What Is a DSCR Loan?
A DSCR loan is a mortgage for investment property that lenders approve mainly on the property's cash flow. DSCR stands for debt service coverage ratio: the property's rent divided by its monthly payment (principal, interest, taxes, insurance and any HOA dues). A ratio of 1.25 means the rent covers the payment with 25% to spare.
Because the property's income does the qualifying, you generally don't need to show W-2s, personal tax returns or a debt-to-income ratio. That makes DSCR loans popular with self-employed investors, people who own several rentals, and anyone buying through an LLC.
DSCR loans are for properties you rent out, not homes you live in. They cover single-family rentals, 2-4 unit buildings, condos and townhomes, short-term rentals with some lenders, and small multifamily and mixed-use buildings.
Typical Terms
Rates
From 7%
Down payment
Typically 20-25%
Minimum DSCR
Often 1.0-1.25
Credit score
Usually 620-680+
Terms
30-year fixed, ARMs, interest-only options
Approval decision
24-48 hours
Terms vary by lender, property and credit. Most DSCR loans carry a prepayment penalty that steps down over the first few years.
Who It's For
- Investors buying or refinancing single-family and 2-4 unit rentals
- Self-employed borrowers whose tax returns understate their income
- Investors who hold properties in an LLC
- Owners pulling equity out of a rental with a cash-out refinance
- Investors growing beyond the conventional loan limit on financed properties
What You'll Need
- A DSCR at or above the lender's minimum, often 1.0 to 1.25
- A down payment or equity of about 20-25%
- A credit score that meets the program, usually 620 to 680 or higher
- Cash reserves, often 3 to 6 months of payments
- Leases or an appraiser's market rent estimate
- An investment property, not your primary residence
How It Works
- 1
Share the property and rent
Tell us about the property, the purchase price or value, and the current or market rent.
- 2
We calculate the DSCR
We estimate the ratio from the rent and the full monthly payment, then match you with lenders whose guidelines fit.
- 3
Appraisal and rent review
The lender orders an appraisal, which usually includes a rent schedule to confirm market rent.
- 4
Close in your name or your LLC
Sign the loan documents and close; many DSCR lenders lend directly to an LLC with a personal guarantee.
How to Calculate DSCR
DSCR = monthly rent ÷ monthly payment (PITIA: principal, interest, taxes, insurance and association dues).
Example: a rental that rents for $3,000 a month with a $2,400 total payment has a DSCR of 1.25. A property at 1.0 breaks even; below 1.0, the rent doesn't cover the payment and most lenders ask for a larger down payment or decline.
DSCR Loan vs. Conventional Investment Property Loan
A conventional loan qualifies you on your personal income and debts and usually offers a lower rate. A DSCR loan qualifies the property, closes in an LLC and has no limit on how many financed properties you own, in exchange for a somewhat higher rate and, often, a prepayment penalty. Many investors use conventional loans for their first few rentals and DSCR loans as their portfolio grows.