What Is a DSCR Loan?

A DSCR loan, short for Debt Service Coverage Ratio loan, is a financing tool designed for real estate investors. Unlike traditional mortgages, it doesn’t depend on your personal income. Lenders focus on whether the property itself can generate enough rental income to handle the debt payments.

How DSCR Works

The formula is simple: DSCR=Net Operating IncomeTotal Debt Payments\text{DSCR} = \frac{\text{Net Operating Income}}{\text{Total Debt Payments}}DSCR=Total Debt PaymentsNet Operating Income​

For example, if a property earns $2,500 monthly and the mortgage is $2,000, then: DSCR=2,5002,000=1.25\text{DSCR} = \frac{2,500}{2,000} = 1.25DSCR=2,0002,500​=1.25

This means the property makes 25% more than it needs to cover the debt.

Why Choose a DSCR Loan?

  • Fewer income documents
  • Fast approval
  • Works with rental, vacation, or multifamily properties
  • Supports LLC or corporate buyers
  • Self-employed friendly

What Are the Requirements?

Typical DSCR loan requirements include:

  • Minimum DSCR of 1.0 or more
  • Credit score of at least 620
  • Investment or rental properties
  • Up to 80% loan-to-value
  • Possible reserve requirements

Lenders may also review market rents, location, and your real estate experience.

Rates and Terms

Rates vary, but you’ll generally see:

  • Terms from 15 to 30 years
  • Fixed or adjustable rates
  • Qualification based on rental income, not personal taxes
  • Prepayment penalties in some cases

FAQs

What properties qualify?
Most rental, multifamily, and vacation homes.

Do I need tax returns?
No, approval is based on the property’s income.

Can I finance an Airbnb?
Yes, if the rental income supports the loan.

Ready to Get Started?

If you’d like to qualify based on cash flow rather than tax returns, a DSCR loan could be exactly what you need. Contact us to get a quote or apply today.