DSCR loans: Qualify based on rental income, not your tax returns

What is a DSCR loan?

DSCR stands for Debt Service Coverage Ratio. Unlike traditional mortgages that qualify you based on your personal income and tax returns, DSCR loans qualify based on the rental income the property generates.

If the property's rent covers the mortgage payment (and then some), you can qualify - regardless of what your personal tax returns show.

How DSCR works

The debt service coverage ratio compares the property's income to its debt obligations:

DSCR = Monthly Rent ÷ Monthly Payment (PITIA)

PITIA includes Principal, Interest, Taxes, Insurance, and HOA (if applicable).

Example:

• Monthly rent: $2,500
• Monthly PITIA: $2,000
• DSCR: 2,500 ÷ 2,000 = 1.25

A DSCR of 1.25 means the property generates 25% more income than needed to cover the payment. Most lenders require a minimum DSCR between 1.0 and 1.25.

Why investors choose DSCR loans

No personal income verification. Your tax returns, W-2s, and employment history don't matter. This is huge for self-employed investors who minimize taxable income.

No DTI calculations. Traditional loans count all your debts against your income. DSCR loans only look at the individual property.

Scale without limits. Conventional loans cap you at 10 financed properties. DSCR loans have no such limit, making them ideal for portfolio growth.

Faster closings. Without the need to verify income and employment, DSCR loans often close faster than conventional investment loans.

LLC and entity ownership. Many DSCR programs allow you to close in an LLC or corporation name, which conventional loans typically don't allow.

DSCR loan requirements

Down payment: Typically 20-25% down. Some programs offer 15% down with strong reserves.

Credit score: Most programs require 660-680 minimum. Higher scores get better rates.

DSCR ratio: Usually 1.0 to 1.25 minimum, depending on the program and other factors.

Reserves: Expect to show 6-12 months of payments in reserves.

Property types: Single-family rentals, 2-4 units, condos, and townhomes. Some programs cover 5+ units.

Rental income documentation: Lease agreements for existing rentals, or market rent analysis for new purchases.

Who benefits most from DSCR loans

Self-employed investors. If your tax returns show little income because of write-offs and depreciation, DSCR loans ignore that and focus on the property.

Investors with multiple properties. If you already have several mortgages, your DTI might be maxed out even though your properties cash flow well.

Growing portfolios. Once you hit the 10-property conventional limit, DSCR becomes your primary option for continued growth.

Investors with complex finances. Multiple businesses, K-1 income, or other situations that make traditional underwriting difficult.

DSCR loan rates and costs

DSCR loans typically carry rates 0.5-1.5% higher than conventional investment property loans. The exact rate depends on:

• Your credit score
• Down payment amount
• DSCR ratio (higher is better)
• Property type
• Loan amount

The higher rate is the trade-off for not having to document income. For many investors, this trade-off makes sense because it lets them qualify for properties they couldn't get conventionally.

DSCR vs. conventional investment loans

Factor	DSCR Loan	Conventional
Income verification	None	Full documentation
DTI limits	None	~45% max
Property limit	None	10 financed
LLC ownership	Often allowed	Rarely allowed
Interest rates	Higher	Lower
Down payment	20-25%	15-25%
Closing speed	Faster	Slower

Common questions

Can I use projected rent for a new purchase? Yes. Lenders use a market rent analysis (often from an appraisal) to determine what the property would rent for.

What if my DSCR is below 1.0? Some programs allow DSCR as low as 0.75, but you'll pay a higher rate and may need a larger down payment.

Can I use DSCR for a property I'll live in? No. DSCR loans are for investment properties only. You must have a separate primary residence.

Do I need landlord experience? Not necessarily, though some programs prefer it. First-time investors can qualify, especially with strong credit and reserves.

Can I refinance into a DSCR loan? Yes. Many investors refinance conventional loans into DSCR loans to free up their DTI for future purchases.

Ready to explore DSCR financing?

If you're a real estate investor looking to grow your portfolio without the limitations of traditional income documentation, DSCR loans might be the right fit.

Get pre-qualified to see what you qualify for, or schedule a call to discuss your investment strategy.