family value	Gross yield	Rent change, 12 mo
Nashville	$2,362	$457,000	6.2%	+2.3%
Memphis	$1,598	$241,000	7.9%	+2.4%
Knoxville	$2,055	$365,000	6.8%	+1.7%
Chattanooga	$1,872	$319,000	7.1%	+1.8%
Clarksville	$1,612	$290,000	6.7%	+2.7%
Kingsport	$1,622	$244,000	8.0%	+3.7%
Johnson City	$1,832	$283,000	7.8%	+3.7%
Jackson	$1,599	$202,000	9.5%	+3.7%
United States	$2,266	$368,000	7.4%	+3.1%

Swipe the table to see every column →

Zillow Research, September 2026, downloaded October 30, 2026: the Observed Rent Index (ZORI) for single-family homes, smoothed, and the Home Value Index (ZHVI) middle tier for single-family homes, smoothed and seasonally adjusted, by metro and nationally. Gross yield = 12 × rent ÷ value. Rents are measured on listed rentals and values across all homes, so the yield compares markets; it isn't the return on any particular house.

Tennessee rules

Tennessee rules to know before you buy a rental.

Foreclosure is a trustee's sale after about 20 days of advertising: Most Tennessee foreclosures are nonjudicial: the deed of trust's power of sale lets the trustee sell without a court case. Since July 1, 2025, the sale is advertised twice in a local newspaper, down from three times, plus a continuous 20-day online posting by a registered internet posting company. State law gives a two-year right of redemption after the sale, but deeds of trust often waive it, and if a sale brings materially less than fair market value, a deficiency is limited to the debt minus that value. In the first half of 2026, 3,001 Tennessee properties had a foreclosure filing, one in every 1,048 housing units.
Single-family rentals: a classification fight in progress: An August 2025 Attorney General opinion said a stand-alone single-family home rented for more than 30 days generally will be classified as residential, but added that there's no bright-line rule and that courts have treated separately parceled homes in one rental development as commercial. Rutherford County's assessor says the Comptroller's office has pressed the county to reclassify some long-term single-family rentals as commercial; there, a $420,000 house would owe about $1,560 of county tax as residential and about $2,500 as commercial. On July 24, 2026, in a case brought by two LLCs, a judge reversed Sumner County's commercial classification of 14 single-family rental homes. Check the class on every assessment notice and appeal if it's wrong.
Underwrite small multifamily at 40%: Any property with two or more rental units is commercial for tax purposes, so run a duplex, triplex or fourplex at 40% assessment from the first spreadsheet. A duplex where the owner lives in one half has only one rental unit, and the same 2025 opinion said it generally will be residential, but a DSCR loan can't finance a property you live in.
Nashville short-term rentals: Metro Nashville requires a short-term rental permit before you list. New non-owner-occupied permits are issued only in mixed-use, office, commercial and downtown districts, not in AR2a, R, RS or RM residential zones, and existing permits in those zones can be renewed but don't transfer when the property is sold. Owner-occupied permits are limited to natural persons who live on the property, so an LLC can't hold one, and no guest may stay more than 30 consecutive days.
Memphis short-term rentals: Memphis has required a short-term rental permit from its Division of Public Works since July 1, 2023: $300 to apply and $150 a year to renew as reported when the rules took effect, with the permit number in every listing, at least $1 million of fire, hazard and liability coverage and a responsible agent within 50 miles. In March 2026, presenters told the city council that 90% of Memphis short-term rentals had no permit, and a resolution calling for stricter enforcement advanced. Confirm the current rules first.
Licensing and the business-purpose line: Tennessee's residential mortgage licensing law is built on the residential mortgage loan, which the state Attorney General has quoted as a loan primarily for personal, family or household use secured by a dwelling. Investor lenders document each loan's business purpose, including your written statement that neither you nor your family will occupy the property.
Closing in an LLC: DSCR lenders generally allow LLC borrowers and several require one, usually with a personal guarantee. The July 2026 Sumner County case was brought by two LLC owners, so keep leases and records that show each house's use in case you need to appeal a classification. For entity and tax questions, ask a Tennessee CPA or attorney.
For rentals only: DSCR money is for houses leased to tenants. Moving in yourself, or putting a relative in one side of a duplex, turns it into an owner-occupied purchase that needs a residential mortgage.

Tennessee DSCR loan questions

Is a Tennessee duplex taxed differently from a house?

Yes. Tennessee assesses property with two or more rental units as commercial, at 40% of appraised value, while a single-family rental is normally residential at 25%. Inside Memphis, at 2026 rates, that's about 2.11% of value a year for a rented duplex against 1.32% for a rented house. On a $240,000 property the difference is about $159 a month in PITIA.

Are single-family rentals in Tennessee taxed as commercial property?

Normally not. A house with one rental unit is generally assessed as residential at 25%, and a 2025 Attorney General opinion agreed for long-term rentals, while saying there's no bright-line rule. Some single-family rentals in seven counties were already taxed at the commercial rate as of March 2026, and in July 2026 a judge reversed one Sumner County reclassification. Check your assessment notice every year and appeal an incorrect class.

What taxes do I pay at closing on a Tennessee rental?

Two state recording taxes. The transfer tax is $0.37 per $100 of the price or value, whichever is greater, and the buyer pays it. The mortgage tax is $0.115 per $100 of the loan above $2,000, paid by the borrower. On a $240,000 purchase with a $180,000 loan, that's $888 plus $204.70. Title insurance, lender fees and escrows come on top.

Can I run a short-term rental in Nashville with a DSCR loan?

Only in the right zone. Metro Nashville issues new non-owner-occupied short-term rental permits only in mixed-use, office, commercial and downtown districts, not in its residential R, RS, RM or AR2a zones, and an existing permit doesn't transfer to a buyer. Owner-occupied permits aren't an option, since a DSCR loan can't finance a home you live in. Check the address's zoning before you offer.

What DSCR do lenders require on a Tennessee rental?

Each lender sets its own floor. In October 2026, the floors lenders published sat at 1.00–1.05 for the strictest and 0.75–0.80 for others, and a few lenders offered no-ratio loans with more equity. Typical published purchase leverage was 80% of price, or 85% for borrowers with 720–740 credit and up. In the Memphis example, 75% leverage gives a 0.98 ratio.

Can I live in a Tennessee property bought with a DSCR loan?

No. DSCR financing is for business purposes: the property must be rented to others, and neither you nor your family may live there. That includes living in one half of a duplex while renting the other. If you'll occupy any part of the property, apply for a residential mortgage instead.

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Sources and methodologyUpdated October 30, 2026

Figures are market ranges from published lender terms and public data on the dates shown. They describe the market and are not an offer. Your terms depend on the property, your credit and your experience.